Act202-project final. tea stall.docx

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1

Group project

Master Budget of “A Tea

Stall”

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Spring - 2016

Course: Act-202

Section – 22

Submitted to:

Mr.

Lecturer

Department of Accounting & Finance,

North South University.

Submitted by:

Ashab Abid Shad 1420165030

Md. Akif khan 1421033030

Saifur Rahman 1421148030

Aniruddha Sen 1231174630

Date: 05.04.16

Table of Content

Serial Contents Page

Numbers

1 Introduction 4

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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

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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

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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

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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.

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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

Budgeted unit sales

27000 25000 30000 26000 108000

Selling price per unit

6 6 6 6 6

Total Sales 162000 150000 180000 156000 648000

Expected Cash Collection

Beginning A/R 60000 60000

quarter sales 145800 16200 162000

nd_{quarter sales} ₁₃₅₀₀₀ ₁₅₀₀₀ ₁₅₀₀₀₀

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quarter sales 140400 140400

Total cash collection

205800 151200 177000 158400 692400

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

Budgeted unit sales 27000 25000 30000 26000 108000 +Desired units of EFGI 5000 6000 5200 4100 4100

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Total needs 32000 31000 35200 30100 112100

-Units of BFGI 3500 5000 6000 5200 3500

Requires

production in units

28500 26000 29200 24900 108600

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.

Alauddin Tea Stall Direct Materials Budget

Required Unit Production 28500 26000 29200 24900 108600 Units of RM needed per cup 4 4 4 4 4 Units RM needed 114000 104000 116800 99600 434400

+ Desired units ERMI 10400 11680 9960 8500 8500

Total units of RM needed

124400 115680 126760 108100 442900

-Units of BRMI 7200 10400 11680 9960 7200

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purchased

Cost of RM per unit 0.5 0.5 0.5 0.5 0.5

Cost of RM to be purchased

58600 52640 57540 49070 217850

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

Beginning A/P 60000 60000 quarter purchases 29300 29300 58600 quarter purchases 26320 26320 52640 quarter purchases 28770 28779 57540 quarter purchases 24535 24535 Total Cash Disbursement for materials 89300 55620 55090 53305 253315

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.}

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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

Required

Production in units

28650 26000 29200 24900 108600

DL hours per unit 0.2 0.2 0.2 0.2 0.2 Total DL hours

needed

5700 5200 5840 4980 21720

DL cost per hour 12 12 12 12 12

Total DL cost 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

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Quarter 1 Quarter 2 Quarter 3 Quarter 4 Year Budgeted DL hours 5700 5200 5840 4980 21720 Variable MOH rate 2 2 2 2 2 Variable MOH 11400 10400 11680 9960 43440 Fixed MOH 15000 15000 15000 15000 15000 Total MOH 26400 25400 26680 24960 58440 -Depreciation 5000 5000 5000 5000 20000 Cash Disbursements for MOH 21400 20400 21680 19960 38440

Total MOH (a) 58440

Budgeted DL hours (b)

21720

POHR for the year {(a)/(b)}

2.69

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

Production cost per unit:

Direct materials 4 0.5 2

Direct labor 0.2 12 2.4

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Unit product cost (per cup) 4.94

Budgeted finished goods inventory:

EFGI in units 4100

Unit product cost 4.94

EFGI 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.

Selling and Administrative Expense Budget For the Year Ended December 31, 2017

Budgeted unit sales 27000 25000 30000 26000 108000

Variable selling and administrative expense per unit 1.2 1.2 1.2 1.2 1.2 Variable selling and administrative expense 32400 30000 36000 31200 129400 Fixed selling and administrative expenses:

Store rent 20000 20000 20000 20000 80000

Employee salary 7000 7000 7000 7000 28000

Cylinder 6000 6000 6000 6000 24000

Stool 1000 1000 1000 1000 4000

Total fixed selling and administrative expense 34000 34000 34000 34000 136000 Total selling and administrative expense 66400 64000 70000 65200 265600

-Depreciation 6500 6500 6500 6500 26000

Cash disbursements for selling and administrative expenses

59990 57500 63500 58700 239600

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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.

Alauddin Tea Stall Cash Budget

For the year ended December 31, 2017

Beginning cash balance 350000 243700 142160 56720 350000

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Collections from customer

162000 150000 180000 156000 648000

Total Cash Available 512000 393700 322160 212720 998000

-Cash disbursements DM 118600 111240 110180 106610 502380 DL 68400 62400 70080 59760 260640 MOH 21400 20400 21680 19960 38440 Selling and administrative 59990 57500 63500 58700 239600 Total cash disbursements 268300 251540 265440 245030 1041060 Excess of cash available over disbursements 243700 142160 56720 -32310 -43060 Financing Borrowings(At beginnings of quarter) Repayments 80000 80000 Interest Total financing 80000 80000

Ending cash balance 243700 142160 56720 51690 51690

Budgeted Income Statement:

All of the revenues and income statement shown on the budgeted income statement comes from the in the beginning balance

sheet.

Budgeted Income Statement

Sales 648000

- Cost of goods sold 324000

Gross Margin 324000

- Selling and administrative expenses 201520 Net operating income 122480

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-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 17690

Accounts receivable 46800 Raw materials inventory 4250 Finished goods inventory 20246

Total current assets Land and equipment:

Land 20000

Equipment 5000

Net land and equipment Total assets

Liabilities:

Accounts payable 13678.32 Retained earnings 1000308.68

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References:

1 Alauddin Tea Stall

2 Managerial Accounting, 15th_{Edition by Garrison, Noreen and}

Brewer.