The AllAboutCacao Company produces and sells 100% Cacao Chocolate Bars. These bars are made from 100% raw and organic cacao beans. All our raw cacao beans are purchased from fair-trade suppliers. We at AllAboutCacao believe in maximizing the health benefits that come from eating raw chocolate (antioxidants, high source of iron, magnesium, calcium, etc), which is why we add zero sugar to our product. The 6-oz chocolate bar has two direct materials – raw cacao beans and packaging. AllAboutCacao is preparing budgets for the first quarter ending September 30, 2018. For each requirement below prepare budgets by month for July, August, and September, and a total budget for the quarter.
1. The previous year’s sales (2017) for the corresponding period were:
July 25,000 bars
August 35,000 bars
September 50,000 bars
October 40,000 bars
November 30,000 bars
The company expects the above volume of sales to increase by 8% for the period July 2018 – November 2018. The budgeted selling price for 2018 is $9.25 per chocolate bar. The company expects 25% of its sales to be cash (COD) sales. The remaining 75% of sales will be made on credit. Prepare a Sales Budget for AllAboutCacao.
2. The company desires to have finished goods inventory on hand at the end of each month equal to 10 percent of the following month’s budgeted unit sales. On June 30, 2018, AllAboutCacao expects to have 2,700 bars on hand. Prepare a Production budget.
3. The final product (chocolate bar) requires two direct materials: raw cacao beans and packaging. One half of a pound of raw cacao beans are required for each 6-oz chocolate bar. Through moisture loss during roasting and removing of the shell during the winnowing process, about 25% of the total original weight of the beans is lost. Management desires to have materials on hand (i.e., pounds of cacao beans) at the end of each month equal to 15 percent of the following month’s production needs. The beginning materials inventory, July 2018, is expected to be 2,106 pounds of cacao beans. These beans cost $8.00 per pound.
Packaging material is purchased by the roll and 100 bars are produced from each roll. The packaging is made from biodegradable, organic plant fiber that extends the shelf life of the chocolate bars while preserving its freshness. Management desires to have packaging on hand at the end of each month equal to 15 percent of the following month’s production needs. The beginning inventory of packaging (i.e., rolls of packaging material) in July 2018 is expected to be 42 rolls. Packaging is expected to cost $11 per roll.
Note, budgeted production in October is required in order to complete the direct materials budget for September. Also, use the @ROUNDUP function to round up to the nearest whole number of pounds of cacao beans and number of rolls of packaging material to purchase. Also, because two direct materials are required for production – raw cacao beans and rolls of packaging – you will need a separate schedule for each direct material. Prepare a Direct Materials budget.
4. Each bar requires 0.05 hours of direct labor. Each hour of direct labor costs the company $25. Prepare a Direct Labor budget.
5. AllAboutCacao has no indirect materials. AllAboutCacao treats indirect labor and utilities as mixed costs. The variable components are $0.15 per bar for indirect labor and $0.10 per bar for utilities. The following fixed costs per month are budgeted for indirect labor, $12,000, utilities, $3,000, and other, $9,000. Prepare a Manufacturing Overhead budget.
6. Variable selling and administrative expenses are $0.75 per chocolate bar sold. Fixed selling and administrative expenses are $40,000 per month. These costs are not itemized, i.e., the budget has only two line items – variable operating expenses and fixed operating expenses. Prepare an Operating Expenses budget.
7. Prepare a Budgeted Manufacturing Cost per unit budget. Refer to exhibit 9-11 for guidance. To calculate FMOH/unit calculate total FMOH for the year and divide this by budgeted production for the year. The total production volume for the year is budgeted at 450,000 bars.
8. Prepare a Budgeted Income Statement for the quarter for AllAboutCacao. Assume interest expense of $0, and income tax expense of 30% of income before taxes.
Refer to Chapter 9 (The Master Budget) for guidance in setting up your budgets and schedules. Adapt your schedules for the specific details outlined in the requirements above. Prepare your budgets using Excel. Use formulas and cell references so that any change you make in one budget is carried through to all the budgets. There should be no hard keyed numbers in your formulas. For example, if you change the ‘sales volume increase’ from 8% to 9% you should see effects of that change throughout the other budgets. Likewise, if the budgeted selling price changes from $9.25 to $10.00 your spreadsheet model should be able to quickly and easily accommodate this change, i.e., change the input cell for budgeted selling price and see the effect on income.
The spreadsheet will be graded on presentation, correctness, and quality of your spreadsheet model (i.e., does it update correctly for changes in input variables). See the grading rubric on Canvas. You should approach this assignment as if you are the Management Accountant at the AllAboutCacao Company and you are going to present these budgets in a meeting to the CEO, CFO, and other management personnel.
Some general principles to follow in constructing your Excel spreadsheet model:
1. Prepare an input area in which you enter all input variables – e.g., selling price, budgeted volume increase, pounds of cacao beans per bar, ending inventory percentage, etc. You may use the “Assumptions” tab of the sample spreadsheet or a designated area within your budget spreadsheet, as long as the input area is clearly labeled and neatly organized.
2. Each schedule should refer to the input area for each constant data value (see sample spreadsheet file). To the extent possible, keep all constant values together in one area of the worksheet. An important principle of good spreadsheet design is to keep just one copy of each constant value. That is, enter a constant value in only one location in the worksheet. Then if you use the value in another cell, use a cell reference that refers to the constant value’s unique location.
Example (hypothetical): You enter the constant value of 6% for sales tax in cell E5. When you write a formula in your worksheet that requires sales tax, reference E5 in the formula instead of “hard coding” in the 6% value.
3. Use cell references for constant data values and to calculate formulas within your spreadsheet. There should be no hard-keyed numbers in your formulas. For example, the formula to determine current period sales in units should reference an input cell with last year’s sales volume and a cell with the volume percentage increase.
4. Label and format appropriately – e.g., use $ to format dollar amounts, format cells for decimal places, etc…