Part 1
Answer the following questions
a. Prepare the 2018 revenue budgets (in dollar)
b. Prepare the production budget (in units)
c. Prepare the direct materials usage and purchase budgets for 2018
d. Prepare the direct manufacturing labour budget for 2018
e. Prepare the manufacturing overhead budget for 2018
f. What is the budgeted manufacturing overhead rate for 2018
g. What is the budgeted manufacturing overhead cot per output unit in 2018
h. Calculate the unit cost of desk in closing inventory on 31 December 2018
i. Prepare the ending inventory budget for both direct materials and finished goods for 2018
j. Prepare cost of good sold budget for 2018
k. Prepare the budgeted income statement for the year ending 31 December 2018
l. Prepare the budgeted balance sheet as of 31 December 2018

 

Part 2

 

Suppose Exhibition Furniture decides to incorporate continues improvement into its budgeting process. You are required to provide recommendation (memo) to the CEO two areas where Exhibition Furniture could incorporate continues improvement into the budget schedules in requirement 1. To answer this question, you are required to provide minimum 400 words recommendation to the CEO. Apply your comprehensive knowledge in management accounting such as knowledge about company strategies in reducing cost in materials, labour and manufacturing overhead. You may also include analysis of nonmanufacturing cost such as marketing cost and consider the companystrategic planning to increase sales or profit targets. Please choose the best strategy among those strategies and provide your reasons. Please put some appropriate references.

 

Answer:

Part a Revenue budget  2018
	Particulars	Amounts
	Number of units sold	2000
	selling price per unit	$              800.00
	Total Sales Revenue	$  16,00,000.00
Part b

 

 

Production Budget in units
Particulars	Amounts
Expected Sales	2000
Add: Closing Stock of desk	300
Less: Opening Stock of Desk	-200
Units required to be produced	2100

 Part c

Direct material usage and purchase  budget
Direct material usage	Quantity
No. of desks	2100
Square meters per desk	3
No. of Legs per desk	4

 

Direct material usage	Oaks tops	Oaks Legs
Direct material requirement	6300	8400
	(2100*3)	(2100*4)

 

Purchase Budget
	Oaks tops	Oaks Legs
Direct material usage	6300	8400
Add: Closing Raw Material Inventory	24	80
Material Required	6324	8480
Less: Opening Raw Material Inventory	-40	-100
Required Purchases	6284	8380

 Part d

Direct Manufacturing Labour budget
Particulars	Amounts
Number of desks required	2100
Number of hours required per desk	3
Total hours required	6300
Rate per hour	$                20.00
Total Labour cost	$    1,26,000.00
Part e Manufacturing overhead budget
Particulars	Amounts
Number of desks to be produced	2100
Variable manufacturing cost (2100*20*3)	$    1,26,000.00
Fixed manufacturing cost	$        50,000.00
Total manufacturing overhead	$    1,76,000.00

Part f

Manufacturing overhead rate
Particulars	Amounts
Total manufacturing overhead	$    1,76,000.00
Total hours required	6300
Manufacturing overhead rate per hour	$                27.94

Part g

Manufacturing overhead cost per unit in 2018
Total manufacturing overhead	$    1,76,000.00
Number of desks to be produced	2100
Manufacturing overhead cost for output	$                83.81

Part h

Value of closing stock unit
Direct Material:		Unit cost
Oak Tops (120*3)	360
Oak Legs (7*4)	28	$           388.00
Direct Labour (55*3)		$           165.00
Manufacturing overhead		$             83.81
Value of closing stock unit		$           636.81

 

Part i

Closing Inventory budget
Direct Material Inventory	Units	Rate	Amount
Oak Tops	24	$           120.00	$       2,880.00
Oak Legs	80	$               7.00	$           560.00
Finished Goods Inventory
Desks	300	$           636.81	$ 1,91,042.86

Part j

Cost of Goods Sold

		Oaks tops	Oaks Legs	Total
	Opening Finished goods inventory			$     80,000.00
Add	Direct Material
	Opening Stock	$          4,000.00	$           500.00
	Add: Direct Material Purchases	$    7,54,080.00	$     58,660.00
	Cost of direct material available	$    7,58,080.00	$     59,160.00
	Less: Closing Stock	$          2,880.00	$           560.00
	Cost of direct material in production	$    7,55,200.00	$     58,600.00	$ 8,13,800.00
Add	Direct Labour			$ 3,46,500.00
Add	Manufacturing cost
	Variable		$ 1,26,000.00
	Fixed		$     50,000.00	$ 1,76,000.00
Less	Closing Inventory			$ 1,91,042.86
	Cost of goods sold			1225257.143

Part k

Income Statement’
Revenue from Sales	$  16,00,000.00
Cost of Goods Sold	$  12,25,257.14
Gross profit	$    3,74,742.86
Marketing costs (20*100)	$          2,000.00
Non-Manufacturing cost	$        10,000.00
Net Profit	$    3,62,742.86

Part l

Balance Sheet
Assets	Amount
Current Assets
Cash	$    3,82,742.86
Inventory	$    1,94,482.86
Non-Current Assets
Property Plant Equipment	$    5,50,000.00
Total	$  11,27,225.71
Liabilities
Current Liabilities	$        30,000.00
Non-Current Liabilities	$        59,340.00
Suspense account	$        25,142.00
Equity	$  10,12,742.86
Total	$  11,27,224.86

 

Part B

To: Managing Director, Exhibition Furniture

From: Management Accountant

Re: Strategies for cost reduction

Date: 10-02-2018

The budgeting process that has been carried above for the exhibition furniture has determined the estimated amount of profit that will be achieved by the firm, if everything goes according to the budgeted plans. However, the estimated profits and sales could be increased if successful strategies are implemented. The firm must offer various kinds of discounts and other offers on the sale of furniture products so that it can attract wide customer base. Also, the profitability can be increased by adopting possible methods of cost control and cost reduction. Instead of using the manual labour force, the firm must implement machines for the manufacturing of desk so that it can enhance the firm’s productivity. The use of machine capital in place of labour capital will also reduce the training and staffing cost of the company to a certain extent. The firm must also take its business on the electronic mode so that wide range of potential customers can be generated. Further, the firm must adopt various strategic management accounting initiatives to improve its overall profitability from the sales. Management accounting has introduced advanced level of techniques and tools such as Activity based costing, just in time technique, cost volume profit analysis, balanced scorecard, Kaizen costing etc. (Bromwich, and Bhimani, 2005). Employment of such techniques in the business will allow the furniture firm to manage its cost appropriately. Activity based costing technique will enable the firm to determine the accurate cost involved in the manufacturing of desks and other furniture products. The better cost allocation will allow the firm to determine the appropriate selling price of the furniture products so that reasonable profits could be generated. Moreover, the firm must strive to bring uniqueness to its products so that it can gain competitive advantage over the rival firms of the industry. The method of depreciation must also be examined to check its appropriateness for the business of the exhibition furniture. If the method is not reasonably correct as per the situation of business, the firm must try to change the depreciation method so as to reduce its fixed cost. Also the application of just in time technique will help the business to maintain an adequate level of inventory that is necessary for the successful operation of the business and that will avoid the excessive cost of blocking unnecessary funds in holding the inventory. Also, it will help the business to meet the unexpected demands of the customers in specific situations. These techniques will certainly help the business to manage its costs and improve its overall profitability (Horngren, Bhimani, Datar, Foster and Horngren,  2002). 

References:

Bromwich, M. and Bhimani, A., 2005. Management accounting: Pathways to progress. Cima publishing.

Horngren, C.T., Bhimani, A., Datar, S.M., Foster, G. and Horngren, C.T., 2002. Management and cost accounting. Harlow: Financial Times/Prentice Hall.