COMM 210.3 - Budget Assignment - Bubba's Manufacturing Assignment

Assignment Task

You have been hired as a consultant by Bubba’s Manufacturing Ltd. to advise management regarding some possible alternatives. You are required to work in groups of 2 or 3 students. Please group yourselves in Canvas. (People Groups Budget Project Navigate your name into a group, have your partners also move themselves into said group) This project is worth 15% of your final mark. This assignment must be completed with the use of an Excel electronic spreadsheet.

Each group must upload the assignment on Canvas; please ensure the following: (1) you must upload two separate files -a Word document addressing the qualitative questions and an Excel spreadsheet containing the budget schedules.

The project report is due on the date as detailed in your released syllabus at 7PM. Late assignments will not be accepted. Only one submission is required for each group of students. Please ensure that the files that you upload clearly identify all group members by name and student number. Please save your spreadsheet using the last names of all group members as the file name.

It is important that your Excel spreadsheet should (1) include a separate worksheet showing the raw data and (2) clearly show the computational linkages across the cells.

Bubba’s Manufacturing Ltd.’s Operational and Financial Information

Bubba’s 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 Bubba’s Manufacturing are considering using a detailed master budget for the 2024 year to plan and control operations. The master budget will detail each quarter’s activity and the activity for the year in total. Bubba’s Manufacturing Ltd will base its 2024 budget on the following information:

1. Expected sales, in units, for the four quarters of 2024 and the first two quarters of 2025

The selling price for 2024 has been set at $81.00 per unit.

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, 2023) will be collected in the first quarter of 2024 and twenty percent in the second quarter of 2024. 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.

Bubba’s 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. Bubba’s 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

4. Total budgeted variable overhead costs for the 2024 year (at a level of sales estimated in part 1 above) follow:

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.

The annual budget for fixed manufacturing overhead items follows:

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.

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:

Fixed selling and administration expenses are spread evenly across quarters for budgeting purposes. Applicable fixed expenses are paid for quarterly.

7. Bubba’s 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. Bubba’s Manufacturing Ltd. plans the following financing and investing activities for the coming year:

• The company is planning to buy a piece of land, costing $150,000, in the last quarter of 2024. 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.
•  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 annual interest rate of 8% (use simple interest calculations on the outstanding balance).

9. The company’s unclassified balance sheet for December 31, 2023 is as follows:

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

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