Act202-project final. tea stall.docx

Group project

Master Budget of “A Tea Stall” 1

Spring - 2016 Course: Act-202 Section – 22

Submitted to: Mr. Lecturer Department of Accounting & Finance, North South University.

Submitted by: Ashab Abid Shad Md. Akif khan Saifur Rahman Aniruddha Sen

1420165030 1421033030 1421148030 1231174630

Date: 05.04.16

Table of Content

Serial

Contents

Page Numbers

1

Introduction

4

2

Letter of Submission

5

3

Executive Summary

6

4

Sales Budget

7

5

Production Budget

9

6

Direct Materials Budget

10

7

Direct Labor Budget

12

8

Manufacturing Overhead Budget

13

9

Ending Finished Goods inventory Budget

14

10

Selling and Administrative Budget

15

11

Cash Budget

16

12

Budgeted Income Statement

18

13

Budgeted Balance Sheet

19

14

References

20

Introduction “Alauddin Tea Stall” is one of the most popular tea stall in Bashundhara R/A. It is a small business owned by a person named Alauddin. It is situated behind Apollo Hospitals near Dutch Bangla Bank’s Vatara Branch. After eviction of illegal footpath tea

stalls by police this stall has become one of the major tea stall in that area. Everyday all most three hundred people come to this stall to drink tea. The owner open the stall at 6 a.m. and close it around 12 a.m. The stall is generally run by its owner and an employee who works under him. Along with tea there biscuits, bread and cigarettes available. As this stalls popularity is increasing day by day some other tea stall owners have removed their stall from that place. As a result, “Alauddin Tea Stall” is doing an excellent business out there. That’s why we prepared this project on that on the basis of that stall.

Letter of Submission

Respected Sir,

It is been a great pleasure for us to submit this project on Master Budgeting of a small business. This report has been prepared by a group of 4 people as a part of this course. We have tried our best to implement our learning from this course. It is prepared after doing some research and gathering information. We tried to include all the required information in this report. We would like to thank you for giving us an opportunity to survey, analyze and enhance our knowledge and specially for helping us to understand the master budgeting.

Sincerely, Ashab Abid Shad 1420165030 Md. Akif khan 1421033030 Saifur Rahman 1421148030 Aniruddha Sen 1231174630

Executive Summary This project is based on the master budgeting of a tea stall named “Alauddin Tea Stall”. It was focuses on the

number of separate but independent budgets that formally lay out the businesses sales, production, and financial goals. The master budget culminates in a cash budget, a budgeted income statement, and a budgeted balance sheet. At first, we did sales budget which contains the stall’s expected sales. Then, we did production budget which contains the number of the stalls estimated production. After that, we prepared the direct materials budget which contains the estimation of future direct materials. Then, we did direct labor budget which shows the direct labor hours required to satisfy the production budget. Later, we prepared manufacturing overhead budget which lists all costs of production other than direct materials and direct labor. Then, we calculated the ending finished goods inventory budget which gives us all the data to compute unit product cost. After completing that, we calculated the selling and administrative budget which gives budgeted expenses for areas other than manufacturing. Then, we prepared the cash budget, which is composed of four major sections. After that, we prepared the budgeted income statement which is which shows the revenues, expenses and income. At last, we prepared the budgeted balance sheet which estimates the businesses assets liabilities and stockholder’s equity.

Overview of Master Budget

geted unit

s ing price per

al Sales

inning A/R

quarter sales

quarter sales

quarter sales

Sales Budget: The master budget consists of a number of independent budgets that formally lay out the company’s sales, production and financial goods. The master budget culminates in a cash budget, a budgeted income statement and budgeted balance sheet. Sales Budget: The first step in the budgeting process is the preparation of sales budget which is a detailed schedule showing the expected sale for the budget period. In a sales budget, we get budgeted units sales, budgeted selling price per unit and accounts receivable will be collected as follows. Alauddin Tea Stall Sales Budget For the Year Ended December 31, 2017 Quarter 1

Quarter 2

Quarter 3

Quarter 4

Year

27000

25000

30000

26000

108000

6

6

6

6

6

162000

150000

180000

156000

648000

Expected Cash Collection 60000 145800

60000 16200 135000

162000 15000 162000

150000 18000

180000

quarter sales

al cash

205800

151200

177000

140400

140400

158400

692400

ection

geted unit

s sired units of

I

Cash collection from last year’s fourth quarter sales: 162000*90%; 162000*10% 150000*90%; 150000*10% 180000*90%; 180000*10% 156000*90% Uncollected fourth-quarter sales 15600.

Production Budget: The production budget is prepared after the sales budget. The production budget lists the number of units that must be produced to satisfy the sales needs and to provide for the desired ending finished goods inventory. Alauddin Tea Stall Production Budget For the Year Ended December 31, 2017 Quarter 1

Quarter 2

Quarter 3

Quarter 4

Year

27000

25000

30000

26000

108000

5000

6000

5200

4100

4100

l needs

ts of BFGI

ires

32000

31000

35200

30100

112100

3500

5000

6000

5200

3500

28500

26000

29200

24900

108600

uction in units

Twenty percent of next quarter’s sales. For example, the second quarter sales are 25000 units. Therefore the desired ending inventory of finished goods for the first quarter would be 20%*25000 = 5000 units. The beginning inventory in each quarter is the same as the prior quarters ending inventory.

Direct Material Budget: A direct materials budget is prepared after the production requirements have been computed. This budget details the raw materials that must be purchased to fulfill the production budget and to provide for adequate inventories.

uired Unit

uction s of RM needed

cup s RM needed

esired units ERMI

al units of RM

ded ts of BRMI

s of RM to be

Alauddin Tea Stall Direct Materials Budget For the Year Ended December 31, 2017 Quarter 1

Quarter 2

Quarter 3

Quarter 4

Year

28500

26000

29200

24900

108600

4

4

4

4

4

114000

104000

116800

99600

434400

10400

11680

9960

8500

8500

124400

115680

126760

108100

442900

7200

10400

11680

9960

7200

117200

105280

115080

98140

435700

hased of RM per unit of RM to be

0.5

0.5

0.5

0.5

0.5

58600

52640

57540

49070

217850

hased

10% of the next quarter’s production needs. For example, the second-quarter production needs are 104000. Therefore, the desired ending inventory for the 1st quarter would be 10%*104000=10400.

Expected Cash Distribution

nning A/P

60000

uarter purchases

29300

quarter purchases

60000 29300 26320

quarter purchases

58600 26320 28770

quarter purchases

al Cash

89300

55620

55090

52640 28779

57540

24535

24535

53305

253315

ursement for

erials

Cash payments for last year’s fourth-quarter purchases: 58600*50%; 58600*50% 52640*50%; 52640*50% 57540*50%; 57540*50% 24535*50%. Unpaid 4th quarter purchases.

Direct Labor budget:

The direct labor budget shows the direct labor hours required to satisfy the production budget. By knowing in advance how much labor time will be needed throughout the budget year, the company can develop plants to adjust the labor force as the situation requires. Alauddin Tea Stall Direct Labor Budget For the year ended December 31, 2017

uired

duction in units hours per unit

al DL hours

ded cost per hour

al DL cost

Quarter 1

Quarter 2

Quarter 3

Quarter 4

Year

28650

26000

29200

24900

108600

0.2

0.2

0.2

0.2

0.2

5700

5200

5840

4980

21720

12

12

12

12

12

68400

62400

70080

59760

260640

This budget assumes that the direct labor work force will be fully adjusted to the total direct labor hours needed each quarter.

Manufacturing Overhead Budget: The MOH budget lists all costs of production other than direct material and direct labor. Alauddin Tea Stall Manufacturing Overhead Budget For the Year Ended December 31, 2017

Quarter 1

Quarter 2

Quarter 3

Quarter 4

Year

5700

5200

5840

4980

21720

s able MOH

2

2

2

2

2

able MOH

11400

10400

11680

9960

43440

d MOH

15000

15000

15000

15000

15000

al MOH

26400

25400

26680

24960

58440

5000

5000

5000

5000

20000

21400

20400

21680

19960

38440

geted DL

preciation

h

ursements for

H

al MOH (a)

58440

geted DL

21720

s (b) R for the

2.69

{(a)/(b)}

Ending Finished Goods Inventory Budget: This budget helps us to determine cost of goods sold on the budgeted income statement and then to value ending inventories on the budgeted balance sheet. The cost of unsold units is computed in the ending finished goods inventory budget. Alauddin Tea Stall Ending Finished Goods Inventory Budget For the Year Ended December 31, 2017 Item

Quantity

Cost

Total

4

0.5

2

ect labor

0.2

12

2.4

nufacturing Overhead

0.2

2.69

0.54

duction cost per unit:

ect materials

t product cost (per cup)

4.94

geted finished goods

entory: GI in units

4100

t product cost

4.94

GI in dollars

20246.30

Selling and Administrative Expense Budget: The selling and administrative expense budget lists the budgeted expenses for areas other than manufacturing. In large organizations, this budget would be a compilation of many smaller, individual budgets submitted by department heads and other persons responsible for selling and administrative expenses. Alauddin Tea Stall Selling and Administrative Expense Budget For the Year Ended December 31, 2017

geted unit sales

iable selling and administrative expense per unit

iable selling and administrative expense

Quarter 1

Quarter 2

Quarter 3

Quarter 4

Yea

27000

25000

30000

26000

1080

1.2

1.2

1.2

1.2

32400

30000

36000

31200

1294

20000

20000

800

1.

ed selling and administrative expenses:

re rent

20000

20000

loyee salary

7000

7000

7000

7000

280

nder

6000

6000

6000

6000

240

ol

1000

1000

1000

1000

400

al fixed selling and administrative expense

34000

34000

34000

34000

1360

al selling and administrative expense

66400

64000

70000

65200

2656

preciation

h disbursements for selling and administrative

enses

Cash Budget:

6500

6500

6500

6500

260

59990

57500

63500

58700

2396

The cash budget is composed of four major sections: 1 The receipts section. 2 The disbursements section. 3 The cash excess or deficiency section.

The financing section of the cash budget details the borrowings and principal and interest repayments projected to take during the budget period. The cash balances at both the beginning and end of the year may be adequately even though a serious cash deficit occurs at some point during the year. The disbursements section of the cash budget includes some types of cash disbursements. The ending cash balance foe each period is computed by taking the excess of cash available over disbursements plus the total financing.

nning cash balance

sh Receipts

Alauddin Tea Stall Cash Budget For the year ended December 31, 2017 Quarter 1

Quarter 2

Quarter 3

Quarter 4

Year

350000

243700

142160

56720

350000

Collections from

162000

150000

180000

156000

648000

customer al Cash Available

512000

393700

322160

212720

998000

DM

118600

111240

110180

106610

502380

DL

68400

62400

70080

59760

260640

MOH

21400

20400

21680

19960

38440

sh disbursements

Selling and

59990

57500

63500

58700

239600

administrative al cash

268300

251540

265440

245030

1041060

ursements ess of cash

243700

142160

56720

-32310

-43060

80000

80000

80000

80000

51690

51690

lable over

ursements ncing Borrowings(At

innings of quarter) Repayments Interest

al financing

ng cash balance

243700

142160

56720

Budgeted Income Statement: All of the revenues and income statement shown on the budgeted income statement comes from the in the beginning balance sheet. Alauddin Tea Stall Budgeted Income Statement For the Year Ended December 31, 2017 Sales

648000

- Cost of goods sold

324000

Gross Margin

324000

- Selling and administrative expenses

201520

Net operating income

122480

-Interest expense

1798

Net income

120682

Budgeted Balance Sheet: The budgeted balance sheet is developing using data from the balance sheet from the beginning of the budget period and data contained in the various schedules.

Alauddin Tea Stall Budgeted Balance Sheet December 31, 2017 Assets Current assets: Cash Accounts receivable Raw materials inventory Finished goods inventory Total current assets Land and equipment: Land Equipment Net land and equipment Total assets Liabilities: Accounts payable Retained earnings Total liabilities

17690 46800 4250 20246

20000 5000

13678.32 1000308.68

References: 1 Alauddin Tea Stall 2 Managerial Accounting, 15th Edition by Garrison, Noreen and Brewer. 3 Invesotpedia.com