Wessex Engineering

Assumptions
1. Only 2 products - no other source of income
2. Work in Progress to be ignored
3. DM stock and FG stock are costed using FIFO
4. Unit costs of DM and FG are unchanged in the budget period
5. Var.Man. Production cost vary with labor-hours; Var. Non.production cost vary with revenue
6. For inventoriable costs, all Man. Cost are allocated using a single allocation base - direct man. hours

Content
Forecast Regular Heavy-Duty
Direct Materials (DMPrice Unit Unit
Alloy 111 7 kg 12 12 kg
Alloy 112 10 kg 6 8 kg
Dir.Man.Labor 20 hour 4 6 hour

2016 Regular Heavy-duty

Expected sales units 5000 1000
Selling price euro 600 800
Target closing stock units 1100 50
Opening stock units 100 50
Opening stock euro 38400 26200

Direct Materials Alloy 111 Alloy 112

Opening stock Kg 7000 6000
Target closing stock Kg 8000 2000

Manufactoring OH
Var Eur/man.la 26
Fixed Eur 420000

Non-production costs
Var. R&D 76000
Var. Marketing 133000
Var. Distribution 66500
Var. Customer ser. 47500
Var. Adm. 152000 475000
Fix. R&D 60000
Fix. Marketing 67000
Fix. Distribution 33500
Fix. Customer ser. 12500
Fix Adm. 222000 395000
Total 870000
 Revenue Budget

Production Budget

Direct Materials Usage

(purchase budget)

Usually described in a
Manufactoring OH budget procedure or
Budget manual with
instructions

Closing Stock Budget

GOGS Budget

Other costs Budget

described in a
procedure or
nual with
ructions
EUR 2016
Product Units Price Total
Regular 5000 600 3000000
Heavy-Duty 1000 800 800000
Total 3800000
Input from sales.
Bottom-up or Top-Down.
Each Sales Rep has a sales budget
per customer.
Discussion with sales mgmt. on
budget assumptions; Growth rates
in market, New products, New
markets, Marketing initiatives.

Budget as a negotiation platform:

- Padding
- Slack
OBS on how to use periods to build
slack !!
wn.
ales budget

mgmt. on
Growth rates
cts, New
nitiatives.

on platform:

riods to build
 2016
units Regular Heavy-Duty
Sales 5000 1000
Target Stock 1100 50
Total Need 6100 1050
Opening stock 100 50
To produce 6000 1000 Production issues:
1. Is the demand stable or
volatile. Do you adapt with stock
or adjust production (LEAN TAKT)
2. How flexible is the production ?
Do you have capacity limitations ?
( 1-shift, 3-shift, 5-shift )
3. Potential limitations in
- Materials
- Personnal
- Skills
ble or
pt with stock
(LEAN TAKT)
production ?
y limitations ?
ift )
ns in
Direct materials USAGE Material
Alloy 111 Alloy 112
Regular KG 72000 36000
Heavy-Duty KG 12000 8000
Total consumption KG 84000 44000
We assume constant price in the
period. i.e. std cost
From:
1 . Opening Stock (FIFO) 7000 6000 Price changes will lead to variance in
the budget
Cost Eur/kg 7 10
Cost DM from Stock 49000 60000 109000

2. DM purchase 77000 38000

Cost DM purchase 539000 380000 919000

Total cost DM 588000 440000 1028000

Direct materials PURCHASE

To be used KG 84000 44000

Target Closing KG 8000 2000
Total Need KG 92000 46000 138000

Opening Stock KG 7000 6000

To purchase KG 85000 40000 125000
PurchaseCosts Eur 595000 400000 995000
me constant price in the
.e. std cost

anges will lead to variance in

get
Direc Labor Hours Regular Heavy-Duty
Output Production 6000 1000
Hour/unit 4 6 We assume stable production on
same output each month.
Total hours 24000 6000 30000
Wage rate 20 20 However you can have short periods
Total wages 480000 120000 600000 with same Total wage on lower
output level.

Peak production with overtime

payment can also occour (different
rate)
duction on
nth.

e short periods
on lower

overtime
our (different
Manufacturing OH at 30000 direct man. Hours

Variable Man OH
Supplies 90000
Ind. Man. Labor 210000
Labor Fringe Cost 300000
Power 120000
Maintenance 60000
780000
Fixed Man OH
Depriciation 220000
Property tax 50000
Wessex treat both Var and Fix man OH as
Property Insurance 10000 inventoriable costs => use absorbtions costing as
Supervision 100000 stock costing method.
Power 22000
Wessex use 1 rate of (1200000 / 30000) 40 eur
Maintenance 18000 per direct manufactoring labor. (does not use
420000 separate var. and fix. rates)
Total Man OH 1200000
man OH as
rbtions costing as

/ 30000) 40 eur
(does not use
Calculation of unit costs
Regular Heavy-duty
Direct Material Cost/inputInput Cost Input Cost
Alloy 111 7 12 84 12 84
Alloy 112 10 6 60 8 80
Direct Labor 20 4 80 6 120
Man OH 40 4 160 6 240
Total Cost 384 524

Closing Stock Budget

Direct Matrials Units Cost Total

Alloy 111 8000 7 56000
Alloy 112 2000 10 20000
76000
Finished Goods
Regular 1100 384 422400
Heavy-duty 50 524 26200
448600
Total closing stock 524600
Cost of goods sold

Opening stock finishes goods 64600

Direct Materials Used 1028000
Direct Manufacturing Labor 600000
Man. OH 1200000 Basic:
Cost of good manufactured 2828000 Beginning Stock
Cost of goods available for sale 2892600 + Added in period
- Ending Stock
= Used in period
Cost of finished goods closing stock 448600
Cost Opening Stock FG
COGS 2444000 + Cost of goods man.
- Cost Closing stock FG
= Cost of goods sold
 Stock
period
ck
eriod

ing Stock FG
ods man.
ng stock FG
ods sold
 Non-production costs
Var. R&D 76000
Var. Marke 133000
Var. Distri 66500
Var. Custom 47500
Var. Adm. 152000 475000
Fix. R&D 60000
Fix. Market 67000
Fix. Distrib 33500
Fix. Custom 12500
Fix Adm. 222000 395000
Total 870000
Profit and Loss statement
Revenues 3800000
Costs
COGS 2444000
Gross Margin 1356000

Operating Costs
R&D 136000
Marketing 200000
Distribution 100000
Customer service 60000
Adminastration 374000
870000

Operating Profit 486000

Sensitivity analysis - What if

Assumptions:
Direct Materials vary directly with production modify cells
Variable Man. Cost vary with direct man. Labour
Var. Non-man cost vary with revenue (other)
Units sold Sales Price DM cost
Scenarioes: Change Reg H-D Reg H-D Alloy 111
Master 0% 5000 1000 600 800 7
Scenario 1 Decrease in sales price -3% 5000 1000 582 776 7
Scenario 2 Decrease in units sold -4% 4800 960 600 800 7
Scenario 3 Increase in DM costs 5% 5000 1000 600 800 7.35
DM cost
Alloy 112
10
10
10
10.5
Wessex Engineering

Assumptions
1. Only 2 products - no other source of income
2. Work in Progress to be ignored
3. DM stock and FG stock are costed using FIFO
4. Unit costs of DM and FG are unchanged in the budget period
5. Var.Man. Production cost vary with labor-hours; Var. Non.production cost vary with revenue
6. For inventoriable costs, all Man. Cost are allocated using a single allocation base - direct man. hours

Content
Forecast Regular Heavy-Duty
Direct Materials (DMPrice Unit Unit
Alloy 111 7 kg 12 12 kg
Alloy 112 10 kg 6 8 kg
Dir.Man.Labor 20 hour 4 6 hour

2016 Regular Heavy-duty

Expected sales units 5000 1000
Selling price euro 600 800
Target closing stock units 1100 50
Opening stock units 100 50
Opening stock euro 38400 26200

Direct Materials Alloy 111 Alloy 112

Opening stock Kg 7000 6000
Target closing stock Kg 8000 2000

Manufactoring OH
Var Eur/man.la 26
Fixed Eur 420000

Non-production costs
Var. R&D 76000
Var. Marketing 133000
Var. Distribution 66500
Var. Customer ser. 47500
Var. Adm. 152000 475000
Fix. R&D 60000
Fix. Marketing 67000
Fix. Distribution 33500
Fix. Customer ser. 12500
Fix Adm. 222000 395000
Total 870000
Sensitivity analysis - What if
Assumptions:
Direct Materials and Direct labor vary directly with production Already a function of units produced
Variable Man OH Cost vary with direct man. Labour Change Cells to calculate Var man OH as a function of Dir. M
Var. Non-man cost vary with revenue (other) Change Cells to calculate Other var.cost as a function of reve
Units sold Sales Price
Scenarioes: Change Reg H-D Reg
Master 0% 5000 1000 600
Scenario 1 Decrease in sales price -3% 5000 1000 582
Scenario 2 Decrease in units sold -4% 4800 960 600
Scenario 3 Increase in DM costs 5% 5000 1000 600
 Revenue Budget

Production Budget

Direct Materials Usage

(purchase budget)

Usually described in a
Manufactoring OH budget procedure or
Budget manual with
instructions

Closing Stock Budget

GOGS Budget

Other costs Budget

an OH as a function of Dir. Man. Labor
var.cost as a function of revenue
Sales Price DM cost
H-D Alloy 111 Alloy 112
800 7 10 486000
776 7 10
800 7 10
800 7.35 10.5
Usually described in a
budget procedure or
manual with
instructions
Scenario Summary
Current Values: Scenario 1 Scenario 2 Scenario 3
Changing Cells:
$C$20 600 582 600 600
$D$20 800 776 800 800
$C$19 5000 5000 4800 5000
$D$19 1000 1000 960 1000
$B$14 7 7 7 7.35
$B$15 10 10 10 10.5
Result Cells:
$M$57 486000 386250 436200 434600
Notes: Current Values column represents values of changing cells at
time Scenario Summary Report was created. Changing cells for each
scenario are highlighted in gray.
 Q1 Q2 Q3 Q4 Year
Beg Cash Bal 30000 35820 35934 35188 30000
Cash in
Collection Customer 913700 984600 976500 918400 3793200
Cash Available 943700 1020420 1012434 953588 3823200
Cash out
Payment materials 314360 283700 227880 213800 1039740
Payroll 557520 432080 409680 400720 1800000
Income tax 50000 46986 46986 46986 190958
Other Cost 184000 156000 151000 149000 640000
Machine Purchase 0 0 0 35080 35080
Total payments 1105880 918766 835546 845586 3705778
Min. Cash Bal. 35000 35000 35000 35000 35000
Cash Needed 1140880 953766 870546 880586 3740778

Cash Excess -197180 66654 141888 73002 82422

Financing
Borrowing (beg) 198000 198000
Repayment (end) 62000 130000 6000 198000
Interst 12% 3720 11700 720 16140
Effect Financing 198000 -65720 -141700 -6720 -16140

Cash Bal End 35820 35934 35188 101282 101282

 Begining End Balance
Assets 31-Dec-17
Current Assets
Cash 30000 101282
Debtors 400000 406800
Dir. Materials 109000 76000
Finished Goods 64600 603600 448600 1032682
PPE
Land 200000 200000
Building & Equip 2200000 2235080
Acc. Depr. -690000 1710000 -920000 1515080
Total 2313600 2547762

Liability & Eq
Current Liability
Creditors 150000 105206
Income tax Payable 50000 200000 46986 152192
Equity
Share Capital 350000 350000
Retained Earning 1763600 2113600 2045516 2395516
Total 2313600 2547708
ex. 14.10

ex. 14.11
1. Cash Collection from customers (not connected to case - just illustration)
Payment term history can be usefull

Okt Nov Dec Jan Feb Mar Apr

Sales 500000 550000 750000 500000 400000 500000 555000
14 days 50% 291667 210000 210000 246167
30 days 25% 187500 125000 100000 125000
60 days 15% 82500 112500 75000 60000
90 days 10% 50000 55000 75000 50000
Not colect 1% -5000 -4000 -5000 -5550
Cash Collected 606667 498500 455000 475617

Cash Opening Balance before Financing 120000 220797 157630 -165870

Payments
Material Creditors 125000 100000 110000 150000
Salaries 95870 95870 95870 95870
Income Tax 0 0 0 0
VAT 100000 80000 100000 111000
Other Costs 65000 65000 65000 65000
Machine Investment 0 0 250000 0
Total Paymentss 385870 340870 620870 421870
Min Cash balance 35000 35000 35000 35000
Total Cash Needed 420870 375870 655870 456870

Excess Cash 185797 122630 -200870 18747

Financing
Bank Loan 0 0 250000 0
Repayment 0 0 0 0
Interest 12% 0 0 0 -2500
Total Effect of financing 0 0 250000 -2500

Cash balance closing 220797 157630 84130 51247

lustration)

Maj Jun Jul Aug Sep Okt Nov Dec

500000 450000 300000 700000 600000 650000 650000 800000
246167 221667 175000 233333 303333 291667 303333 338333
138750 125000 112500 75000 175000 150000 162500 162500
75000 83250 75000 67500 45000 105000 90000 97500
40000 50000 55500 50000 45000 30000 70000 60000
-5000 -4500 -3000 -7000 -6000 -6500 -6500 -8000
494917 475417 415000 418833 562333 570167 619333 650333

53747 234047 74547 44130 133833 97333 95167 144333

0 150000 150000 0 200000 200000 200000 200000

95870 95870 95870 105000 105000 105000 105000 105000
0 0 0 0 0 0 0 0
100000 90000 60000 140000 120000 130000 130000 160000
65000 65000 65000 40000 40000 40000 40000 40000
0 0 0 0 0 0 0 0
260870 400870 370870 285000 465000 475000 475000 505000
35000 35000 35000 35000 35000 35000 35000 35000
295870 435870 405870 320000 500000 510000 510000 540000

199047 39547 9130 98833 62333 60167 109333 110333

0 0 0 0 0 0 0 0
0 0 0 0 0 0 0
-2500 -2500 -2500 -2500 -2500 -2500 -2500 -2500
-2500 -2500 -2500 -2500 -2500 -2500 -2500 -2500

231547 72047 41630 131333 94833 92667 141833 142833