Budget Project: Crawford Manufacturing In Tutorial Library

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TITLE: Budget Project: Crawford Manufacturing

UNIVERSITY / INSTITUTE: University of Saskatchewan

CLASS / COURSE: Management Accounting


You have been hired as a consultant by Crawford Manufacturing Ltd. to advise management regarding some possible alternatives. You are required to work in groups of 3 or 4. You can form your own groups; I will be happy to assist if you require help in forming a group.
You must use an Excel spreadsheet to complete this assignment.
Your completed assignment must be submitted in hard copy format (only one computer output is required for each group of students). You must also upload your group’s Excel spreadsheet on Course Tools (only one person has to upload). The assignment is due no later than 7:00 pm on Wednesday, March 27, 2013. Late assignments will not be accepted. Please ensure that students are clearly identified by name (first and last) and student.
Crawford Manufacturing Ltd. produces and sells components for the industrial market. The company has completed its fifth year of operations and is managed by its four owners. The owners/managers at Crawford Manufacturing are considering using a detailed master budget for the 2013 year in order to plan and control operations. The master budget will detail each quarter’s activity and the activity for the year in total. Crawford Manufacturing Ltd will base the 2013 budget on the following information:
1. Expected sales, in units, for the four quarters of 2013 and the first two quarters of 2014 follow:
Quarter one 7,100
Quarter two 9,800
Quarter three 10,400
Quarter four 8,200
Quarter one (2014) 8,300
Quarter two (2014) 10,900
The selling price for 2013 has been set at $81.00 per unit.
COMM 210 Project 2 Winter 2013
2. All sales are on account. Seventy-five percent of sales on account are collected in the quarter of sale; twenty-two percent of sales on account are collected in the following quarter; and the final three percent are collected in the second quarter following. Assume that eighty percent of the balance in accounts receivable (as of 31st December, 2012) will be collected in the first quarter of 2013 and twenty percent in the second quarter of 2013. Assume no bad debts are incurred.
3. Each component requires the following direct inputs:
 4 kilograms of direct material which is available at a price of $5.00 per kilogram.
 2 hours of direct labour at a rate of $12.00 per hour.
Crawford Manufacturing has a policy of maintaining direct material ending inventory equal to 10% of direct materials needed for the next quarter’s production requirements. All raw materials are purchased on account. Fifty percent of a quarter’s purchases are paid for in the quarter of purchase; the remaining in the following quarter. Crawford Manufacturing has a policy of keeping ending finished goods inventory equal to 10% of next quarter’s forecasted sales. There is no beginning or ending work-in-process inventory.
Direct labourers are paid at the end of each month.
4. Total budgeted variable overhead costs for the 2013 year (at a level of sales estimated in part 1 above) follow:
Indirect materials $27,760
Indirect labour 55,520
Employee benefits 83,280
Inspections 31,500
Utilities 41,640
TOTAL $ 239,700
Variable overhead is applied to components using a predetermined overhead rate based on annual direct labour hours. All variable overhead items are paid for in the quarter incurred.
5. The annual budget for fixed manufacturing overhead items follows:
Supervisory salaries $186,200
Property taxes 26,000
Insurance 28,800
Maintenance 46,000
Utilities 33,400
Engineering Time 41,850
Depreciation _ 96,000
TOTAL $ 458,250
COMM 210 Project 3 Winter 2013
All fixed overhead items are spread evenly across quarters for budgeting purposes. All applicable fixed overhead is paid for in the quarter incurred except for property taxes which are paid for in the third quarter of the year. Fixed overhead is applied to production using a predetermined overhead rate based on the estimated annual number of units produced.
6. Variable selling and administration expenses include commissions and other administrative expenses. Commissions are budgeted at 5% of sales dollars for the quarter. Eighty percent of these commissions are paid in the quarter earned, while 20% are paid in the following quarter. Other variable administration costs are $2.00 per unit. These costs are paid for in the quarter incurred.
Annual fixed selling and administration expenses are as follows:
Sales salaries $ 152,000
Administration salaries 100,000
Travel 24,000
Insurance 3,400
Utilities 2,800
Depreciation 12,000
Other _ 2,800
TOTAL $ 297,000
Fixed selling and administration expenses are spread evenly across quarters for budgeting purposes. Applicable fixed expenses are paid for quarterly.
7. Crawford Manufacturing makes quarterly income tax installments during the year based on the projected taxable income for that year. The company is subject to a thirty percent tax rate.
8. Crawford Manufacturing Ltd. plans the following financing and investing activities for the coming year:
 The company is planning to buy a piece of land, costing $70,000, in the last quarter of 2013. This piece of land will be held for future plant expansion. The company will pay cash for the land and will finance any resulting cash shortfall by drawing on its operating line of credit.
 The company has an operating line of credit established with its bank. This allows the company to borrow in multiples of $5,000 to cover any cash shortfalls. All borrowing is assumed to occur at the beginning of the quarter in which the funds are required and all repayment is assumed to be made at the end of the quarter in which funds are available for repayment. Simple interest at the rate of 10% is paid on a quarterly basis on all outstanding short term loans. All repayments are in multiples of $1,000.
COMM 210 Project 4 Winter 2013
 The company has long-term debt and makes principal and interest repayments according to the following schedule: $15,000 principal plus accrued interest each quarter on March 31, June 30, September 30, and December 31. This long-term debt carries and interest rate of 8% (use simple interest calculations on the outstanding balance).
9. The company’s actual unclassified balance sheet for December 31, 2012 is as follows:
Cash $ 31,000
Accounts Receivable (1) 96,000
Raw Material Inventory (2) 15,000
Finished Goods Inventory (3) 63,800
Buildings and Equipment 2,020,000
Accumulated Depreciation (312,000)
TOTAL ASSETS $ 1,913,800
Accounts Payable (4) $ 70,000
Commissions Payable 5,740
Long-term Debt 240,000
Capital Stock (no par) 1,375,000
Retained Earnings 223,060
These balance sheet figures must be taken as given.
(1) 1,200 units @ $80.00 each
(2) 3,000 kilograms @ $5.00 each
(3) 1,000 units
(4) Only used for direct materials
COMM 210 Project 5 Winter 2013
1. Prepare a master budget for Crawford Manufacturing Ltd. for each quarter of 2013 and for the year in total. The following component budgets must be included:
a. Beginning balance sheet (classified).
b. Sales budget
c. Schedule of receipts
d. Production budget
e. Direct materials purchases budget
f. Schedule of disbursements for materials
g. Direct labour budget
h. Overhead budget (be sure to show disbursements for overhead).
i. Selling and administrative budget (be sure to show disbursements for selling and administrative expenses).
j. Cash budget
Prepare the following for the year, 2013, in total (these do not need to be quarterly).
h. Cost of goods manufactured budget
i. Cost of goods sold budget
j. Pro forma income statement (using absorption costing)
k. Pro forma classified balance sheet
2. The owners/managers of Crawford Manufacturing are somewhat pleased with profitability, but are very unhappy about liquidity (cash flow). They believe that their short-term debt is too large and that the lack of cash flow is preventing them from paying a dividend to themselves. They wish to be in a position to pay $120,000 in dividends in 2013 spread evenly over the four quarters without adding to the debt. In fact, they would like to reduce their reliance on the use of their short-term debt and improve profitability at the same time. In order to improve cash flow and profitability, the owners/managers are considering the following changes:
 An increase in the sales price from $81 to $83 per unit in 2013, coupled with a tightening of credit terms to ensure a more prompt collection of accounts receivable. Accounts receivable would now be collected as follows: 75% in the quarter of sale and the balance in the following quarter. The impact of these changes is anticipated to be a drop in sales volumes for 2013 and 2014 of 3% per quarter.
 A change to the inventory policy as follows: ending raw material inventories will be 2% of next quarter’s production requirements and ending finished goods inventories will be 4% of next quarter’s sales.
3. Management recognizes that without a budget, the company really will not know the impact of these changes. Management has therefore approached you to prepare a report
COMM 210 Project 6 Winter 2013
discussing the importance of budgeting as well as the impact of these two changes. Additionally Crawfoot has also heard of the balanced scorecard and is interested in how this might benefit the company. Your report can be no longer than four typed pages (double spaced, Times Roman 12 point font, one inch margins). Your budgets should be attached to this report as appendices. Re-run the budget components in requirement one for each proposed changes and then for both the proposed changes together. Finally you must make a recommendation after assessing the impact of each proposed change and also both proposed changes together on profitability and liquidity.
Instructions for preparing your Excel spreadsheets:
1. Develop your entire master budget in one worksheet; i.e., present your beginning balance sheet first, then present your sales budget below it and the next budget below, etc. All of the given information is entered in at the top of the workbook and the entire budget for each alternative is to be in a single workbook.
2. When you have finalized the master budget, start work on the sensitivity (what-if) analyses for part 2. First, copy the master budget onto a new worksheet (i.e., a new tab). Then make the necessary changes ON THAT WORKSHEET. If you have fully programmed the first worksheet, the results of your changes will be immediately calculated. Label the worksheet tabs and the title of the worksheet so that it is clear what you are calculating. (Use a header to label the worksheet so that the content of the worksheet is clear.)
3. Part of your mark will depend on how well you link the parts of your spreadsheets.
4. Besides providing me with a hard copy of your spreadsheets, you must upload a copy of your budget file on Course Tools. Name your file with your group identifier (last name and first initial of all group members). An example of a file name would be as follows: ‘Smith.R-Jones.K-Crawford.L-Joseph.G’. Only one member of the group is required to upload the file.
Report Instructions:
Your report (i.e., introduction, body, and conclusion) should be no longer than four pages (one inch margins, 12 pitch font, double spacing, new times roman font). Cases will be evaluated on content, writing, and presentation (grammar, spelling, wordiness, and persuasiveness). Because of the importance of presenting your information professionally, ten percent of your mark will be for how you present the material.
Your report will include these sections (in this order):
Title page
Transmittal document (letter, not memo format)
Body of the report
COMM 210 Project 7 Winter 2013
Very important:
Your case solution should not simply consist of answers to the questions. It needs to be in the form of a consulting report to the owners. While you must consider the required issues, you also need to organize the report in a format and structure that achieves the following:
• is as concise as possible
• flows well with a logical structure
• is easy to understand
• is an assessment of the alternatives against management’s stated objectives—what specific information does the budget give that management needs to know?
Your budgets will be in the appendices. You must refer to the appendices in the body of your report.
Transmittal letter
In business time is money. The transmittal letter must include a high level summary of recommendations including the financial impacts showing how your recommendation meets management’s stated objectives. This summary should have “power and punch.”
Discussion of the alternatives
The discussion of alternatives should include the impacts of the changes to the financial statements. Numbers are best shown in word tables showing original, change, dollar change and percent change. This discussion should clearly detail how this alternative does or does not meet management’s stated objectives.
Discussion of budgeting and the balanced scorecard
This discussion should focus on how budgeting and the use of the balanced scorecard would beneficially impact the client’s operations (specifically) and how these tools would allow management to meet its stated objectives. This is not a generic discussion.
Adjectives are not used in business writing. You are required to prepare an analysis of the alternatives against management’s stated objectives based on the facts of the case (the numbers). It is not advisable to tell clients that they are doing something wrong or that they “should” do something differently – we don’t tell clients what to do we make recommendations based on management’s objectives and the facts of the information.

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