Reference no: EM131553913

Project Assignment: Budget Variance

Introduction

In your opening paragraph, very briefly introduce the purpose of your paper. Recall that you will be discussing the operating budget and variance analysisas explained in your rubric instructions.Three or four sentences are sufficient.

Section 1 (Delete this heading in your final paper.)

Using content from your Peyton Approved student worksheet, budget variance worksheet,and from your readings from Chapters 22, 23, and 25 of your Horngrens's text, discuss the budget variances and what eachtells you.

Section 2 (Delete this heading in your final paper.)

Using content from your Peyton Approved student worksheet, budget variance worksheet, and from your readings from Chapters 22, 23, and 25 of your Horngrens's text, discuss what needs to be investigated to determine the reasons for the variance(s) and why.

Conclusion (Delete this heading in your final paper.)

conclusion reminds the reader what your paper is about and allows you to make a final point without introducing new information.Three or foursentences are sufficient

References

Nobles, T. L., Mattison, B. L., Matsumura, E.M. (2014). Horngren's financial and managerial accounting(5th ed.).Upper Saddle River, NJ: Pearson Education, Inc.

Make sure that you provide appropriate citations in APA style. The text is provided as an example and should be kept in the references for your paper. Feel free to add other resources. Remember to cite ALL the sources that you used to write this paper-not only here at the end of your paper, but also within the body to add credibility to your statements. References that you have used should be included in alphabetical order by the author's last name.

Be sure to follow APA format when providing references. If you have questions on APAformat, you can check the Purdue OWL website or seek help from the SNHU Writing Center.

Notes on APA in a Formal Assignment

• Set margins to 1 inch all around.

• Use 12-point Times New Roman font and make sure to double-space.

• Paragraphs should be at least three to four sentences.

• Do not include the headings "Introduction" and "Conclusion."These are included below to help you lay out your paper.APA format assumes that the introduction begins the paper, the body continues the paper, and the conclusion wraps up the paper, so those headings are not needed.

• Indent the first line of every paragraph 0.5".

• Be careful not to use personal pronouns such as "I."

You are a manager for Peyton Approved, a pet supplies manufacturer. This responsibility requires you to create budgets, make pricing decisions, and analyze the results of operations to determine if changes need to be made to make the company more efficient.

You will be preparing a budget for the quarter July through September 2015. You are provided the following information. The budgeted balance sheet on June 30, 2015, is:

All assumptions are new and apply to the July through September budget period.

1. Sales were 20,000 units in June 2015. Forecasted sales in units are as follows: July, 18,000; August, 22,000; September, 20,000; October, 24,000. The product's selling price is $18.00 per unit and its total product cost is $14.35 per unit.

2. The June 30 finished goods inventory is 16,800 units.

3. Going forward, company policy calls for a given month's ending finished goods inventory to equal 70% of the next month's expected unit sales.

4. The June 30 raw materials inventory is 4,600 units. The budgeted September 30 raw materials inventory is 1,980 units. Raw materials cost $7.75 per unit. Each finished unit requires 0.50 units of raw materials. Company policy calls for a given month's ending raw materials inventory to equal 20% of the next month's materials requirements.

5. Each finished unit requires 0.50 hours of direct labor at a rate of $16 per hour.

6. Overhead is allocated based on direct labor hours. The predetermined variable overhead rate is $1.35 per unit produced. Depreciation of $20,000 per month is treated as fixed factory overhead.

7. Monthly general and administrative expenses include $12,000 administrative salaries and 0.9% monthly interest on the long-term note payable.

8. Sales representatives' commissions are 12% of sales and are paid in the month of the sales. The sales manager's monthly salary is $3,750 per month.

Specifically, the following critical elements must be addressed when creating an Operating Budget by completing the budget templates found on the "Budgets" tab below.

Step 1: Prepare a Sales Budget

Complete the Sales Budget on the Budgets tab below by using the information found in the budgeted balance sheet above.

Consider assumption 1 when completing this critical element: Sales were 20,000 units in June 2015. Forecasted sales in units are as follows: July, 18,000; August, 22,000; September, 20,000; October, 24,000. The product's selling price is $18.00 per unit and its total product cost is $14.35 per unit.

You can find an example of a sales budget in Exhibit 22-5 on page 1324 of the textbook.

Step 2: Prepare a Production Budget

Complete the Production Budget on the Budgets tab below by using the information found in the budgeted balance sheet above.

Consider assumption 1 while completing this critical element: Sales were 20,000 units in June 2015. Forecasted sales in units are as follows: July, 18,000; August, 22,000; September, 20,000; October, 24,000. The product's selling price is $18.00 per unit and its total product cost is $14.35 per unit.

Consider assumption 2 while completing this critical element: The June 30 finished goods inventory is 16,800 units.

Consider assumption 3 while completing this critical element: Going forward, company policy calls for a given month's ending finished goods inventory to equal 70% of the next month's expected unit sales.

You can find an example of a production budget in Exhibit 22-6 on page 1325 of the textbook.

Step 3: Prepare a Manufacturing Budget

Complete the Manufacturing Budget on the Budgets tab below by using the information found in the budgeted balance sheet above. The manufacturing budget consists of three parts: the Raw Materials Budget, the Direct Labor Budget, and the Factory Overhead Budget.

Raw Material Budget

Consider assumption 4 while completing this critical element: The June 30 raw materials inventory is 4,600 units. The budgeted September 30 raw materials inventory is 1,980 units. Raw materials cost $7.75 per unit. Each finished unit requires 0.50 units of raw materials. Company policy calls for a given month's ending raw materials inventory to equal 20% of the next month's materials requirements.

Consider units to be produced found in the production budget while completing this critical element.

Direct Labor Budget

Consider assumption 5 while completing this critical element: Each finished unit requires 0.50 hours of direct labor at a rate of $16 per hour.
Consider units to be produced found in the production budget while completing this critical element.

Factory Overhead Budget

Consider assumption 6 while completing this critical element: Overhead is allocated based on direct labor hours. The predetermined variable overhead rate is $1.35 per unit produced. Depreciation of $20,000 per month is treated as fixed factory overhead.

Consider units to be produced found in the production budget while completing this critical element.

Step 4: Prepare a Selling Budget

Complete the Selling Expense Budget.

Consider assumption 8 while completing this critical element: 8. Sales representatives' commissions are 12% of sales and are paid in the month of the sales. The sales manager's monthly salary is $3,750 per month.

Step 5: General and Administrative Expense Budget

Complete the General and Administrative Expense Budget.

Consider assumption 7 while completing this critical element: 7. Monthly general and administrative expenses include $12,000 administrative salaries and 0.9% monthly interest on the long-term note payable.

The following critical elements must be addressed when performing the Budget Variance Analysis using the Budget Variance Worksheet. The Budget Variance Worksheet can be found in the Assignment Guidelines and Rubrics folder.

The actual quantity of material used was 31,000 with an actual cost of $7.75 per unit. The actual labor hours were 33,000 with an actual rate per hour of $15.

Step 1: Complete A. Develop a variance analysis including a budget variance performance report and appropriate variances for materials, labor, and overhead.

Start with the Labor and Materials Variance tab.

Standard costs/quantities come from the raw materials budget and the labor budget.

Use Exhibits 23-11 on page 1235 and 23-12 on page 1237 in the textbook as guides.

After completing the Labor and Materials Variance tab, transfer variances to the Budget Variance Report tab.