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ACCT 509 Budgeting Project-Fall 2016
This project is worth 80 points and MUST BE TURNED IN by 11:59 pm CST, Wednesday, October 12,
2016. While you may consult with others on the project, each person must prepare their solution
individually. It is not acceptable to copy and share files or for one person to do the solution and print it
out multiple times. Doing this is a violation of academic dishonesty and will carry stiff consequences.
Prepare a solution for the problem below using ONLY one Excel file. Your spreadsheet MUST be
properly formatted and include a data section (in one worksheet/tab) and a separate solution section (in
another worksheet/tab within the same excel file). The data section MUST contain only the data
presented in the problem. The contents of the cells in the solution section MUST contain ONLY
cell references, formulae, and labels, but NO TYPED-IN NUMBERS. This is how your work will be
shown. All cells within the solution section MUST have a label! Preparing the spreadsheet in
this manner allows it to be easily revised for new data due to changes in assumptions or in
subsequent periods. After completing the project, please submit your electronic file (only one file) via
e-mail to me at Matthew.Notbohm@business.und.edu. Problem:
Mahoney Inc. makes solid steel desks engraved with words, symbols or designs. Although
production occurs throughout the fiscal year, sales are primarily in the months of September
The Sales Department anticipates a 10% growth in sales in each of the next two years. The
sales in units for the current year (2016) and the anticipated sales for each of the next two
years (2017 and 2018) are given below.
Sales in units
Each quarter?s sales are expected to follow the pattern below, as a percent of annual unit
Quarter 1 (Jan. to March)
Quarter 3 (July to Sept.)
Quarter 2 (Apr. to June)
Quarter 4 (Oct. to Dec.)
The selling price per desk is expected to be $550.
The following data pertain to production policies and manufacturing specifications followed by
The desired ending finished goods inventory for each quarter is 25 percent of next
quarter?s sales in units. The ending finished goods inventory for the year 2016 followed
this pattern. The cost per unit of finished goods inventory at Dec. 31, 2016, the fiscal
year end, is $474.56.
The main raw material in these desks is steel. Each manufactured desk needs 40
pounds of steel. The desired ending materials inventory is 30% of next quarter?s
expected production needs, and the same pattern was followed at the end of both 2015
and 2016. The anticipated purchase price for steel over each of the next two years is
$10 per pound, which is the same price as in 2016. Other materials required in
producing desks are treated as indirect manufacturing costs.
Two types of direct labor are used to make the chairs, craftsman labor for forming and
assembling, and unskilled labor for polishing. The expected labor needs per desk and
hourly pay rates for each type of labor are as follows:
Manufacturing Overhead cost per quarter is estimated as follows. Variable overhead
varies with direct labor hours (DLH).
Variable Overhead (per DLH)
$0.25 Quarterly selling and administrative expenses are estimated as follows. Variable selling
and administrative expenses vary with units sold.
Fixed S & A
Variable S & A (per unit sold)
$ 3.00 REQUIRED:
Prepare operating budgets for 2017 by quarter and for the year (so you?ll need at
least 5 columns of numeric data for each budget schedule) (Hint: For some of the
following budget schedules you will also need to complete the schedules for some
combination of Q4 of 2016, and Q1 of 2018 and Q2 of 2018, so you?ll do well to just
compute those values whenever you can, as some of this data will be necessary for
later calculations) with the following schedules:
Sales revenue budget
Production budget (Note: Beginning and ending inventory for the year
correspond with the beginning inventory for Q1 and ending inventory for Q4.)
Direct materials usage budget
Direct materials purchases budget (Note: Beginning and ending
inventory for the year correspond with the beginning inventory for Q1 and
ending inventory for Q4.)
Direct labor budget
Overhead budget. Use the overhead budget to determine the budgeted
overhead allocation rates for variable and fixed overhead, only compute the rate
per year, not per quarter-FMOH rate is too volatile when computed by quarter.
Note that the rates are per direct labor hour.
Selling and administrative expense budget
Ending inventory budget for Materials Inventory and Finished Goods
Inventory. Assume there is no Work in Process Inventory. (Hint: For finished
goods inventory, you will need to add the input costs per unit (direct materials,
direct labor, overhead) to get the cost per unit of finished goods for each
Budgeted income statement using the contribution margin format (that
is, costs grouped by cost behavior, variable vs. fixed. See the actual results
given in part b below for an example of the format.)
b. Given below are the actual results at the end of fiscal 2017.
Compare the actual results with the static (master) budget that you
generated in part a.
Revise the budget for the actual volume (i.e. assemble a flexible budget)
and compare the flexible budget with the actual results.
Evaluate the performance of the company for 2017. Which budget,
static or flexible, do you believe provides the better comparison? Why?
Discuss the advantages and disadvantages of using a static budget vs.
a flexible budget for comparing with the actual results in managers? performance
evaluations? When is a static budget variance better? When is a flexible budget variance better?
2017 Actual Results
Variable cost of goods sold
Variable selling & administrative
Total variable costs
Fixed manufacturing overhead
Fixed selling & administrative expenses
Total fixed costs
Operating income 112,500
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