Phonia Phelps Companys Semi-Annual Budget

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  1. Introduction
  2. Sales Budget in Dollars
  3. Production Budget in Units
  4. Direct Materials Purchase in Pounds
  5. Direct Materials Purchase in Dollars
  6. Direct Manufacturing Purchase Budget
  7. Manufacturing Overhead Budget
  8. Business Viability
  9. Conclusion
  10. References

Introduction

The budget is a detailed plan on how to acquire and use finances among other resources over the production time stipulated (TM 9-2, 2010). Budget control plans established in the organization to help achieve set goals. It also helps to quantify an organization as a way of determining its financial feasibility. As a result, it helps in controlling costs, evaluating performances, and making future decisions.

Phonia Phelps Company is making a budget preparation for the semi-annual of the year ending 30 July. For the period, the company has budgeted follows.

Sales Budget in Dollars

The sales budget is a schedule showing sales expected for a given time in detail. It is a forecast of the companys sales to customers at a given time.

Month Jan Feb March April May June
Sales (case) 5000 5500 6100 6800 7000 7200

The companys selling price is $250 per case. Therefore, the sales budget preparations are as below.

Jan Feb March April May June
Budget Sales (unit) 5000 5500 6100 6800 7000 7200
Sales per unit $250 $250 $250 $250 $250 $250
Total $1,250,000 $1,375,000 $1,525,000 $1,700,000 $1,750,000 $1,800,000

Production Budget in Units

Extra Information

In order for Phionia Phelps to meet the next months expected growth, the companys desire is to maintain an inventory of 10% at the end of the month, which is equal to projected sales for the next month. Moreover, last year in December, the company had 500 (5000*10%) units on hand. With the above information, the production Budget is as below.
Production Budget=budget sales+ desired ending inventories  beginning inventories

Jan Feb March April May June July
Budgeted sales 5, 000 5,500 6,100 6,800 7,000 7,200 7,400
Desired ending inventory 550 610 680 700 720 740 750
Total needs 5,550 6,110 6,780 7,500 7,720 7,940 8,150
Beginning inventories 500 550 610 680 700 720 740
Required production 5,050 5,560 6,170 6,820 7,020 7,220 7,410

Direct Materials Purchase in Pounds

Direct materials purchase budget expresses quantities and costs estimated for the raw materials and other components needed to meet the output demand of the production budget.

Extra Information

During production, all ingredient inventories for production are maintained at 5% of the next months production needs without exceeding 1,000 pounds for any ingredient.

Jan Feb March April May June Semi-annual
Production units needed 5,050 5,560 6,170 6,820 7,020 7,220 37,840
Raw material per unit (pounds) Lamb 5 5 5 5 5 5 5
Rice 10 10 10 10 10 10 10
Salmon 2 2 2 2 2 2 2
Vitamins 1 1 1 1 1 1
Production needs per pound Lamb 25,250 27,800 30,850 34,100 35,100 36,100 189,200
Rice 50,500 55,600 61,700 68,200 70,200 72,200 378,400
Salmon 10,100 11,120 12,340 13,640 14,040 14,440 75,680
Vitamins 5,050 5,560 6,170 6,820 7,020 7,220 37,840
Desired ending inventory added (pounds) Lamb 1,000 1,000 1,000 1,000 1,000 1,000 1,000
Rice 1,000 1,000 1,000 1,000 1,000 1,000 1,000
Salmon 1,000 1,000 1,000 1,000 1,000 1,000 1,000
Vitamins 1,000 1,000 1,000 1,000 1,000 1,000 1,000
Total need materials (pounds) Lamb 26,250 28,800 31,850 35,100 36,100 37,100 190,200
Rice 51,500 56,600 62,700 69,200 71,200 73,200 379,400
Salmon 11,100 12,120 13,340 14,640 15,040 15,440 76,680
Vitamins 6,050 6,560 7,170 7,820 8,020 8,220 38,840
Subtract beginning inventories 4,545 5,004 5,553 6,138 6,318 6,498 34,056
Raw material purchased per pound Lamb 21,705 23,796 26,297 28,962 29,782 30,602 156,144
Rice 46,955 51,596 57,147 63,062 64,882 66,702 345,344
Salmon 6,555 7,116 7,787 8,502 8,722 8,942 42,624
Vitamins 1,505 1,556 1,617 1,682 1,702 1,722 4,784

Direct Materials Purchase in Dollars

Additional Materials

Item Cost
Lamb $15.00
Rice $1.20
Salmon $24.00
Vitamin $45.00
Raw material purchased per pound Lamb 21,705 23,796 26,297 28,962 29,782 30,602 156,144
Rice 46,955 51,596 57,147 63,062 64,882 66,702 345,344
Salmon 6,555 7,116 7,787 8,502 8,722 8,942 42,624
Vitamin 1,505 1,556 1,617 1,682 1,702 1,722 4,784
Cost of material (dollars) Lamb 325,575 356,940 394,455 434,430 446,730 459,030 2,342,160
Rice 56,346 61,915.20 68,576.40 75,674.40 77,858.40 80,042.40 414,412.80
Salmon 157,320 170,784 186,888 204,048 209,328 214,608 1,022,976
Vitamin 67,725 70,020 72,765 75,690 76,590 77,490 215,280

Direct Manufacturing Purchase Budget

Direct Manufacturing Labor Budget in Dollars

The manufacturing process requires labor to prepare ingredients at $18 and to cook and can the product at $24 per hour. In addition, the management of the firm is adjusting the workforce according to demands. Since processing one batch involves 1 hour and the batch produces 100 cases. Then, one case requires 0.01 hours.

Jan Feb March April May June Semi-annual
Needed production 5,050 5,560 6,170 6,820 7,020 7,220 37,840
Direct labor hours 50.5 55.6 61.7 68.2 70.2 72.2 378.4
Direct labor cost per hour Ingredient preparing labor 909 1000.8 1110.6 1227.6 1263.6 1299.6 6,811.2
Canning & cooking labor 1,212 1,334.4 1,480.8 1,636.8 1,684.8 1732.8 9,081.6
Total direct labor cost 2,121 2,335.2 2,591.4 2,864.4 2,948.4 3,032.4 15,892.8

Manufacturing Overhead Budget

Extra Information

Manufacturing overhead is fixed at $6,000 and $15 per case.

Jan Feb March April May June Semi annual
Direct labor budgeted hours 50.5 55.6 61.7 68.2 70.2 72.2 378.4
Variable manufacturing rate $15 $15 $15 $15 $15 $15 $15
Total variable manufacturing overhead 757.5 834 925.5 1023 1053 1083 5676
Fixed manufacturing overhead $6,000 $6,000 $6,000 $6,000 $6,000 $6,000 $6,000
Total manufacturing overhead $6,758 $6,834 $6,926 $7,023 $7,053 $7,083 $11,676

Business Viability

The production expense of the company in six months is $11,676. In case there is a $50,000 investment, the business plan remains viable since the production cost and total labor costs are low (TM 9-1, 2010). However, the direct purchase of raw materials is expensive than available cash. As a result, the business plan to be undertaken forces the investor to pursue other means of acquiring raw materials like credit (Accounting CPE, 2013).

Conclusion

The sales budget estimates the company sales. On the other hand, the production budget ensures the stock is maintained at economic levels. Direct material highlights the needed materials for optimum production, and labor budget shows the cost of optimum labor. Hence, these budgets can help to determine the feasibility of engaging in a certain business to reduce the chances of losses.

References

Accounting CPE (2013).Web.

TM 9-1 (2010). Agenda: Profile Planning (Budgeting).New York, NY: McGraw-Hill.

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