Hired as the new budget controller for Banderhouse Inc

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You have been hired as the new budget controller for Banderhouse Inc., a manufacturing firm that makes insulated pet houses from injected molded plastic. The firm has been in business for two years and currently makes one product, the Deluxe house. You are tasked with creating a master budget for the first quarter. It will consist of the operating budget and the financial budget with the following components:

Sales budget
Production budget
Direct materials purchase budget
Direct labor budget
Overhead budget
Selling and administrative expenses budget
Ending finished goods inventory budget
Cost of goods sold budget
Budgeted income statement
Cash budget
In a 400-800-word document, present your master budget to the company executives. It should include a title page with your name, company name, course name and submission date. All budgets should be in table format. An explanatory narrative should be included to describe computations made in each budget. Each narrative should be placed next to its corresponding budget table.

Pertinent Information
Unit selling price $235

Projected sales in units for the first quarter
Month Sales
January 50,000
February 60,000
March 70,000
April 70,000
May 70,000
Direct labor usage data:
Direct labor per unit direct labor per hour
3 hours $12.50
Direct material usage data:
Direct Material Usage Per Unit Unit Cost
Plastic pellets 10 lbs $7
Insulation 5 lbs $3
Inventory policy requires that there are sufficient materials on hand at the beginning of the month to produce 50% of that months estimated sales. This was the case on January 1.

Monthly overhead data:
Fixed Cost Variable Cost
Power $1.00
Supplies .40
Maintenance 25,000 .50
Supervision 16,000
Depreciation 100,000
Taxes 15,000
Other 10,000 1.40
Monthly overhead is estimated using a flexible budget formula and is measured in direct labor hours.

Monthly selling and administrative data:
Fixed Cost Variable Cost
Salaries $20,000
Depreciation 10,000
Shipping 1.00
Other 10,000 .50
Monthly selling and administrative expenses are estimated using a flexible budget formula and are measured in units sold.

Finished goods inventory:
Month Units Unit Cost
January 1 40,000 $166
Desired ending inventory for each month is 80 percent of next month’s sales.

All sales and purchases are for cash. The cash balance on January 1 was $500,000. Banderhouse Inc. requires a minimum month cash balance of $1000. If there is a cash shortage, money is borrowed at a rate of 10 percent and is repaid at the end of the quarter along with the interest due. Cash borrowed at the end of the quarter is repaid at the end of the following quarter. On January 1, there were no loans.

 

Sample Solution

Title Page

Master Budget Banderhouse Inc. Managerial Accounting [Date] Prepared by: [Your Name]

Sales Budget

Month Units Sold Unit Selling Price Total Sales
January 50,000 $235 $11,750,000
February 60,000 $235 $14,100,000
March 70,000 $235 $16,450,000
Quarter 180,000 $42,300,000

Explanation: The sales budget is the foundation for the entire master budget. It projects sales revenue based on anticipated unit sales and the unit selling price.

Production Budget

Month Budgeted Sales Units Desired Ending Inventory Total Units Needed Beginning Inventory Units to be Produced
January 50,000 48,000 (60,000 * 80%) 98,000 40,000 58,000
February 60,000 56,000 (70,000 * 80%) 116,000 48,000 68,000
March 70,000 56,000 (70,000 * 80%) 126,000 56,000 70,000
Quarter 180,000 196,000

Explanation: The production budget determines the number of units to be produced to meet sales demand and desired ending inventory levels.

Direct Materials Purchase Budget

Plastic Pellets

Month Units to be Produced Plastic Pellets per Unit Total Plastic Pellets Needed Desired Ending Inventory Total Plastic Pellets to Purchase Unit Cost Total Cost
January 58,000 10 580,000 290,000 (60,000 * 50%) 870,000 $7 $6,090,000
February 68,000 10 680,000 350,000 (70,000 * 50%) 1,030,000 $7 $7,210,000
March 70,000 10 700,000 350,000 (70,000 * 50%) 1,050,000 $7 $7,350,000
Quarter 2,950,000 $20,650,000

Insulation

[Similar format as plastic pellets]

Explanation: The direct materials purchase budget determines the quantity and cost of raw materials needed for production.

Direct Labor Budget

Month Units to be Produced Direct Labor Hours per Unit Total Direct Labor Hours Direct Labor Rate Total Direct Labor Cost
January 58,000 3 174,000 $12.50 $2,175,000
February 68,000 3 204,000 $12.50 $2,550,000
March 70,000 3 210,000 $12.50 $2,625,000
Quarter 588,000 $7,350,000

Explanation: The direct labor budget estimates the labor cost required to produce budgeted units.

[Continue with overhead budget, selling and administrative expenses budget, etc.]

Note: This is a partial response to provide a framework for the master budget. The remaining budgets (overhead, selling and administrative, etc.) should follow a similar structure, incorporating the provided data and formulas.

Key points to remember:

  • Ensure accuracy in calculations and data input.
  • Use clear and concise explanations for each budget.
  • Consider using spreadsheet software for efficient calculations and presentation.
  • Analyze the final results to identify potential areas for improvement or cost reduction.

By following these guidelines and completing the remaining budgets, you will create a comprehensive master budget for Banderhouse Inc.

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