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You are a manager for Peyton Approved, a pet supplies manufacturer. This responsibility requires you to create budgets, make pricing decisions,

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You 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.
You will be preparing a budget for the quarter July through September 2015.  You are provided the following information. The budgeted balance sheet on June 30, 2015, is:
Peyton Approved
Budgeted Balance Sheet
30-Jun-15
ASSETS
Cash $42,000
Accounts receivable259,900
Raw materials inventory35,650
Finished goods inventory 241,080
Total current assets 578,630
Equipment $720,000
Less accumulated depreciation 240,000480,000
Total assets $1,058,630
LIABILITIES AND EQUITY
Accounts payable$63,400
Short-term notes payable24,000
Taxes payable 10,000
Total current liabilities 97,400
Long-term note payable 300,000
     Total liabilities397,400
Common stock $600,000
Retained earnings 61,230
Total stockholders’ equity661,230
Total liabilities and equity $1,058,630  
All assumptions are new and apply to the July through September budget period.
1. Sales were 20,000 units in June 2015. Forecasted sales in units are as follows: July, 18,000; August, 22,000; September, 20,000; October, 24,000. The product’s selling price is $18.00 per unit and its total product cost is $14.35 per unit.
2. The June 30 finished goods inventory is 16,800 units.
3. Going forward, company policy calls for a given month’s ending finished goods inventory to equal 70% of the next month’s expected unit sales.
4. The June 30 raw materials inventory is 4,600 units. The budgeted September 30 raw materials inventory is 1,980 units. Raw materials cost $7.75 per unit. Each finished unit requires 0.50 units of raw materials. Company policy calls for a given month’s ending raw materials inventory to equal 20% of the next month’s materials requirements. 
5. Each finished unit requires 0.50 hours of direct labor at a rate of $16 per hour.
6. Overhead is allocated based on direct labor hours. The predetermined variable overhead rate is $1.35 per unit produced. Depreciation of $20,000 per month is treated as fixed factory overhead.
7. Monthly general and administrative expenses include $12,000 administrative salaries and 0.9% monthly interest on the long-term note payable.
8. Sales representatives’ commissions are 12% of sales and are paid in the month of the sales. The sales manager’s monthly salary is $3,750 per month.
Specifically, the following critical elements must be addressed when creating an Operating Budget by completing the budget templates found on the “Budgets” tab below.
Step 1: Prepare a Sales Budget
Complete the Sales Budget on the Budgets tab below by using the information found in the budgeted balance sheet above.  
Consider assumption 1 when completing this critical element: Sales were 20,000 units in June 2015. Forecasted sales in units are as follows: July, 18,000; August, 22,000; September, 20,000; October, 24,000. The product’s selling price is $18.00 per unit and its total product cost is $14.35 per unit.
You can find an example of a sales budget in Exhibit 22-5 on page 1324 of the textbook.
Step 2: Prepare a Production Budget
Complete the Production Budget on the Budgets tab below by using the information found in the budgeted balance sheet above. 
Consider assumption 1 while completing this critical element: Sales were 20,000 units in June 2015. Forecasted sales in units are as follows: July, 18,000; August, 22,000; September, 20,000; October, 24,000. The product’s selling price is $18.00 per unit and its total product cost is $14.35 per unit.
Consider assumption 2 while completing this critical element: The June 30 finished goods inventory is 16,800 units.
Consider assumption 3 while completing this critical element: Going forward, company policy calls for a given month’s ending finished goods inventory to equal 70% of the next month’s expected unit sales.
You can find an example of a production budget in Exhibit 22-6 on page 1325 of the textbook.
 
Step 3: Prepare a Manufacturing Budget
Complete the Manufacturing Budget on the Budgets tab below by using the information found in the budgeted balance sheet above. The manufacturing budget consists of three parts: the Raw Materials Budget, the Direct Labor Budget, and the Factory Overhead Budget.
Raw Material Budget
Consider assumption 4 while completing this critical element: The June 30 raw materials inventory is 4,600 units. The budgeted September 30 raw materials inventory is 1,980 units. Raw materials cost $7.75 per unit. Each finished unit requires 0.50 units of raw materials. Company policy calls for a given month’s ending raw materials inventory to equal 20% of the next month’s materials requirements.
Consider units to be produced found in the production budget while completing this critical element.
Direct Labor Budget
Consider assumption 5 while completing this critical element: Each finished unit requires 0.50 hours of direct labor at a rate of $16 per hour.
Consider units to be produced found in the production budget while completing this critical element.
Factory Overhead Budget
Consider assumption 6 while completing this critical element: Overhead is allocated based on direct labor hours. The predetermined variable overhead rate is $1.35 per unit produced. Depreciation of $20,000 per month is treated as fixed factory overhead.
Consider units to be produced found in the production budget while completing this critical element.
Step 4: Prepare a Selling Budget
Complete the Selling Expense Budget.
Consider assumption 8 while completing this critical element: 8. Sales representatives’ commissions are 12% of sales and are paid in the month of the sales. The sales manager’s monthly salary is $3,750 per month.
 
Step 5: General and Administrative Expense Budget
Complete the General and Administrative Expense Budget.
Consider assumption 7 while completing this critical element: 7. Monthly general and administrative expenses include $12,000 administrative salaries and 0.9% monthly interest on the long-term note payable.
The following critical elements must be addressed when performing the Budget Variance Analysis using the Budget Variance Worksheet. The Budget Variance Worksheet can be found in the Assignment Guidelines and Rubrics folder.
The actual quantity of material used was 31,000 with an actual cost of $7.75 per unit. The actual labor hours were 33,000 with an actual rate per hour of $15.
Step 1: Complete A. Develop a variance analysis including a budget variance performance report and appropriate variances for materials, labor, and overhead.
Start with the Labor and Materials Variance tab.
Standard costs/quantities come from the raw materials budget and the labor budget.
Use Exhibits 23-11 on page 1416 and 23-12 on page 1419 in the textbook as guides.
After completing the Labor and Materials Variance tab, transfer variances to the Budget Variance Report tab.
Congratulations! You have completed the workbook portion of Final Project Part I. To complete the remainder of the Budget Variance Analysis portion of Final Project Part I, use the Final Project Part I Budget Variance Report Template. The Budget Variance Report Template can be found in the Assignment Guidelines and Rubrics folder.
 
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