Summer 2023

ACT202
Assignment

Group 4: Sharmina Islam 2233448030,

Fahmida 2231653630
Rodela Nawar Matin 2233657030,
Nafiza Anjum Ghani Orpa 2233022630

Fahmina Tuz Munira 2112093630,

Afrida Ibnath Hamid 2233617630

Course: ACT202
Section: 15
Faculty: Professor Dr. Md. Musfiqur Rahman FCMA
Submission Date: 11th November 2023
 Table of Contents

Serial Topic Page

Number
1. Letter of Transmittal 3

2. Abstract 4

3. Details and Product Cost 5

4. Predetermined Overhead Rate, Prime 6

Cost, Conversion Cost

5. Sales Budget, Collection of sales 7

6. Selling & Administrative Budget, 8

Production Budget, Cash
Disbursement
7. Cash Budget and Budgeted Income 9
Statement
Letter of Transmittal

Date: November 11th 2023

Professor Dr. Md. Musfiqur Rahman FCMA

North South University, Dhaka, Bangladesh

Subject: Managerial Accounting Project - Budget for Business Start-up

Dear Sir,

We are writing to submit our Managerial Accounting project, which focuses on creating a budget
for a hypothetical business start-up. This project was completed by our group, and we have
followed your guidelines and instructions carefully. Our group members have worked
collaboratively to analyze and estimate various costs associated with the business, and we have
prepared a comprehensive report, budget, and income statement. In preparing our budget for two
months, we have taken into consideration factors such as changes in selling price, sales growth,
and monthly production cost increases. We have provided detailed justifications for any changes
made in our calculations. We trust that our project will provide you with valuable information
and align with your expectations. We are grateful for the opportunity to contribute to this project
and eagerly await your feedback and evaluation.

Thank you for your time and consideration.

Sincerely,

Sharmina Islam 2233448030, Fahmida 2231653630

Rodela Nawar Matin 2233657030, Nafiza Anjum Ghani Orpa 2233022630

Fahmina Tuz Munira 2112093630, Afrida Ibnath Hamid 2233617630

Abstract

This detailed managerial accounting project focuses on the complex issues of financial planning
and budgeting for a hypothetical wooden chair manufacturing company. This project is the result
of a dedicated group of six members working together to create a two-month budget that covers a
wide range of financial and operational aspects. Beginning with a thorough examination of labor
and production capacity, we proceed to estimate costs by referencing real-world competitors and
market data, carefully analyzing and categorizing these costs into direct/indirect and
fixed/variable classifications. A simple yet reliable costing system is used, with an appropriate
allocation base used to calculate unit product costs, as well as detailed breakdowns of direct
material, direct labor, and manufacturing overhead costs, as well as the methodology for
calculating the predetermined overhead rate (POHR). In addition, we determine prime cost and
conversion cost, which provide critical insights into financial health. We anticipate changes in
the coming months, including a 15% increase in selling price, a 12% increase in monthly sales,
and a 20% increase in production costs, and we provide well-justified justifications for these
changes, ensuring the budget's viability. The project concludes with a comprehensive master
budget that includes sales, production, selling, and administrative expenditures, a planned
income statement, and a two-month cash budget, providing a comprehensive approach to
financial planning. This project goes beyond theory to provide practical insights for anyone
pursuing a career in the manufacturing of wooden chairs, allowing for educated financial
decisions, resource efficiency, and the path to long-term success in this industry. Wood Haven, a
new company is planning to start its business on manufacturing wooden chairs. As the company
is just starting and quite small compared to its competitors in terms of size, labor, maximum
capacity etc. the company estimated all the costs by taking help from few established companies
like RFL, Hatil and the market in general.
 DETAILS
Maximum production of chairs- 2500 chairs
Total labor hours- 1000 hours per month
Manufacturing costs
1. Direct material – 1kg of wood @ 200 taka
2. Direct labor- 200 taka per hour
3. Total overhead costs- 95000 taka
➢ Variable costs = 20000 taka
➢ Fixed costs = 75000 taka (includes rent, utility and etc.)
Non manufacturing costs
1. Selling and administrative expenses
➢ Variable= 15000 taka
➢ Fixed = 35000 taka

Additional information:

1. Each chair requires 5 kilograms of wood.

2. Each chair production requires 0.5 hours of direct labor.
3. Manufacturing overhead is applied to the units of products on the basis of direct labor
hour.
4. Fixed manufacturing overhead is 75000 taka per month and includes 10000 taka of non
cash costs (machinery depreciation).
5. Fixed selling administrative expense is 35000 taka per month and includes 5000 taka of
non cash costs.

Product cost:

Details Taka
Direct material 1000
Direct Labor 100
Manufacturing overhead 48
 Product cost per chair 1148

Predetermined Overhead rate (POHR):

POHR= 95000/1000

=95 taka per labor hour

Workings:

1) Direct material cost = 5x200= 1000 taka

2) Direct labor cost= 0.5 hrsx200= 100 taka
3) Manufacturing overhead per chair= 95×0.5= 48 taka (rounded)

Prime cost:

Prime cost = direct material cost + direct labor cost

=1000+100= 1100 taka per chair

Conversion cost:

Conversion cost= direct labor cost + Manufacturing cost

=100+48=148 taka per chair

The following policies will be maintained while preparing the budget:

1. Sales are 60% for cash and 40% on credit.

2. Sales on account are collected over a two months period with 20% in the month of sale
and the remaining 80% in the first month following the sale.
3. The selling price goes up by 15% and monthly sales unit increases by 12%.
4. The production cost increases by 20% every month.
5. Wood Haven wants to maintain the ending inventory to be equal to 20% of following
month’s budgeted sales.
 6. 50% of a month’s inventory purchase are paid for in the month of purchase and the rest is
paid in the following month.
7. Fixed selling and administrative expense is 35,000tk per month and includes 5,000tk of
noncash costs.
8. Variable selling and administrative expense is 6tk per chair sold.
9. Wood Haven will not take any loan if they have sufficient ending cash balance.

Master Budget for the following first 2 months of the business:

Sales Budget January February

Budgeted sales in unit 1500 1680
Selling price per unit 2000 2300
Total budgeted sales 3000000 3864000
Working:
1500×(1500×12%)=1680

Collection on sales January February

Cash sales
January (3000000x60%) 1800000
February (3864000x60%) 2318400
Sales on account
January (1200000x20%...80%..) 240000 960000
February (1545600x20%) 309120
Total cash collections 2040000 3587520
Working:
3000000x40%=1200000
3864000x40%=1545600

Selling and Administrative budget January February

Budgeted sales in unit 1500 1680
Variable S&A rate 6 6
Variable expenses 9000 10080
Fixed S&A expenses 35000 35000
Total S&A expenses 44000 45080
Less: Non-cash expenses 5000 5000
Cash S&A expenses 39000 40080

Production Budget January February

Budgeted sales in unit 1500 1680
Add: desired ending inventory 336 376
Total needs 1836 2056
Less: beginning inventory -336
Required production 1836 1720
Working:
Jan-1680×20%=336 Feb-1881×20%=376

Cash Disbursement January February

Beginning balance ------ ------
January Sales
50% x 2107728 1053864
50% x 2107728 1053864
February Sales
50% x 2369472 1184736
Total Cash Disbursement 1053864 2238600
Working:
January production cost:
1836x1148=2107728

February production cost:

1720x[1148+(1148x20%)]=2369472

Cash Budget January February

Beginning cash balance ------ ------
Add: Cash Collection 2040000 3587520
Total Cash Collection 2040000 3587520
Less: Cash Disbursements
Purchases for inventory 1053864 2238600
Selling & Administrative Expenses 39000 40080
Total Cash Disbursements 1092864 2278680
Excess of cash available over
disbursements 947136 1308840
Financing:
Borrowings ------ ------
Repayments ------ ------
Interest ------ ------
Total Financing ------ ------
Ending Cash Balance 947136 1308840

Budgeted Income Statement

Details January February

Budgeted Sales 3000000 3864000

Cost of Goods Sold (Jan= 1500X1148 1722000 2314368

Feb= 1680×[1148+(1148×20%)]
Gross Margin 1278000 1549632

Selling and Administrative Expenses 44000 45080

Net Income 1234000 1504552