Warehouse company, producing a single model dress in the united kingdom (UK)

OPERATING MASTER BUDGET

Production budget in units

Total finished goods required 110,000 120,000 130,000 137,000 Beginning finished goods 35,000 40,000 40,000 50,000

Table 1.2 Production budget in units

Nature: A production budget in units helps Warehouse identify total units that they have to produce in a period.

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A warehouse manager can effectively oversee production by utilizing a production budget in units, which allows for accurate forecasting of the necessary materials and labor required to meet sales targets.

The direct materials budget is essential for determining the materials needed for production, outlined by specific time periods, typically presented monthly or quarterly within the annual budget In product-based businesses, this budget represents a significant portion of total costs, necessitating meticulous compilation to avoid misrepresenting cash requirements for material purchases.

Purpose: Direct materials budget helps managers to prepare the budgeted income statement by providing information necessary to ensure the plans are financially possible.

Direct labor budget

Total Budgeted DL hours cost 2,100,00

The budgeted hours for direct labor are established based on the correlation between labor input and production output This process begins with the production budget, which outlines the expected number of units to be produced Subsequently, the required direct labor hours and associated costs are calculated to ensure efficient resource allocation.

The direct labor budget is essential for forecasting the required number of employees in the manufacturing sector during the budget period This proactive approach enables management to effectively plan for hiring needs, schedule overtime strategically, and anticipate potential layoffs.

Overhead budget

Utilities (0.6 GBP/hour) 63,000 67,200 75,600 73,080 Shop maintenance (0.5

Nature : A overhead budget estimates all production costs to produce finished goods exclude direct material and direct labor.

Purpose : It estimate the total overhead costs and identify the cost which converted into per unit overhead allocation It is a part of cost of goods sold.

Selling, general, administrative expenses budget

Sale Comission (3 GBP per 210,00 240,00 240,00 300,00 unit) 0 0 0 0

Table 1.7 Selling, general, administrative expenses budget

Selling, general and administrative expenses (SG&A), also referred to as SGA, are detailed on the income statement as the total of all direct and indirect selling costs along with general and administrative expenses These expenses encompass all costs that are not directly associated with the production of goods or the delivery of services.

SG&A includes the costs to sell and deliver products and services and the costs to manage the company [4]

Purpose : It show all non-production costs in a specific period From that manager can follow and control costs related to selling, general, administrative easily.

Fixed Production Overheads absorption rate, Product cost per unit, production

1.7.1 Fixed production overhead absorption rate

Table 1.8 Fixed production overhead absorption rate

Table 1.9 Product cost per unit

BUDGET INCOME STATEMENT

Budget Income Statement at 180 GBP/unit

Table 2.1 Budget Income Statement ( 180 GBP/unit )

Explanation

A static budget lacks the flexibility needed to adapt to fluctuating market prices, which can result in companies making poor decisions due to uncertainty about pricing In contrast, a flexible budget addresses this issue by adjusting the total expected production costs based on achievable volumes, allowing companies to determine the optimal price point and production levels necessary to maximize profits.

The effectiveness of a flexible budget largely hinges on the precise categorization of expenses into fixed, semi-fixed, and variable types Key advantages of implementing a flexible budget include enhanced adaptability to changing conditions, improved financial forecasting, and better resource allocation, ultimately leading to more informed decision-making and increased operational efficiency.

Adjusting prices enables managers to effectively manage costs, optimize the balance between expenses and benefits, and accurately forecast sales and activity levels, ultimately leading to efficient business operations Varied pricing strategies influence decision-making, allowing companies to select pricing models that align with their objectives.

10 on its strategies The management can compare actual costs at the actual volume with the budgeted costs at the actual volume.

Setting a reasonable price is crucial for maximizing profit, and utilizing a flexible budget allows companies to determine the optimal price point This approach enables businesses to make necessary adjustments to meet their financial targets and expectations effectively.

CASH BUDGET

CASH BUTGET 1st 2nd 3rd 4th

Payment for DM 12,832,000 13,689,000 15,159,300 14,534,000 Payment for DL 2,100,000 2,240,000 2,520,000 2,436,000

THE REASON THAT CAUSE VARIANCE

Direct material price

4.2.2 Reason: Actual price purchased materials is higher than standard price

Suppliers can provide rare materials as well as limit supply product resource to increase the price of materials.

Using higher quality materials makes the actual price rise.

Increasing costs related to purchasing, example delivery cost,… In addition,

Warehouse also purchased materials that more expensive than in budget.

Direct labor efficiency

4.3.2 Reason: Actual hours worked are less than budgeted hours

Level skilled of labor are improved It takes less time than budget hours to produce unit Warehouse may makes a mistake in estimate times of production.

Direct labor rate

4.4.2 Reason: Actual rate paid for labor is higher than budget

Using labor with higher skills lead to an increase in labor rate.

Labor rate increases in the whole market.

The tendency in raising wages of labor in the general market makes an influence with Warehouse

Fixed overhead expenditure

4.5.2 Reason: Actual fixed overhead expenditure is higher than budgeted fixed overhead expenditure

Taxes paid in a period are increased

Change in using depreciation method For example, budget use the straight - line method, but actual use the accumulated method.

Fixed overhead efficiency

4.6.2 Reason: Actual number of hours is less than number of budget hours

Level skills of labor are improved It takes less time than hours should have taken

Warehouse may makes a mistake when estimate the standard.

Fixed overhead capacity

4.7.2 Reason: Actual hours worked are higher than budgeted hour work

Raising in labor working overtime.

Number of hours machine break-down in actual less than budget.

CALCULATION AND EVALUATION BUDGETS PERFORMANCES

Budgets performances indicators relate to cost centers

Productivity measures the efficiency of a company's production process It is calculated by dividing the outputs produced by a company by the inputs used in its production process.

Productivity can be calculated by measuring the number of units produced relative to employee labor hours or by measuring a company's net sales relative to employee labor hours [5]

Budgets performances indicators relate to profit centers

The profit margin ratio , Profit margin conveys the relative profitability of a firm or business activity by accounting for the costs involved in producing and selling goods.

The greater the profit margin, the better, but a high gross margin along with a small net margin may indicate something that needs further investigation [6]

Gross profit margin is a key financial metric that evaluates a company's financial health by determining the remaining revenue from product sales after deducting the cost of goods sold (COGS) Also known as the gross margin ratio, it is commonly represented as a percentage of total sales.

Significant fluctuations in a company's gross profit margin can indicate ineffective management or subpar products However, if these changes occur during a major operational overhaul, the temporary volatility may be warranted and should not raise concerns.

Production costs of sales/Sales

Production cost of sales/sales 0,9280 0,9275 0,9267 0,9269

Table 5.4 Production costs of sales/Sales

Production costs of sales/sales calculated by dividing production cost of sales to revenue This ratio shows that how much production cost to exchange to 1$ revenue.

Non - Production costs of sales/Sales

Table 5.5 presents the non-production costs of sales as a percentage of total sales, calculated by dividing non-production costs by sales revenue This ratio reveals the amount of non-production costs incurred for every dollar earned in sales.

6 ANALYZING TOTAL OVERHEADS AND QUANTITY (UNITS) RELATIONSHIP

Fig 6 1 Total Overhead and Budgeted Quantity

Tiêu đề	Warehouse Company, Producing A Single Model Dress In The United Kingdom (UK)
Tác giả	Nguyen Tran Trong Nhan, Nguyen Ngoc Thao Uyen
Người hướng dẫn	Dieu Hien
Trường học	University of Economics and Law
Chuyên ngành	Accounting and Auditing
Thể loại	Group Assignment

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