Budgetary Planning Project

Managerial accountants and the budget committee for the FMI corporation is meeting in November to prepare the 2019 budget. Your task, as a member of the budget committee, is to prepare the 2019 budget given the following data:

Sales: The company expects to sell 40% more units in 2019 than in each quarter of 2018. During 2018, sales were Q1: 40,000; Q2: 30,000; Q3: 60,000 and Q4: 50,000 units. The selling price per unit is expected to be $50 in the first three quarters, but only $40 per unit in Q4 because substantial competition is expected beginning in Q4 of 2019. Sales are expected to be 40,000 units in Q1 of 2020.

The company wants to maintain ending finished goods inventory at 25% of the next quarter’s expected unit sales. Assume that this will hold to start Q1 of 2019 so that beginning finished goods inventory is (.25) (40,000 )(1.4) = (.25)(56,000) =14,000 units.

Each unit of final goods produced requires 1.5 hours of direct labor time at $12 per hour.

Variable overhead costs are calculated per unit of direct labor hours as follows: indirect labor $0.2, indirect materials $0.1, maintenance $0.5.

ANNUAL fixed overhead costs are: supervisory salaries $200,000, maintenance $60,000, depreciation $80,000. They are allocated equally across quarters.

Direct raw material requirements are 5 kilograms per unit of output produced and the cost is $1.5 per kilogram of materials. At the end of each quarter, the company maintains enough raw materials to produce 10,000 units for the next quarter.


Prepare the following budgets by quarter for the year 2019 (also show the cumulative or annual totals):

[Use the format shown in the textbook to prepare each quarter’s budget. Your work and calculations MUST be done using an Microsoft excel spreadsheet.]

Sales budget
Production budget
Direct materials budget
Direct labor budget
Manufacturing overhead budget
The marking scheme:

Sales budget: 15 marks
Production budget: 20 marks
Direct material budget: 15 marks
Direct labor budget: 10 marks
Manufacturing overhead budget: 25 marks
15 marks are allocated for the following:
Correct and well-organized budget structure
Complete and clear column and row labels including the accumulated column entitled “Year”
Project individually uploaded to Blackboard
Total: 100 marks

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