ACCT 2332 MANAGERIAL ACCOUNTING GROUP PROJECT – SPRING 2016

ACCT 2332 MANAGERIAL ACCOUNTING
GROUP PROJECT – SPRING 2016
REQUIRED: This project is worth 36 points. It is an opportunity to put together some of the things you
have learned in different parts of this course. You can work in groups of three (maximum), two or
individually. Read the case and answer the requirements below.
The names, usernames and Peoplesoft numbers of the group members must be written clearly below.
To receive credit you must write full answers, using the templates provided for each requirement. We
must ask you to handwrite your answers and show any calculations you feel are needed.
Hand your project in to the accounting lab 133MH during lab hours on or before Thursday April 21 at
3 PM. (Syllabus says 3 pm so Lab can close at “normal” time)
1) GROUP MEMBERS:
NAME

Blackboard Username

YOUR RECEIPT NUMBER

Peoplesoft Number

(lab assistants will give you this)

PROJECT FACTS
Manny Fold owns a factory that specializes in making titanium valves for high performance engines on
a just in time basis. Thus, Manny produces what he sells in a particular month. There are no
inventories of finished goods or work in process. However, Manny does require that an inventory of
direct raw materials equal to 20% of next month’s production requirement be available at the end of
each month. To build his business and gain new customers Manny has extended generous credit terms
to his customers. While Manny is confident about the fundamentals of his business, he is concerned
about the possible income and cash flow implications.
The variable costs of producing a valve are budgeted at $7.20 per valve for direct materials (3/4 pound
of titanium alloy costing $9.60 per pound), $2.80 per valve for direct labor, and $5.50 per valve for
variable manufacturing overhead. Fixed manufacturing overhead is budgeted at $74,700 per month
during the 2nd quarter. The detailed components of variable and fixed overhead are as listed below.

For variable overhead, electric power is budgeted at $2.30 per unit, indirect labor is budgeted at $2.50
per unit, and supplies are budgeted at $.70 per unit. For fixed overhead depreciation is budgeted at
$10,000 per month, Supervision and other factory salaries are budgeted at $40,000 per month, property
tax and insurance combined are budgeted at $8,000 per month (which have been paid in advance
through June 15 – see below), maintenance is budgeted at $7,000 per month, licensing fees and permits
to use proprietary technology are budgeted at $3,400 per month, and other miscellaneous fixed
overhead expenses are budgeted at $6,300 per month.
Manny’s customers drive a hard bargain because they can easily switch suppliers. They all do pay
eventually, but many of them take their time about doing so and Manny is reluctant to get tough with
them for fear they will take their business elsewhere. He tells you that all his sales are on credit (no
cash sales). He typically collects only 10% of sales in the month of the sale, 30% of sales in the month
after the sale and 60% of sales two months later (for example 10% of June sales would be collected in
June, 30% in July and 60% in August). On the other hand he must pay for 70% of his materials
purchases in the same month of the purchase and 30% in the month after. Cash costs of labor and
overhead other than depreciation, property taxes and insurance are paid in the same month they are
incurred. Property taxes and insurance are paid in advance through June 15. The amount due for the
next 6 months (starting June 16) must be paid in early June.
All of the selling and administrative expenses are fixed. Monthly fixed selling and administrative costs,
other than interest, amount to $43,600, of which $6,000 is depreciation. These operating costs,
excepting depreciation, are paid in cash in the month incurred. Manny has large tax loss carry forwards
from a previous unsuccessful business venture. Therefore he does not expect to pay any income taxes
this year. (In other words you may ignore income taxes).
Manny plans to buy new equipment costing $80,000 during the month of June. This equipment will be
ready for use starting in July.
The budgeted selling price of valves for April, May, and June is $23 per valve. Because of market
competition there is not much flexibility to adjust the price and the price is expected to be stable
during the 2nd quarter of 2014. Manny budgeted sales in units for April at 17,000 units. For May he
expects to sell only 18,000 units. He has projected sales of 19,000 units for June and 18,000 units for
July.
Manny requires a minimum cash balance of $10,000 at the end of each month. If the budgeted month
end cash balance will fall below this level Manny plans to borrow enough cash at the beginning of that
same month to keep his ending balance up to the minimum level. Manny’s bank charges him interest at
the rate of ½ % per month on the balance outstanding during that month. Manny’s bank charges him
interest at the rate of ½ % per month on the balance outstanding during that month. Manny pays the
interest at the beginning of the following month and plans to repay as much as he can at the beginning
of that month without letting his budgeted cash balance go below $10,000 at month end. (On the
budgeted income statement round interest expense to the nearest dollar)

2

The company’s managerial accountant has resigned unexpectedly before the 2nd quarter budget could
be completed. You have been contracted to complete the master budget for June and for the 2nd
quarter (including some missing numbers from May). Balances as of March 31 for all relevant
accounts have already been calculated by this accountant together with some of the amounts for April
and May. You may assume that these balances and amounts shown in the tables below are correct.

REQUIREMENTS: (To Equal 36 project points)
1)

Construct Manny’s budgeted income statement for June and the total for the 2nd
quarter. April and May have already been provided. Complete the template provided
below. Show any necessary calculations. (10 points)

2)

Using the same forecast as in requirement 1 construct Manny’s budget for raw materials
purchases in June and the total for the 2nd quarter (You will also have to complete the
budget for May) Complete the template provided which already has information for
April and May. (4 points)

3)

Using the same forecast as you used in requirement 1 construct Manny’s cash budgets
for June and the total for the 2nd quarter (You will also have to provide the missing
number for May payments for purchases). Complete the templates provided below
which already have information for April and May. Show any necessary calculations.
(5 points)

4)

Using the same forecast as you used in requirement 1 construct Manny’s budgeted
balance sheet at the end of June. Complete the template provided which already has the
March 31 balances. (5 points)

5)

During March Manny actually produced and sold 16,500 valves. Actual sales revenues
were $381,950. Actual costs and the original March budget based on 16,000 valves
were as detailed in the table below. Complete the table by constructing a flexible
budget based on 16,500 valves and determining the variances for the performance
report. Use the template provided below for your answer. (10 points)

6)

Write a brief report explaining some possible reasons why Manny’s profits were different
from the amount projected in the master budget for March (2 points).

REQUIREMENT 1

Budgeted Income Statement
April

May

SALES
REVENUES

$391,000

$414,000

DIRECT MATERIALS
USED

($122,400)

($129,600)

DIRECT LABOR

($47,600)

($50,400)

VARIABLE
OVERHEAD

($93,500)

($99,000)

CONTRIBUTION
MARGIN

$127,500

FIXED OVERHEAD

($74,700)

($74,700)

FIXED OPERATING
EXPENSES

($43,600)

($43,600)

OPERATING
INCOME

$ 9,200

INTEREST EXPENSE

NET INCOME

$0
$9,200

June

2nd Quarter

REQUIREMENT #2 BUDGETED PURCHASES OF TITANIUM ALLOY (direct material)

April

May

Valves to be
produced

17,000

18,000

X Pounds per
unit

0.75

Titanium to be
used

12,750

Desired ending
inventory
(20%)

2,700

Pounds of
Titanium
Needed

15,450

Less Beginning
Inventory

2,550

Pounds to be
purchased

12,900

Cost per pound

$9.60

Cost of
Purchases

June

2nd Quarter

$123,840

0.75
13,500

2,700

REQUIREMENT #3
COMPUTATION OF CASH COLLECTIONS (Use this to calculate March & Feb sales)

April

May

Sales Made 2
Months Ago

$213,900

$220,800

Sales Made 1
Month Ago

$110,400

$117,300

Sales Made this
Month

$39,100

$41,400

Total Cash
Collections

$363,400

$379,500

June

2nd Quarter

COMPUTATION OF CASH PAYMENTS

April
Payments for purchases
of materials

May

June

2nd Quarter

$121,680
(used to
calculate March
purchases)

Payments for direct
Labor

$47,600

$50,400

Payments for Variable
Overhead

$93,500

$99,000

Payments for Fixed
Overhead

$56,700

$56,700

Payments for Property
Taxes and Insurance

$0

$0

Payments for other
operating expenses

$37,600

$37,600

Capital Expenditures

$0

$0

Total Cash Payments

$357,080

COMBINED CASH BUDGET

April

May

Beginning
Balance of Cash

$10,324

$16,644

Cash Collections

$363,400
$373,724

$379,500
$396,144

Total cash
available
Less: Cash
Payments
Ending Cash
Balance Before
Financing:
Borrowings

$357,080
$16,644
$0

Repayments

$0

Interest
Payments
End Cash
Balance

$0
$16,644

June

2nd Quarter

REQUIREMENT #4: BUDGETED BALANCE SHEET FOR JUNE 30

March 31

June 30

ASSETS:
Current Assets
Cash
Accounts Receivable

$10,324
$545,100

Inventory (raw materials)

$24,480

Prepaid Insurance and
Property Taxes
Total Current Assets

$20,000

Equipment and Furniture
Accumulated Depreciation

$599,904
$880,000
($540,000)

Equipment & Furniture (net)

$340,000

Total Assets

$939,904

LIABILITIES AND EQUITY
Liabilities (all current)
Accounts Payable

$34,992

Interest Payable

0

Bank Loans Payable

0

Total Liabilities
Owner’s Equity
(Net income increases this)
Total Liabilities and Equity

$34,992
$904,912
$939,904

Actual Costs and Template for Requirement #5
Use this page to answer this requirement.
Performance Report for March
Cost Item

Actual results

Sales Revenues

$381,950

$368,000

Direct Materials
used

$118,720

$115,200

Direct Labor

$45,600

$44,800

Electric Power

$38,454

$36,800

Indirect Labor

$49,360

$40,000

Supplies

$16,686

$11,200

Supervision and
other salaries

$37,858

$40,000

Maintenance

$8,925

$7,000

Insurance and
property tax

$8,000

$8,000

Permits and
license fees

$3,400

$3,400

Factory
depreciation

$10,000

$10,000

Other Overhead
expenses

$8,650

$6,300

Total Production
Expenses

?

$322,700

Total Selling &
Administrative
Expenses

$39,867

$43,600

Total Expenses

?

$366,300

Operating
Income

?

$ 1,700

Flexible
Budget
Variance

Flexible
Budget for
16,500 units

Sales Volume
Variance

Static Master
Budget for
16,000 units

REQUIREMENT 6 (SPACE FOR REPORT)