Beach manufactures swimwear

On The Beach manufactures swimwear and accessories for men and women.  They operate out of rented premises in Currumbin Creek Road where the factory is split into a manufacturing and storage area and a retail space.

The business produces 4 products:

  • One-piece swimsuits for women
  • Board shorts for men
  • Beach Towels
  • Beach Bags

You, as the management accountant for the firm, have been asked to prepare a range of budgets for the 2019 year.  The following information has been gathered:

SalesOne-pieceBoard shortsTowelsBeach Bags
January 20191,8001,600200400
February 20191,4001,100180300
March 20191,3001,160160260
April 20191,0001,000120140
May 20194006006080
June 20194005004040
July 20194005004040
August 20196004004080
September 20191,3001,160160260
October 20191,2001,100180300
November 20191,2001,100180300
December 20191,5001,200200400
January 20201,6001,400220440
February 20201,6001,400200400
One-piece swimsuitsBoard shortTowelBeach Bag
Selling Price$100$80$50$45
ProductOne-piece swimsuitsBoard shortTowelBeach Bag
Direct Materials & Direct Labour per unit
Fabric$20.75$31.25$26.25$25
Elastic/Trim$13.50$3.00$5.25$1.5
Direct Labour (sewing time/machine hours)1 hour0.75 hours0.4 hours0.6 hours
Other Cost information:Production Related CostsOperating Costs
Direct Labour$28/hour
Indirect Labour$1/unit
Indirect Materials$2/unit
Utilities$450/month$50/month
Insurance$2,200/year$6,000/year
Factory Supervisor’s Salary$54,000/year
Administration Staff Wages$2,500/month
General Office Expenses$1,500/month
Rent$5,600/month$1,400/month
Repairs and MaintenanceSee below

Inventory:  At the end of each month the business plans to have 50% of the following month’s sales units in stock as finished goods and 75% of the direct materials required for the next month’s production.

Cash Collections:  20% of sales are through the retail outlet at the factory.  These customers pay for their purchases at the time of sale.  The remainder of sales are to businesses that resell On The Beach products. Credit is extended to all business customers.  It is estimated 60% of these sales are collected in the month of sale and the remaining 40% are collected in the following month.

Cash Payments:All purchases, other than the purchase of direct materials, are paid at the time the expense is incurred.  It is estimated 30% of accounts payable will be paid in the month the direct materials are purchased and the remaining 70% will be paid in the following month.

The interest rate payable on the loan is 8% per annum.Interest is paid monthly.  The loan is on an interest only basis and the principle can be repaid at any time.

Depreciation of plant and equipment totals $10,000 for the year.  Depreciation is recorded monthly.

Repairs and maintenance related to manufacturing plant and equipment is estimated to be $2,500 each quarter payable in March, June, September, and December.

Variable manufacturing overhead is allocated based on machine hours.Fixed manufacturing overhead is allocated based on units of production.Ignore GST and Income Tax.  Round amounts other than unit costs to nearest dollar value.

The opening Balance Sheet is provided below:

On The BeachBalance Sheet As at 31 December 2018
Assets
Current Assets
     Cash42,250
     Accounts Receivable 123,650
     Finished Goods Inventory99,150
Materials Inventory 114,375
Total Current Assets$379,425
Non-current Assets
     Equipment 85,000
     Less: Accumulated Depreciation( 8,000)
Total Non-Current Assets $77,000
Total Assets $456,425
Liabilities & Shareholder Equity
Current Liabilities
     Accounts Payable 92,500
Total Current Liabilities $92,500  
Long-Term Liabilities
     Bank Loan 185,000
Total Long-Term Liabilities $185,000
Total Liabilities $277,500
Shareholders’ Equity
     Share Capital 150,000
     Retained Earnings28,925
Total Shareholder Equity $178,925
Total Liabilities & Shareholders’ Equity$456,425

Required:

  1. Using the Excel template provided, prepare the following budgets for the twelve-month period from January 2019 to December 2019. The first worksheet should contain your raw data and assumptions and all future worksheets should be linked to this data.  Use a different worksheet for each budget. Show all calculations and use Excel functions where possible.  While you should use examples in your text as a guide, the key to using spreadsheets is that they are structured so that others can use them and follow the flow of information without difficulty.
    1. Monthly Sales Revenue and Cash Collection Budget
    2. Production Budget in Units
    3. Direct Materials and Cash Purchases Budget
    4. Direct Labour Budget
    5. Manufacturing Overhead Budget (break into variable and fixed components)
    6. Monthly Operating Cost Budget
    7. Ending Inventory budget for Finished Goods
    8. Cost of Sales Budget
    9. Budgeted Income Statement for the year ended 31 December 2019
    10. Monthly Cash Budget

Your budget spreadsheet must be submitted in Excel Format (not as an appendix in your WORD document).

  1. Write a report (Maximum 1,500 words) for your manager to present to the upcoming Board meeting. The report should include:
  • an overview of the expected results for the 2019 year;
  • an analysis of the Contribution Margin for each product and recommendations regarding the products On The Beach manufacture and sell;
  • recommendations regarding the cash position of the business; and
  • ananalysis of current market conditions and future predictions that you believe should be considered when following year’s 2020 budget is prepared. You should use broader industry data and trends from sources such as IBISWorldand the Australian Bureau of Statistics to support your recommendations.
  • Use visual aids such as tables and graphs to enhance your report presentation.

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