ou are a manager for Peyton Approved, a pet supplies manufacturer. This responsibility requires you to create budgets, make pricing decisions, and analyze the results of operations to determine if changes need to be made to make the company more efficient.  ATTACHMENT PREVIEW Download attachmentPeyton ApprovedBudgeted Balance Sheet30-Jun-15ASSETSCashAccounts receivableRaw materials inventoryFinished goods inventoryTotal current assetsEquipmentLess accumulated deprecia±onTotal assetsLIABILITIES AND EQUITYAccounts payableShort-term notes payableTaxes payableTotal current liabili±esLong-term note payableTotal liabili±esCommon stockRetained earningsTotal stockholders’ equityTotal liabili±es and equityAll assump±ons are new and apply to the July through September budget period.2. The June 30 fnished goods inventory is 16,800 units.3. Going ²orward, company policy calls ²or a given month’s ending fnished goods inventory to equal 70% o² the next month’s exp5. Each fnished unit requires 0.50 hours o² direct labor at a rate o² $16 per hour.8. Sales representa±ves’ commissions are 12% o² sales and are paid in the month o² the sales. The sales manager’s monthly salaYou are a manager ²or Peyton Approved, a pet supplies manu²acturer. This responsibility requires you to create budgets, makepopera±ons to determine i² changes need to be made to make the company more e³cient.You will be preparing a budget ²or the quarter July through September 2015.You are provided the ²ollowing in²orma±on. Theb1. Sales were 20,000 units in June 2015. Forecasted sales in units are as ²ollows: July, 18,000; August, 22,000; September, 20,000is $18.00 per unit and its total product cost is $14.35 per unit.4. The June 30 raw materials inventory is 4,600 units. The budgeted September 30 raw materials inventory is 1,980 units. Rawmunit requires 0.50 units o² raw materials. Company policy calls ²or a given month’s ending raw materials inventory to equal 20%6. Overhead is allocated based on direct labor hours. The predetermined variable overhead rate is $1.35 per unit produced. Depfxed ²actory overhead.7. Monthly general and administra±ve expenses include $12,000 administra±ve salaries and 0.9% monthly interest on the long-

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The relevant costs involved would include unit production costs (depending on machinery used), insurance premiums compared to the irrelevant costs of fuel and individual motor parts. Sunk costs here could include the plant & equipment used in production together with the factory and general production site & transport vehicles that all would have already been purchased and so would need to be liquidated.

I would use differential analysis to assess whether, in the financial model for outsourcing the manufacturing activities to a vendor, the operating income earned would outweigh that from keeping the production in-house (as opposed to looking at the entire income statement for each scenario). 

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