Master Budget) for Vista for the year ended December 31, 2008, including the following schedules:
1. Sales Budget
2. Production Budget
3. Direct Materials Budget
4. Direct Labor Budget
5. Manufacturing Overhead Budget
6. Selling and Administrative Expense Budget
7. Budgeted Financial Statements
Required:
1. Your task is to complete a 1-2 page typed Word Document & a 2-3 slide PowerPoint Slide defining your position as a management accountant on what modifications that can be made with the budget to increase Net Income other than increasing sales based on the budgets you produced. There should be a minimum of 6-8 actions this company can take to reduce areas and make other modifications to increase revenue and decrease costs. The modifications should be based on the completed Budget and the details provided below. If you cannot tie the modifications to the budget, then it is not acceptable to a CEO... Do not make up wild assertions. The data should support your modifications and there should be sufficient details to support the modifications. NOTE: "Sales cannot be increased to maintain our competitive nature".
1-3 page
Single spaced
Times New Roman or Ariel
Font size: 12
A title page is required to be included with your name, class and date.
No reference page is needed as you should not be copying or paraphasing in general.
The PowerPoint should be brief and use pictures and other multimedia to bring home the point that is being made to the Budget committee.
Your submission will be submitted through TurnitIn.com
NOTE: If the paper is not a minimum of 1 complete single spaced page, it will not be evaluated and will receive a 0%.
These are details you will need as you use Successful Thinking to conceptualize and present your modifications.
Sales forecast:
For the year ended December 31, 2007: 475,000 units at $33.00 each*
For the year ended December 31, 2008: 500,000 units at $33.00 each
For the year ended December 31, 2009: 500,000 units at $33.00 each
*Based on actual sales to date and budgeted sales for the duration of the year.
The Company, needing the budget completed, has approached you, a management accounting student and your communications of the company have revealed the following information:
1. Sales correspond with gift-giving holidays. January, March, May and June are the slowest months with only 1% of sales for each month. Sales pick up over the summer with July, August and September each contributing 2% to the total. In February boosts sales to 5%, and in April accounts for 10%. As the holidays shopping picks up momentum, winter sales start at 35% in October, move to 5% in November and then peak at 35% in December. This holiday, sales is not expected to change for the next two years.
2. From previous experience, it has been determined that an ending inventory equal to 30% of the next month’s sales is required to fit the buyer’s demands.
3. Because sales are seasonal, the company rents an additional storage facility from September to December to house the additional inventory on hand with a cost of $15,000 per month, payable at the beginning of the month.
4. There is only one type of raw material used in the production of Rattlers. Syon is a very compact material that is purchased in powder form. Each Rattler requires 5 kilograms of Syon, at a cost of $0.45 per kilogram. The supplier of SYON tends to be somewhat unpredictable so Vista finds it necessary to preserve an inventory balance equal to 40% of the following month’s production needs as a safeguard against stock-outs. Vista pays for 20% of a month’s purchases in the month of purchase, 45% in the following month and the residual 35% two months after the month of purchase. There is no early payment discount.
5. Beginning accounts payable will consist of $227,418.50 arising from the following estimated direct material purchases for November and December of 2007:
SYON purchases in November 2007: $232,875.00
SYON purchases in December 2007 $147,563.50
6. Vista’s manufacturing process is highly computerized, so their direct labor cost is low. Employees are paid on a per unit basis. Their total pay each month is, therefore, dependent on production volumes and averages $9.50 per hour. This rate already includes the employer’s portion of employee benefits. All payroll costs are paid in the period in which they are incurred.
Each unit spends a total of 19 minutes in production.
7. Due to the similarity of the equipment in each of the production stages and the company’s focus on a single manufactured good, manufacturing overhead is allocated based on volume (i.e. the units produced). The unit variable overhead manufacturing rate is $1.30, consisting of: Utilities--$0.50; Indirect Materials--$0.30; Plant maintenance--$0.30; environmental fee--$0.14; and Other--$0.06.
8. The fixed MOH costs for the entire year are as follows:
Training and development $ 43,200
Property and business taxes 39,000
Supervisor’s salary 149,400
Amortization on equipment 178,800
Insurance 96,000
Other 107,600
$ 614,000
The property and business taxes are paid on June 30 of each year. The expected payment for next year is $43,850.
The annual insurance is paid at the beginning of September each year. There should be no change in the premium from last year.
All other “cash-related” fixed manufacturing overhead costs are incurred evenly over the year and paid as incurred.
The company uses straight line method of amortization.
9. Selling and administrative expenses are known to be a mixed cost; however, there is a lot of uncertainty about the portion that is fixed. Previous year’s experience has provided the following information:
Lowest level of sales: 375,000 units Total Operating Expenses: $778,710
Highest level of sales: 750,000 units Total Operating Expenses: $1,022,460
These costs are paid in the month in which they occur. Not included in the above expenses is bad debt expense.
10. Sales are on a cash and credit basis, with 55% collected during the month of the sale, 35% the following month, and 9.5% the month thereafter. ½ of 1% of sales are considered uncollectible (bad debt expense).
11. Sales in November and December 2007 are expected to be $700,000 and $1,500,000 respectively. Based on the above collection this will result in Accounts Receivable of $734,000 at December 31, 2007 which will be collected in January and February, 2008.
12. During the fiscal year ended December 31, 2008, Vista will be required to make monthly income tax installment payments of $5,000. Outstanding income taxes from the year ended December 31, 2007 must be paid in April 2008. Income tax expense is estimated to be 25% of net income. Income taxes for the year ended December 31, 2008, in excess of installment payments, will be paid in April, 2009.
13. Vista is planning to acquire additional manufacturing equipment for $308,300 cash. 40% of this amount is to be paid in November 2008, the rest, in December 2008. The manufacturing overhead costs shown above already include the amortization on this equipment.
14. An arrangement has been made with the local bank that if Vista maintains a minimum balance of $22,000 in their bank account, they will be given a line of credit at a preferred rate of 6% per annum. All borrowing is considered to happen on the first day of the month, repayments are on the last day of the month. All borrowings and repayments from the bank should be in multiples of $1,000 and interest must be paid at the end of each month. Interest is calculated on the balance at the beginning of the month, which includes any amounts borrowed that month.
15. Vista Inc.. has a policy of paying dividends at the end of each quarter. The president tells you that the board of directors is planning on continuing their policy of declaring dividends of $48,000 per quarter.
16. A listing of the estimated balances in the company’s ledger accounts as of December 31, 2007 is given below:
Assets
Cash $ 83,365
Accounts receivable 734,000
Inventory-raw materials 9,000
Inventory-finished goods 9,125
Prepaid Insurance 64,000
Prepaid property and business taxes 19,200
Capital assets (net) 724,000
Total assets $1,642,690
Liabilities and Shareholders’ Equity
Accounts payable $ 208,407
Income taxes payable 21,500
Capital stock 1,000,000
Retained Earnings 412,783
Total liabilities and shareholders’ equity $1,642,690