Case Information for Project

Summary:

Your finished Project will consist of six or seven budgets (a sales budget, a production budget in units, a purchases budget, a budgeted income statement, a contribution margin income statement, a cash budget, and, if necessary, a capital expenditure budget.)

You will also have your statement of assumptions along with four or five narrative reports (a sales budget report, a purchases budget report, an income statement report, a cash budget report, and an explanation of your capital budget, if necessary).

Narrative reports are reports that are in the form or a white paper that clearly explains the numeric entries on your budgets.The length of the narrative reports will depend on the particular report.In general, you should be able to prepare the sales budget report on one or two pages, the purchases budget report on one or two pages, the income statement report on one page, and the cash budget report on one page.In this case, the capital budget report would be less than one page.You should not worry if one of your reports is more or less than the recommendation given here—just be sure you cover all of the important points and satisfactorily explain the numeric entries in your budget.Also, be sure you explain the process of “how” your numbers were determined.In this regard, it is not necessary or desirable to explain the exact calculations.Consider your audience and prepare a report that would be suitable for executives making plans and decisions for the upcoming year.

REQUIREMENTS:

FOR THE FIRST QUARTER OF 2018:

1.Prepare a sales budget in good form.

2.Prepare a narrative report explaining how your sales budget was determined.Use the table above in your analysis.(Hint:Many companies would develop their budgets using average sales and average unit costs.)

Whatever budget determination method you use should be explained.In your explanation, you should include a discussion of why you believe sales and selling prices fluctuated last year.

3.Prepare a production budget in units.

4.Prepare a purchases budget.Remember that you will need to purchase enough materials to have the required ending inventories shown.You will also need to purchase enough to manufacture and sell the products on your sales forecast.Do not forget that you have beginning inventories.

5.Prepare a narrative report explaining how you prepared the purchases budget.Be as detailed as necessary to be sure that the president and general manager will understand the calculations and costs.

6.Prepare a manufacturing cost budget. Optional:Prepare a budgeted income statement.

7.Prepare a contribution margin income statement.

8.Prepare a narrative report explaining how the expenses on the income statement were determined.

9.Prepare a cash budget.Be sure that you show all cash inflows and outflows.

10.Prepare a narrative report explaining your cash budget process.

11.If necessary, prepare a capital expenditure budget.Explain your entries.Use only the facts in this case to prepare the budget.