University of the South Pacific

Faculty of Business and Economics

School of Accounting and Finance

AF102 – Introduction to Accounting and Financial Management Part II

ASSIGNMENT SEMESTER 2, 2017

INSTRUCTION SHEET

Weighting:

The total mark for this assignment is 100 marks and is worth 10% of your total coursework
assessment.

Due date:

 For Laucala based students only: The hard copy of this assessment is due in Week 13,
Friday 6th October, at the School of Accounting and Finance office before 12 midday.
The hard copy must be appropriately formatted and printed.
 Regional campus students: Only submit the soft copy.
 You must use excel to prepare the various budgets.
 The soft copy (in Excel, one final copy only – no drafts) is to be uploaded on Moodle
(Assignment Drop-Box) before 12 noon as well. The Group Leader only is required to
upload the assignment after all the members agreed on the final version.
 No extensions will be granted. Policies and penalties apply as provided in the Course Outline
document. Familiarize yourself with them.

Instructions:

This assignment focuses on two areas:

 The development of skills necessary to analyze, interpret and use information to draw up
budgets and
 The ability of students to use Excel spreadsheets to create budgets.

This assignment MUST be done in groups of three or four students. Individual assignments will
NOT be accepted. The groups are to be formed at your discretion. Group conflicts must be
resolved by members. No last minute excuses will be entertained.

The table below needs to be used on the cover sheet of your assignment. The assignment will be
marked STRICTLY based on the order in which you list student ID’s. The details below are
just examples. You must fill in your respective group details. Also refer to p. 2 for further details
on using this table.

An example only:
Group Member ID Number First Name Last Name Tutor Tutorial Time
No.
1. S00003206 Mickey Mouse Robert Tues 4-6 pm
2. S11036589 Donald Duck Robert Tues 4-6 pm
3. S90250055 Yogi Bear Robert Tues 4-6 pm
4. S11011034 Scooby Doo Robert Tues 4-6 pm

1
Students are REQUIRED to use the budget templates as illustrated in the COURSE
TEXTBOOK, unless otherwise. Any supplementary working done to support the amounts in the
budgets should be provided. Penalties will apply to messy/unprofessional work.

PREPARATION OF OPERATING AND FINANCIAL BUDGETS

Donahue Company is preparing budgets for the third quarter ending Sept 30, 2016. Budgeted
sales for the next five months are:
 July 20,AAA units
 Aug 50,BBB units
 Sept 30,CCC units
 Oct 25,DDD units
 Nov 15,000 units

See instructions in table below:

Group ID Number First Name Last Name Tutor Tutorial Time

Member No.
1. S00003206 Mickey Mouse Robert Tues 4-6 pm
2. S11036589 Donald Duck Robert Tues 4-6 pm
3. S90250055 Yogi Bear Robert Tues 4-6 pm
4. S11011034 Scooby Doo Robert Tues 4-6 pm

July 20,AAA units becomes 20,206 units. AAA is the last three digits of Member 1’s ID.
Aug 50,BBB units becomes 50,589 units. BBB is the last three digits of Member 2’s ID.
Sept 30,CCC units becomes 30,055 units. CCC is the last three digits of Member 3’s ID.
Oct 25,DDD units become 25,034 units. DDD is the last three digits of Member 4’s ID.
NOTE that if your group has three members only, then use the value of 25,000 units for Oct.
Nov remains at 15,000 units.

The selling price is $15 per unit. All sales are on account. Donahue’s collection pattern is 60%
collected in the month of sale and remaining amount in the month following sale.

The June 30 Accounts Receivable balance of $50,000 will be collected in full.

The management at Donahue Company wants ending Finished Goods Inventory to be equal to
25% of the following month’s budgeted sales in units.

At Donahue Company, five pounds of material are required per unit of product. Management
wants materials on hand at the end of each month equal to 15% of the following month’s
production. Material cost is $0.50 per pound.

30% of a month’s purchases is paid for in the month of purchase and the remainder is paid in the
following month. The June 30 Accounts Payable balance is $20,000.

At Donahue, each unit of product requires 0.06 hours (3.6 minutes) of direct labor. The company
has a “no layoff” policy and in exchange for the “no layoff” policy, workers agree to a wage rate
of $15 per hour regardless of the hours worked (no overtime pay). For the next three months, the
direct labor workforce will be paid for a minimum of 2,000 hours per month.
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At Donahue, manufacturing overhead is applied to units of product on the basis of direct labor
hours. The variable manufacturing overhead rate is $25 per direct labor hour. Fixed
manufacturing overhead is $40,000 per month and includes $10,000 of non-cash costs.

At Donahue, the selling and administrative expenses budget is divided into variable and fixed
components. The variable selling and administrative expenses are $0.55 per unit sold. Fixed
selling and administrative expenses are $60,000 per month. The fixed selling and administrative
expenses include $15,000 in costs that are not cash outflows of the current month.

The company:

Has an July 1 cash balance of $55,000

Maintains a minimum cash balance of $35,000

Borrows on the first day of the month and repays loans on the last day of the quarter

Maintains a 12% open line of credit for $95,000

Pays a cash dividend of $45,000 in Aug

Cash purchases of equipment, $155,200 in July and $54,800 in Sept, respectively

Donahue reported the following account balances prior to preparing its budgeted financial
statements:

Land - $65,000

Equipment - $180,000

Ordinary shares - $195,000

Retained earnings - $X*
*
This Retained earnings figure will be the amount needed to balance off your balance sheet on
June 30th i.e. the closing balances on June 30 th before you step into the third quarter.

Required:

With the information provided, assist Donahue Company in setting up their ‘Master Budget’. To
do this, you will need to prepare the following budgets for the third quarter of the year:

1. Sales Budget
2. Expected Cash Collections
3. Production Budget
4. Direct Materials Budget
5. Expected Cash Disbursements for Materials
6. Direct Labour Budget
7. Manufacturing Overhead Budget
8. Ending Finished Goods Inventory Budget
9. Selling & Administration Expenses Budget
10. Cash Budget
11. Budgeted Income Statement
12. Budgeted Balance Sheet*
*
For the balance sheet as at Sept 30th, there will be a difference between the final totals. This is
due to calculations based on rounded off units. To balance the totals, simply close off this
difference to the Retained Earnings account.