QuestionQuestion

You are a manager for Peyton Approved, a pet supplies manufacturer. This responsibility requires you to create budgets, make pricing decisions, and analyze the results of operations to determine if changes need to be made to make the company more efficient. You will be preparing a budget for the quarter July through September 2014. You are provided the following information. The budgeted balance sheet at June 30, 2014

Peyton Approved
Budgeted Balance Sheet
30-Jun-15
ASSETS
Cash $42,000
Accounts receivable 259,900
Raw materials inventory 35,650
Finished goods inventory 241,080
Total current assets 578,630
Equipment $720,000
Less accumulated depreciation 240,000 480,000
Total assets $1,058,630

LIABILITIES AND EQUITY
Accounts payable $63,400
Short-term notes payable 24,000
Taxes payable 10,000
Total current liabilities 97,400
Long-term note payable 300,000
Total Liabilities 397,400
Common stock $600,000
Retained earnings     61,230
Total stockholders’ equity 661,230
Total liabilities and equity $1,058,630


1. Sales were 20,000 units in June 2015. Forecasted sales in units are as follows: July, 18,000; August, 22,000; September, 20,000; October, 24,000. The sales price per unit is $18.00 and its total product cost is $14.35 per unit.
2. The June 30 finished goods inventory is 16,800 units.
3. Going forward, Company policy calls for a given month's ending finished goods inventory to equal 70% of the next month's expected unit sales
4. The June 30 raw materials inventory is 4,600 units. The budgeted September 30 raw materials inventory is 1,980 units. Raw materials cost $7.75 per unit. Each finished unit requires 0.50 units of raw materials. Company policy calls for a given month's ending raw materials inventory to equal 20% of the next month's materials requirements.
5. Each finished unit requires 0.50 hours of direct labor at a rate of $16 per hour.
6. Overhead is allocated based on direct labor hours. The predetermined variable overhead rate is $1.35 per direct labor hour. Depreciation of $20,000 per month is treated as fixed factory overhead.
7. Monthly general and administrative expenses include $12,000 administrative salaries and 0.9% monthly interest on the long-term note payable.
8. Sales commissions are 12% of sales and are paid in the month of the sales. The sales manager's monthly salary is $3,750 per month.
9. The company expects 40% of sales to be for cash and the remaining 60% on credit. Receivables are collected in full in the month following the sale (none is collected in the month of the sale).
10. All raw materials purchases are on credit, and no payables arise from any other transactions. One month's raw materials purchases are fully paid in the next month.
11. Dividends of $25,000 are to be declared and paid in August.
12. Income taxes payable at June 30 will be paid in July. Income tax expense will be assessed at 35% in the quarter and paid in October.
13. Equipment purchases of $120,000 are budgeted for the last day of September.

Operating Budget
Create an operating budget
a) Prepare a sales budget. Ensure accuracy of data. [ACC-202-02]
b) Annotate your sales budget line items. Why have you made the choices you have made? What information informed your decision for each item? [ACC-202-01]
c) Prepare a production budget. Ensure the accuracy of your data. [ACC-202-02]
d) Annotate your production budget line items. Why have you made the choices you have made? What information informed your decision for each item? [ACC-202-01]
e) Prepare a manufacturing budget. Ensure the accuracy of your data. [ACC-202-02]
f) Annotate your manufacturing budget line items. Why have you made the choices you have made? What information informed your decision for each item? [ACC-202-01]
g) Prepare a selling expense budget. Ensure the accuracy of your data. [ACC-202-02]
h) Annotate your selling expense budget line items. Why have you made the choices you have made? What information informed your decision for each item? [ACC-202-01]
i) Prepare a general and administrative expense budget using appropriate costing methods. [ACC-202-02]
j) Annotate your line items. Why have you made the choices you have made? What information informed your decision for each item? [ACC-202-01]

2. Budget Variance Analysis
The actual quantity of material used was 31,000 with an actual cost of $7.75 per unit. The actual labor hours were 33,000 with an actual rate per hour of $15.
a) Develop a variance analysis including a budget variance performance report and appropriate variances for materials, labor, and overhead. [ACC-202-01]
b) Annotate each variance. What does the variance tell you? [ACC-202-01]
c) What needs to be investigated to determine the reason for the variance? Why? [ACC-202-01]

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