Assignment: Beaver Baseball Company
In-Class Project
At Beaver Baseball Company, we make the world's best baseballs. We use world-class leather, cork and string to create unmatched quality and durability. To support our world-class baseballs, we create a master operational budget each year to plan and coordinate our efforts and to allow us to evaluate our performance. To help us complete this year's master operating budget, you will need the following information.
Sales Budget
We sell our baseballs for $14 per baseball. During the first quarter we plan on selling 40,000 balls in January, 145,000 balls in February, and 130,000 balls in March. After selling our baseballs, we plan on collecting 40% of those sales in the month of sale and 60% in the month following the sale. The beginning balance in accounts receivable will be $75,000.
Production Budget
We always start each year with 10,000 finished baseballs in inventory on January 1st. Each month during the year we want 25% of the following month's unit sales in ending inventory. We expect 225,000 units to be sold in April.
Direct Material Budget - Leather Only
We have already prepared the direct material budget for string and cork so you need to help with the direct material budget for the leather. We use 9 square inches of leather to make one baseball. Each month we want 35% of the following month's production requirements of leather in ending inventory. We buy premium leather for $0.25 per square inch. The beginning balance in accounts payable balance this year will be $85,000 and we plan to pay for 55% of the purchases in the month of purchase and 45% in the month following the purchase. We expect total production needed in April to be 1,650,000 square inches.
Direct Labor Budget
Our employees spend 0.05 of an hour making each baseball and we pay our employees $18 per hour.
Manufacturing Overhead Budget
Our variable manufacturing overhead rate is $3.00 per budgeted direct labor hour. Each month our fixed manufacturing overhead is $12,500. Each month we record $6,500 of depreciation for the factory and production equipment.
SG&A Budget
Our variable SG&A expenses are $1.10 per baseball. Our fixed SG&A expenses are as follows:
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Advertising
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$ 7,500
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Salaries
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$22,500
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Rent
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$18,000
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Insurance
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$ 2,500
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Property Taxes
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$ 4,000
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Depreciation
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$ 8,000
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We start each year with $25,000 in our bank account and require at least $25,000 in the bank at the end of every month. We have a $1,000,000 revolving line of credit at our bank and we are not restricted to any specific increment when borrowing or repaying funds, but when we borrow we must borrow at the beginning of a month and must repay at the end of a month. The bank charges us a 12% annual interest rate and interest is only paid when a principle payment is made.
We purchase $80,000 of equipment in January and another $65,000 of equipment in March. The owners are paid $750,000 of dividends in February.