Preparing Budget Manufacturing Industry
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A budget is the quantitative expression of the financial plan during a period of time. As in this report Carter production has made following budget in order to know about the sales or production of the company. In this, report will provide deeper insight about the several; types of budgeting system.
PART A
Preparing budgets
Cash budget
|
PARTICULARS |
July |
August |
September |
October |
|
Opening cash balance (A) |
20000000 |
21875000 |
69744500 |
113433500 |
|
Add: cash receipts from debtors (B) |
6225000 |
46687500 |
9337500 |
|
|
4482000 |
33615000 |
6723000 |
||
|
3361500 |
25211250 |
|||
|
2988000 |
||||
|
Total Inflows= A+B |
26225000 |
73044500 |
116058500 |
148355750 |
|
Less: Cash Expenses ( C) |
||||
|
Direct Material |
1312500 |
8531250 |
3281250 |
|
|
270000 |
1755000 |
675000 |
||
|
94500 |
614250 |
|||
|
36000 |
||||
|
total payment to creditors |
1312500 |
8801250 |
5130750 |
1325250 |
|
Direct Labor |
3750000 |
2700000 |
2025000 |
1800000 |
|
Overhead Cost |
600000 |
600000 |
600000 |
600000 |
|
Total Outflows |
4350000 |
3300000 |
2625000 |
2400000 |
|
Cash Surplus/ Deficit |
21875000 |
69744500 |
113433500 |
145955750 |
Cash budget are the expected cash inflow or outflow of the business during the particular period of time (Budget and Mandatory, 2016). In above table of Cash budget, budgets of four months are given from July to October. As it is clearly shown that total inflows of the Carters Production are increasing as from July to August there is total increment of 46819500.From August to September there is increment of 61438650.From September to October there is increment of 136749900.As in these four months there is regularly increasing in cash flows of the Carter Production. As by moving toward the direct labor cost there is decreasing trend in direct labor cost, from July to August there is total decreasing of 105000.From August to September there is decreasing of 675000.From September to October there is decreasing of 225000.
As there is permanent decreasing trend in direct cost. Move on to the total outflows of the company. There is continuously decreasing trend is figure out in total outflow, from July to August there is total decreasing of 105000.From August to September there is decreasing of 675000.From September to October there is increment of 225000.As total outflows varies with the cost of direct labor. From overall analysis it shown that in the all months there is excess of inflow over outflow, it is beneficial for company as it is the symbol of growth and increase in sales. By seeing the cash budget manager can predict about the sales and growth of the company.
Material budget
|
PARTICULARS |
MATERIAL A |
MATERIAL B |
MATERIAL C |
MATERIAL D |
|
Material required per unit |
5 |
3 |
1 |
2 |
|
Cost of material per unit |
10.5 |
5 |
7 |
1.5 |
|
units |
250000 |
180000 |
135000 |
120000 |
|
Total cost of material required |
13125000 |
2700000 |
945000 |
360000 |
Material budget shows the purchase of material which is purchased by the company during the year for the purpose of production (Barbour, 2016).As above table shows that how much material is requires to produce the 1 unit of a watch. For producing the 1 unit of watch company needs the 5 unit of material A, 3 units of material B,1 unit of material C and 2 units of material D After combining all the units of material company gets 1 watch. Material A is a superior material as the cost of this material is high among all the material and cost of material D is very less among all. Where material D cost 1.5 per unit material a cost 10.5 per unit. This budget shows us the how much material a company required to produce a unit of watch.
Labor budget
|
PARTICULARS |
||||
|
Labor hour |
0.5 |
|||
|
Labor per hour |
30 |
|||
|
units |
250000 |
180000 |
135000 |
120000 |
|
Total cost of Labor |
3750000 |
2700000 |
2025000 |
1800000 |
Labor budget is used to calculate the hours of human power required to produce the desired level of production. Total cost of labor is derived by the multiplying the labor hour with labor per hour and units they have to produce. As during the period of four months it is noticed that total cost of labor is declining due to the declining in the production of units. As production is declining from 250000 to 180000 that is 70000 units in month of August, and from August to September units are declined to 135000 from 180000 that is 45000 units and from September to November units have declined to 120000 from 135000 that is 15000 units. It shows that either company has less selling or company has stock of watches so company has decreased the production. Labor budget is make to know the production and how much labor is required in production level. By seeing this manager appoint or terminate employees.
PART B
Life cycle analysis
QUESTION 1
A) Life cycle assessment approach id done to assign the cost to each product and to calculate the environmental activities rates.
|
Activity |
Cost drivers |
Cost drivers Unit cost |
Total activity |
Total Indirect Cost |
||
|
Purchase orders |
No. of purchase orders |
9100000 |
||||
|
Product packaging |
No. of product packages packed |
220000 |
1150000 |
1740870 |
||
|
Energy usage |
No. of batches run |
40000 |
1230000 |
295935 |
||
|
Toxins Released |
No. pf test runs |
200000 |
1000000 |
1820000 |
||
|
3856805 |
||||||
|
Bluetooth Speaker |
||||||
|
Activity |
Cost drivers |
Cost drivers Unit cost |
Total activity |
Total Indirect Cost |
||
|
Purchase orders |
No. of purchase orders |
21000000 |
||||
|
Product packaging |
No. of product packages packed |
110000 |
1150000 |
2008696 |
||
|
Energy usage |
No. of batches run |
20000 |
1230000 |
341463 |
||
|
Toxins Released |
No. pftest runs |
50000 |
1000000 |
1050000 |
||
|
3400160 |
||||||
B) Environmental damage caused by product either Karoke machine or Bluetooth.
As per the above calculation it is clear that manufacturing of Karoke machines is more harmful for the environment as compared to the manufacturing of Bluetooth speaker. As 2, 00,000 kg of toxins is released while manufacturing the 91, 00,000 units of karoke machines, and 50,000 kg of toxins is released while manufacturing the 21,000,000 units of Bluetooth. Karoke machines are releasing more toxins which is damaging the environment more. For releasing the toxin company has to pay the fines.
C) Analyzing the product which is damaging the environment on the bases of Life cycle assessment approach.
Life cycle assessment approach is also known as life cycle analysis, It is related to accessing the environmental impact when production takes place in an industry. This approach include all the stages of production, extraction of raw material, manufacturing, repair and maintenance or recycling (Wong, 2016).
As in the above case life cycle assessment approach is used at every stages of production to see at which stage it is providing harm or damage to the environment. Proper analysis will be done from the raw material to the final disposal of product. And company will determine at what stage of production it is releasing the toxin which is damaging the environment. As in above table it is clearly stated that by producing the Karoke machines company is releasing more toxin. As production of 91,00,000 units of machines is releasing the 2,00,000 kg of toxin and in manufacturing the 21,000,000 units of Bluetooth 50,000 kg of toxin is released.
QUESTION 2
A) Identification of available production capacity and calculation of current operating capacity in percentage.
|
Particulars |
Operating capacity |
Production capacity |
|
|
10000000/300000*100 |
10000000-9100000 |
||
|
3% |
90000 |
Current operating capacity means that ratio between the output gained from business or input incurred to run the business. In this operating capacity will be calculated on the bases of sales and production capacity of company.
Current operating efficiency=Production capacity of company/sales made by company
=10,000,000/300,000*100
= 3%
Production capacity means that how much units can be produces by company in an year by using current resources. This is 91%
B) Relevance of special order in production capacity.
As Carters ltd is engaged in manufacturing of Karaoke machines than it is beneficial for it to manufactured according to the order. As in this case company will have less closing balance.
C) Calculation of contribution margin per unit.
Contribution margin is the difference between the company sales and its variable expenses expressed in term of percentage.
|
Particulars |
William Distributors |
Other purchaser |
|
Sales price per unit |
35 |
40 |
|
less: variable cost |
-6 |
-6 |
|
Contribution margin per unit |
29 |
34 |
All amount in $.
In case of William carters as it has given special order so there should be bargaining between the prices is held. As William carters are purchasing that machine for $35 lower than the market price. And contribution made by Carters in more in selling the machines to other purchaser rather than to William carters.
D) Is special order is beneficial for Carter productions
As from above table it is clear that contribution will be more in selling the machines to the other customer instead of William Distributors. In case of William distributors company has operating cost of $8700000 and in case of other purchaser it is $10200000.So in case of William Distributors, company has a loss of $1500000.
Conclusion
From above it is concluded that budgets are important part for manufacturing industry.BY preparing Budget Company can predict its sales and production capacity.
References:
Books and Journals
Barbour, B. X., 2016. Big Budget Productions with Limited Release: Video Retention Issues with Body-Worn Cameras. Fordham L. Rev.85. p.1725.
Budget, P. N. and Mandatory, I., 2016. Pediatric Glioblastoma Model Suggests Treatments. Cell Stem Cell.18.pp.189-202
Hope, J., 2016. Address budget shortfalls with technology, creativity, grant funding. Campus Security Report.13(1).pp.3-3.
Wong, C., 2016. Budget reform in China: Progress and prospects in the Xi Jinping era. OECD Journal on Budgeting.15(3).p.1B.
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