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Reference no: EM13903989

Reference no: EM13903989

Enigma SARL has for many years manufactured quality leather goods. As a result of strong international competition, in 2012, for the first time in its history, the business made a loss. In response, the company decided to drastically reduce its product range and concentrate on its best selling and most profitable items. They hope to still benefit from economies of scale by producing and selling just 2 types of laptop case: San Tropez and Bordeaux.

Task:

From the following information, using the pro formas provided, create the budget for the year ended 31st December 2013.

Sales forecast

	San Tropez	Bordeaux
Number of cases sold	40,000	25,000
Selling price per case	€80	€75

Standard production data

Enigma has 2 production departments: Cutting and Stitching.

Unit costs:

Direct labour rates		Raw materials
Cutting	Stitching	Leather	Zip fasteners
€12 per hour	€12 per hour	€6 per unit	€2 per unit

Product content

	San Tropez	Bordeaux
Leather	2 units	4 units
Zips	1 unit	2 units
Cutting dept. labour	2 hours	1.5 hours
Stitching dept.labour	1 hour	0.5 hours

Production overheads

	Cutting department		Stitching department
	Fixed	Variable	Fixed	Variable
	€	€	€	€
Indirect labour	56,000	-	24,000	-
Indirect materials	-	24,000	-	72,000
Maintenance	16,000	8,000	4,000	4,000
Rent of premises	48,000	-	8,000	-
Depreciation	64,000	-	16,000	-
Electricity	7,880	15,970	4,100	8,150
	191,880	47,970	56,100	84,150

Marketing overheads Administration overheads

	€		€
Salaries	224,000	Salaries	256,000
Advertising	192,000	Bank charges	40,000
Other	16,000	Other	33,200
	432,000		329,200

Inventory forecast

	Raw materials		Completed cases
	Leather (units)	Zips (units)	San Tropez (units)	Bordeaux (units)
Opening inventory	48,000	8,000	800	8,000
Closing inventory	64,000	16,000	8,800	4,000

The unit cost of a completed case for both San Tropez and Bordeaux in the opening inventory is €55.

Receivables and payables

Raw materials, labour, all overheads and interest on a loan will be paid in full through the bank and cash accounts. Receivables and payables at 1st January 2013 will pay and be paid during 2013. Receivables and payables at 31st December 2013 are expected to be €480,000 and €120,000 respectively. One year's interest on the loan is paid during the year.

Non-current tangible assets

There are no disposals during 2013 but some new equipment will be acquired, on cash terms, for €160,000 just before the end of 2013

Expected statement of financial position (balance sheet) at 1st January 2013

Cost

€

Depreciation

to date

€

Net book value

€

Non-current assets

Tangible

Current assets

Inventory

Receivables

Bank and cash

1,920,000

720,000

788,000

423,000

200,000

1,200,000

1,411,000

2,611,000

Shareholder's equity

Ordinary shares

Retained profit

Long-term liabilities

10% bank loan

Current liabilities

Payables

700,000

801,000

1,501,000

1,000,000

110,000

2,611,000

ENIGMA SARL - PRO FORMAS

1. Sales budget year end 31st December 2013

Units

Selling price

Revenue

San Tropez

Bordeaux

€80

€75

2. Production budget year end 31st December 2013 (in units)

	San Tropez	Bordeaux
Planned sales Planned closing inventory
Total required Planned opening inventory
Budgeted production

3. Direct materials usage budget year end 31st December 2013

San Tropez				Bordeaux
	Material content (units/case)	Production Number of cases	Usage units		Material content (units/case)	Production Number of cases	Usage units
Leather Zips	2 1				4 2

Cost/unit

Total usage units

Total material costs

€

Leather

Zips

€6

€2

4. Direct materials purchase budget year end 31st December 2013 (in units)

	Leather	Zips
Material usage Planned closing inventory
Total required Planned opening inventory
Budgeted purchases Cost per unit Budget purchase cost	€6	€2

5. Direct labour hours budget year end 31st December 2013

Labour content in product

(hours)

Cases produced

Total labour hours

Rate per hour

Total labour costs

Cutting dept

San Tropez

Bordeaux

Stitching dept

San Tropez

Bordeaux

1.5

0.5

€12

6. Production overheads budget year end 31st December 2013

7. Standard budget unit cost of production for year end 31st December 2013

8. Closing inventory budget at 31st December 2013

Units

Unit cost

€

Total cost

€

Direct materials

Leather

Zips

Finished products

San Tropez

Bordeaux

9. Cost of sales budget for year end 31st December 2013

	€	€
Direct materials budget (3) Direct labour (5) Production overheads (6)
Add opening inventory San Tropez Bordeaux
Less closing inventory (8) San Tropez Bordeaux

10. Marketing and Administration expenses budget for year end 31st December 2013

	€	€
Marketing expenses Salaries Advertising Other
Administration expenses Salaries Bank interest Other

11. Budget statement of comprehensive income for the year ended 31st December 2013

	€
Sales (1) Less cost of sales (9)
Gross profit
Less Marketing and admin expenses (10) Less interest on bank loan
Budget net profit

12. Cash Budget for the year ended 31st December 2013

	€	€
Opening cash balance Add receipts Sales Add opening receivables
Less closing receivables
Total cash available Less payments Purchases Add opening payables
Less closing payables
Direct labour (5) Factory overheads less depreciation (6) Marketing and admin expenses (10) Bank loan interest Fixed asset purchase
Budget closing balance

13. Budget statement of financial position at 31st December 2013

	Cost €	Depreciation to date €	Net book value €
Non-current assets Tangible Current assets Inventory Receivables Bank and cash

Shareholder's funds Ordinary shares Retained profit
Long-term liabilities 10% bank loan Current liabilities Payables

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Cutting department

(expected 127,500 direct labour hours)

Stitching department

(expected 58,500 direct labour hours)

Fixed costs

Variable costs

Fixed costs

Variable costs

Indirect labour

Indirect materials

Maintenance

Rent of premises

Depreciation

Electricity

Absorption rate per direct labour hour