Reference no: EM132303386

Final Project Objectives:

1. Develop operating budgets
2. Analyze the cash flow of the company.
3. Analyze how changes in cost or revenue impact the budgets.
4. Provide recommendations to management on cash management.
5. Prepare a flexible budget and performance report.
6. Formulate and interpret the variable cost variances.
7. Analyze impact of transfer pricing decision on ROI.

Part 1:

Data Scenario:

You have just been hired into a management position which requires the application of your budgeting skills.

You find out that budgeting has not been a priority of the company and that they have been experiencing cash shortages.

You have contacted various areas on the organization and have accumulated the information below to assist you in preparing a comprehensive budget.

The following is actual information that relates to the operations of a merchandiser named Sled Company, a wholesaler of sleds as of March 31.

Required: You must use cell references on the BudgetSolution worksheet, by referencing this worksheet that contains the data.

Prepare the following second quarter budgets and answer the questions listed on the template provided on the BudgetSolution Worksheet. I have adapted the budget model to meet the needs of this company.

If I bolded a line item, that is a header and does not need computation on that row.

Please note the quarter column is for the quarter so not all lines should be added across in the quarter column. When you have beginning and ending inventory or cash balances this is for the quarter and should be brought over to the quarter column.

1. Prepare Sales Budget in dollars by month and quarter.

2. Prepare a merchandise purchase budget by month and quarter in dollars.

3. Prepare a Selling Expense Budget, by month and quarter.

4. Prepare a General and Administrative budget, by month and quarter.

5. Prepare a cash budget showing the months and quarter.

6. Based on the quarterly cash budget you prepared, do you have any recommendations
on cash management. Discuss the type of business and the cash flow problems a company in this industry might have.
Type your answer on the budget worksheet , where I have set out the question.

7. Prepare a budgeted income statement for the quarter ending June 30, 20XX.
You do not need to show monthly columns.

8. What do you think about the survivability of this business?

9. What if the company finds out the monthly rent will increase to $2,200, what budgets are effected? Why?
What is the New Net income(Loss) for the quarter?
If you have linked everything correctly, you should only have to change the monthly rent
on this sheet to determine your answer to the questions asked. Please change the rent back to the original amount of 2,000 before you submit.

Part 2
Several years ago the Cookie Company developed a comprehensive budgeting system for profit planning and control purposes. The line supervisors have been very happy with the system and with the reports being prepared on their performance, but both middle and upper management have expressed considerable dissatisfaction with the information being generated by the system. The following is the overhead performance report for the Baking department.

After receiving a copy of this overhead performance report, the supervisor of the baking department stated, "These reports are super. It makes me feel really good to see how well things are going in my department. I can't understand why those people upstairs complain so much."

The company's vice president has hired you as a consultant to develop a new overhead performance report for the quarter for the Baking department. After you have developed this new performance report, explain to the supervisor of the baking department the reasons for your changes and discuss the issue of controlling costs.

Required:
1. Prepare a revised budget for June using the flexible performance approach.
You need to use cell reference to calculate the variance . You must designate a variance for each cost category and for the total cost: U or F.
The variable and fixed cost labeling has been set correctly, so do not change this around.
Please use the template I have set out below to complete this Performance report.
2. Explain to the supervisor of the baking department the reasons for your changes and discuss the issue of controlling costs.
3. Identify variances in the report you prepared that should be investigated? Explain in detail why these variances should be investigated.

Part 3

Foster Corporation uses a standard cost system. There is no beginning or ending work in process, and finished goods inventory balances.
The following information was provided concerning the one product produced by this company for the period that just ended:
This company used Direct labor hours as the cost driver for the application of overhead.

You have just been hired by a local plastic pool manufacturer to determine if they are controlling their costs.
You have decided to use your recent knowledge of variance analysis to assist you in this endeavor.
You will analyze the variances as stated in the requirements below.

Required:

Make sure you do not forget to label each variance U or F. You need to use cell references for your calculations.
1. Calculate the direct materials price and quantity variance.
Material price variance should be based on material purchased, since you want to isolate the variance as soon as possible.
Material Quantity variance should be based on materials used, since this is monitoring the production efficiency.
Material purchase price variance
Material Quantity variance
2. Calculate the direct labor rate and efficiency variances.
Direct Labor rate variance
Direct Labor Efficiency variance
3. Variable manufacturing overhead spending and efficiency variances.
Variable overhead spending variance
Variable overhead efficiency variance
4. Fixed manufacturing overhead budget variance.
Fixed Manufacturing overhead budget variance
5. Pick out the one most significant variance that you computed above and explain the possible causes of this variance and why you chose it.

Part 4

Rug, Inc. has acquired a new backing division that produces rubber backing, which it sells for $2.20 per square yard. Sales are about 1,200,000 square yards per year.

Since the Backing Division has a capacity of 2,000,000 square yards per year, top management is thinking that it might be wise for the company's Tufting Division to start purchasing from the newly acquired Backing Division.

The Tufting Division now purchases 600,000 square yards per year from an outside supplier at a price of $2 per square yard. The current price is lower than the competitive $2.20 price as a result of the large discounts. The Backing Division's cost per square yard follows:

Required:
1. If both divisions are to be treated as investment centers and their performance evaluated by the ROI formula, what transfer price would you recommend? Why?

2. Determine the effect on corporate profits of making the backing. Make sure you show your calculations.

3. Based on your transfer price, would you expect the ROI in the Backing Division to increase, decrease, or remain unchanged? Explain.

4. What would be the effect on the ROI of the Tufting Division using your transfer price? Explain.

Attachment:- Project.rar