Al Yamama UniversityCollege of Business
Individual Assignment
Module: ACC 202 Managerial Accounting
You are required to fulfill all the requirements outlined in this assignment, which are based on
a case study provided below. Please carefully review the guidance and requirements specified.
The assignment has been designed to help you apply many of the concept that you have learned
in class to a hypothetical company.
LEARNING OUTCOMES TO BE ASSESSED
•
Explain the purposes of budgeting and prepare the master budget components and
flexible budgets and relate the budget to planning and control (CLO 2.1).
GUIDELINE
•
•
•
The project must be double spaced, using Times New Roman 12-point.
An official cover sheet should be attached with the individual assignment with the
student number, course, module number and title. Do not include your name.
Good standards of written English and presentation are expected, and marks will be
deducted if these standards are not met. For more details on the marking scheme for the
assignment, please refer to the appendix.
PLAGIARISM
You are reminded that the assignment should be your own work, and that material copied from
textbooks, from the coursework of other students, from the lecture slides, or downloaded from
the internet constitutes plagiarism unless proper acknowledgement is provided. All references
should be provided in standard Harvard format.
SUBMISSION
Your assignment should be submitted by 28 July 2024 via the Learning Management System
(LMS).
Helmex Corporation Case Study
The Business Situation:
Helmex Corporation, a leading helmet manufacturer known for its innovative designs and
safety features, is gearing up for its annual strategic planning session. The management team
wants to ensure that the company is well-positioned to meet market demand, manage its
resources effectively, and maintain financial health in the competitive market of sports and
safety equipment. The company has historically seen peak sales in the third quarter, aligning
with the start of many sports seasons and increased consumer focus on outdoor activities.
In preparation for this planning session, the management team requires detailed financial
budgets that will guide their decision-making process. The team is aware that accurate
budgeting is critical for aligning the company’s operational activities with its financial goals
and ensuring that Helmex Corporation remains responsive to market conditions.
The Chief Financial Officer (CFO) of Helmex Corporation has provided recent operational
data and has outlined specific requirements to the budgeting team, consisting of finance and
accounting professionals, and now wants to extend the exercise to the company’s interns for
educational purposes.
As part of your internship with Helmex Corporation, a manufacturer with peak helmet sales
in the third quarter, you are given a valuable opportunity to contribute to the company’s
annual strategic planning session. The management team relies on meticulous financial
planning to navigate the competitive market of sports and safety equipment successfully.
With the data for the forthcoming year and the first two quarters of the following year at
hand, your role is to synthesize this information into actionable financial documents that will
steer the company’s decisions.
By addressing these requirements, you will provide Helmex Corporation with the necessary
financial planning tools to optimize their operations and financial management for the
upcoming periods. This exercise will also enhance your understanding of the practical
application of budgeting in a real-world business scenario.
The following information concerns operations for Year 2 (2023) — the coming year — and
for the first two quarters of Year 3 (2024):
a. The company’s helmets sell for $50 per unit. The budgeted sales in units for the next
six quarters (all sales are on credit) are as follows:
Year
Quarter
Budgeted unit sales
Year 2
1
35,000
2
55,000
3
120,000
Year 3
4
45,000
1
75,000
2
85,000
b. Sales are collected in the following pattern: 70% in the quarter the sales are made, and
the remaining 30% in the following quarter. On January 1, Year 2 (2023), Helmex
Corporation’s balance sheet showed $55,000 in accounts receivable, all of which will
be collected in the first quarter of the year. Bad debts are negligible and can be
ignored.
c. Helmex Corporation desires an ending finished goods inventory at the end of each
quarter equal to 25% of the budgeted unit sales for the next quarter. On December 31,
Year 1 (2022), the company had 10,000 units on hand.
REQUIREMENTS
1. Prepare a sales budget for Year 2, showing both quarterly and total figures.
2. Prepare a schedule of expected cash collections for Year 2, showing both quarterly
and total figures.
3. Prepare a production budget for Year 2 and Year 3, showing both quarterly and total
figures.
4. Discuss how budgeting can guide Helmex Corporation through the competitive sports
equipment industry, emphasizing its role in resource allocation, cost management, and
strategic planning during peak sales periods.
5. Explain why accurate sales forecasting is essential for Helmex Corporation’s
budgeting, particularly how it impacts production, inventory, and financial planning
for peak third-quarter sales.
APPENDIX
Marking Scheme for the group project:
This assignment is allocated a total of 10 marks. The evaluation criteria are segmented into
categories, cumulatively accounting for 100%:
1. Accuracy and Completeness (55%): Comprehensive assessment of the accuracy of
all relevant calculations. This includes an evaluation of numerical accuracy,
application of appropriate methodologies, and the completeness and correctness of
any prepared documents or analyses. The criterion ensures that all necessary
information is accurately captured and properly utilized in the project’s context.
2. Depth of Understanding and Insight (35%): This criterion evaluates the depth of
the student’s understanding of the subject matter and the ability to provide insightful
analysis. It assesses how thoroughly students grasp the underlying principles and
concepts of the project’s topic, including the complexity of the issues explored. The
emphasis is on demonstrating a nuanced understanding, critical thinking, and the
ability to synthesize information from various sources to offer original insights or
solutions.
3. Clarity, Structure, and Language Proficiency (10%): Evaluation of the project
report’s organizational structure, logical flow, and overall clarity. This criterion
further assesses the use of professional and precise language, grammatical accuracy,
and the strategic use of visuals and explanations to support and articulate complex
ideas clearly.
Dr. Mohammed Alhossini
February 25th 2024
Master Budgeting
CHAPTER 8
PowerPoint Authors:
Susan Coomer Galbreath, Ph.D., CPA
Jon A. Booker, Ph.D., CPA, CIA
Cynthia J. Rooney, Ph.D., CPA
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8-2
Learning Objective 1
Understand why organizations
budget and the processes
they use to create budgets.
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8-3
The Basic Framework of Budgeting
A budget is a detailed quantitative plan for
acquiring and using financial and other resources
over a specified forthcoming time period.
1. The act of preparing a budget is called
budgeting.
2. The use of budgets to control an
organization’s activities is known
as budgetary control.
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8-4
Difference Between Planning and Control
Planning –
Control –
involves developing
objectives and
preparing various
budgets to achieve
those objectives.
involves the steps taken
by management to
increase the likelihood
that the objectives set
down while planning are
attained and that all parts
of the organization are
working together toward
that goal.
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8-5
Advantages of Budgeting
Define goals
and objectives
Think about and
plan for the future
Communicate
plans
Advantages
Coordinate
activities
Means of allocating
resources
Uncover potential
bottlenecks
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8-6
Responsibility Accounting
Managers should be held
responsible for those items – and
only those items – that they can
actually control to a significant
extent. Responsibility accounting
enables organizations to react
quickly to deviations from their plans
and to learn from feedback.
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8-7
Choosing the Budget Period
Operating Budget
2017
2018
Operating budgets ordinarily
cover a one-year period
corresponding to a company’s
fiscal year. Many companies
divide their annual budget
into four quarters.
2019
2020
A continuous budget is a
12-month budget that rolls
forward one month (or quarter)
as the current month (or quarter)
is completed.
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8-8
Self-Imposed Budgets
Top Management
Middle
Management
Supervisor
Supervisor
Middle
Management
Supervisor
Supervisor
A self-imposed budget or participative budget is a budget that is
prepared with the full cooperation and participation of managers
at all levels.
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8-9
Advantages of Self-Imposed Budgets
1. Individuals at all levels of the organization are viewed as
members of the team whose judgments are valued by top
management.
2. Budget estimates prepared by front-line managers are often
more accurate than estimates prepared by top managers.
3. Motivation is generally higher when individuals participate in
setting their own goals than when the goals are imposed from
above.
4. A manager who is not able to meet a budget imposed from
above can claim that it was unrealistic. Self-imposed budgets
eliminate this excuse.
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8-10
Self-Imposed Budgets – Management
Review
Self-imposed budgets should be reviewed
by higher levels of management to prevent
“budgetary slack.”
Most companies issue broad guidelines in
terms of overall profits or sales. Lower level
managers are directed to prepare budgets
that meet those targets.
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8-11
Human Factors in Budgeting
The success of a budget program depends on three important
factors:
1. Top management must be enthusiastic and
committed to the budget process.
2. Top management must not use the budget to
pressure employees or blame them when
something goes wrong.
3. Highly achievable budget targets are usually
preferred when managers are rewarded based on
meeting budget targets.
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8-12
The Master Budget – An Overview – Part 1
Sales budget
Ending inventory
budget
Production budget
Direct materials
budget
Direct labor
budget
Selling and
administrative
budget
Manufacturing
overhead budget
Cash Budget
Budgeted
income
statement
Budgeted
balance sheet
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8-13
Seeing the Big Picture – Part 1
To help you see the “big picture,” keep
in mind that the 10 schedules in the
master budget are designed to answer
the 10 questions shown on the next
screen.
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8-14
Seeing the Big Picture – Part 2
1. How much sales revenue will we earn?
2. How much cash will we collect from customers?
3. How much raw material will we need to purchase?
4. How much manufacturing cost will we incur?
5. How much cash will we pay to our suppliers and our direct laborers, and how
much cash will we pay for manufacturing overhead resources?
6. What is the total cost that will be transferred from finished goods inventory
to cost of goods sold?
7. How much selling and administrative expense will we incur and how much
cash will we pay related to those expenses?
8. How much money will we borrow from or repay to lenders – including
interest?
9. How much operating income will we earn?
10.What will our balance sheet look like at the end of the budget period?
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8-15
The Master Budget – An Overview –
Part 2
A master budget is based on various estimates and
assumptions. For example, the sales budget requires
three estimates/assumptions as follows:
1.What are the budgeted unit sales?
2.What is the budgeted selling price per unit?
3.What percentage of accounts receivable will be
collected in the current and subsequent periods?
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8-16
The Master Budget – An Overview – Part 3
When Microsoft Excel© is used to create a master budget,
these types of assumptions can be depicted in a Budget
Assumptions tab, thereby enabling Excel-based budgets to
answer “what-if” questions.
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8-17
Learning Objective 2
Prepare a sales budget,
including a schedule of
expected cash collections.
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8-18
Budgeting Example
Royal Company is preparing budgets for the
quarter ending June 30th.
Budgeted sales for the next five months are:
April
20,000 units
May
50,000 units
June
30,000 units
July
25,000 units
August
15,000 units
The selling price is $10 per unit.
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8-19
The Sales Budget
The individual months of April, May, and June
are summed to obtain the total budgeted
sales in units and dollars for the quarter
ended June 30th.
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8-20
Expected Cash Collections – Part 1
All sales are on account.
Royal’s collection pattern is:
70% collected in the month of sale,
30% collected in the month following sale,
The March 31st accounts receivable balance of
$30,000 will be collected in full in April.
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8-21
Expected Cash Collections – Part 2
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8-22
Expected Cash Collections – Part 3
From the Sales Budget for April.
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8-23
Expected Cash Collections – Part 4
From the Sales Budget for May.
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8-24
Quick Check 1
What will be the total cash collections for the
quarter?
a. $700,000
b. $220,000
c. $190,000
d. $940,000
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8-25
Quick Check 1a
What will be the total cash collections for
the quarter?
a. $700,000
b. $220,000
c. $190,000
d. $940,000
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8-26
Expected Cash Collections – Part 5
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8-27
Learning Objective 3
Prepare a production budget.
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8-28
The Production Budget – Part 1
Sales
Budget
and
Expected
Cash
Collections
Production
Budget
The production budget must be adequate to
meet budgeted sales and to provide for
the desired ending inventory.
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8-29
The Production Budget – Part 2
The management at Royal Company wants ending
inventory to be equal to 20% of the following month’s
budgeted sales in units.
On March 31st, 4,000 units were on hand.
Let’s prepare the production budget.
If Royal was a merchandising company it would prepare a
merchandise purchase budget instead of a production budget.
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8-30
The Production Budget – Part 3
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8-31
The Production Budget – Part 4
March 31
ending inventory.
Budgeted May sales
Desired ending inventory %
Desired ending inventory
50,000
20%
10,000
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8-32
Quick Check 2
What is the required production for May?
a. 56,000 units
b. 46,000 units
c. 62,000 units
d. 52,000 units
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8-33
Quick Check 2a
What is the required production for May?
a. 56,000 units
b. 46,000 units
c. 62,000 units
d. 52,000 units
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8-34
The Production Budget – Part 5
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8-35
The Production Budget – Part 6
July sales of 25,000 units × 20% = 5,000
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8-36
Learning Objective 4
Prepare a direct materials
budget, including a schedule
of expected cash
disbursements for purchases
of materials.
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8-37
The Direct Materials Budget – Part 1
At Royal Company, five pounds of material are
required per unit of product.
Management wants materials on hand at the end of
each month equal to 10% of the following month’s
production.
On March 31, 13,000 pounds of material are on
hand. Material cost is $0.40 per pound.
Let’s prepare the direct materials budget.
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8-38
The Direct Materials Budget – Part 2
From production budget.
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8-39
The Direct Materials Budget – Part 3
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8-40
The Direct Materials Budget – Part 4
March 31 inventory.
10% of following month’s
production needs.
Now, why don’t you
calculate the materials to
be purchased in May.
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8-41
Quick Check 3
How much materials should be purchased in May?
a. 221,500 pounds
b. 240,000 pounds
c. 230,000 pounds
d. 211,500 pounds
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8-42
Quick Check 3a
How much materials should be purchased in May?
a. 221,500 pounds
b. 240,000 pounds
c. 230,000 pounds
d. 211,500 pounds
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8-43
The Direct Materials Budget – Part 5
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8-44
The Direct Materials Budget – Part 6
Beginning inventory from April.
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8-45
Expected Cash Disbursement for Materials –
Part 1
Royal pays $0.40 per pound for its materials.
One-half of a month’s purchases is paid for in the
month of purchase; the other half is paid in the
following month.
The March 31 accounts payable balance is $12,000.
Let’s calculate expected cash disbursements.
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8-46
Expected Cash Disbursement for Materials –
Part 2
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8-47
Expected Cash Disbursement for Materials –
Part 3
140,000 lbs. × $0.40/lb. = $56,000
Compute the expected cash
disbursements for materials
for the quarter.
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8-48
Quick Check 4
What are the total cash disbursements for the
quarter?
a. $185,000
b. $ 68,000
c. $ 56,000
d. $201,400
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8-49
Quick Check 4a
What are the total cash disbursements for the
quarter?
a. $185,000
b. $ 68,000
c. $ 56,000
d. $201,400
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8-50
Expected Cash Disbursement for Materials –
Part 4
Accounts payable at June 30 = $56,800×50% = $28,400
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8-51
Learning Objective 5
Prepare a direct labor budget.
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8-52
The Direct Labor Budget – Part 1
At Royal, each unit of product requires 0.05
hours (3 minutes) of direct labor. The labor can
be unskilled because the production process is
relatively simple and formal training is not
required.
Royal pays its workers at the rate of $10 per
hour.
Let’s prepare the direct labor budget.
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8-53
The Direct Labor Budget – Part 2
From production budget.
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8-54
The Direct Labor Budget – Part 3
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8-55
The Direct Labor Budget – Part 4
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8-56
Quick Check 5
What would be the total direct labor cost for the
quarter if the company pays time and one-half
($10 × 1.5 = $15) for all hours worked by
employees over 2,000 per month.
a. $51,700
b. $52,000
c. $53,250
d. $57,000
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8-57
Quick Check 5a
What would be the total direct labor cost for the
quarter if the company pays time and one-half
($10 × 1.5 = $15) for all hours worked by
employees over 2,000 per month.
a. $51,700
April
May
June
Quarter
Labor hours required 1,300
2,300
1,450
b. $52,000 Regular hours paid 1,300 2,000 1,450 4,750
300
300
c. $53,250 Overtime hours paid
d. $57,000 Total regular hours 4,750 $10 $ 47,500
Total overtime hours
Total pay
300
$15 $ 4,500
$ 52,000
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8-58
Learning Objective 6
Prepare a manufacturing
overhead budget.
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8-59
Manufacturing Overhead Budget – Part 1
At Royal, manufacturing overhead is applied to units of
product on the basis of direct labor hours.
The variable manufacturing overhead rate is $20 per
direct labor hour.
Fixed manufacturing overhead is $50,000 per month,
which includes $20,000 of noncash costs (primarily
depreciation of plant assets).
Let’s prepare the manufacturing overhead budget.
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8-60
Manufacturing Overhead Budget – Part 2
Direct Labor Budget.
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8-61
Manufacturing Overhead Budget – Part 3
Total mfg. OH for quarter $251,000
Total labor hours required 5,050
= $49.70 per hour *
* rounded
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8-62
Manufacturing Overhead Budget – Part 4
Depreciation is a noncash charge.
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8-63
Ending Finished Goods Inventory Budget –
Part 1
Production costs per unit Quantity
Cost
Direct materials
5.00 lbs. $ 0.40
Direct labor
0.05 hrs. $ 10.00
Manufacturing overhead
0.05 hrs. $ 49.70
$
$
Budgeted finished goods inventory
Ending inventory in units
Unit product cost
Ending finished goods inventory
Total
2.00
0.50
2.49
4.99
5,000
$ 4.99
$ 24,950
Direct materials
budget and information.
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8-64
Ending Finished Goods Inventory Budget –
Part 2
Production costs per unit Quantity
Cost
Direct materials
5.00 lbs. $ 0.40
Direct labor
0.05 hrs. $ 10.00
Manufacturing overhead
0.05 hrs. $ 49.70
$
$
Budgeted finished goods inventory
Ending inventory in units
Unit product cost
Ending finished goods inventory
Total
2.00
0.50
2.49
4.99
5,000
$ 4.99
$ 24,950
Direct labor budget.
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8-65
Ending Finished Goods Inventory Budget –
Part 3
Production costs per unit
Direct materials
Direct labor
Manufacturing overhead
Quantity
Cost
5.00 lbs. $ 0.40
0.05 hrs. $10.00
0.05 hrs. $49.70
$
$
Budgeted finished goods inventory
Ending inventory in units
Unit product cost
Ending finished goods inventory
Total
2.00
0.50
2.49
4.99
5,000
$ 4.99
?
Total mfg. OH for quarter $251,000
= $49.70 per hour
Total labor hours required 5,050
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8-66
Ending Finished Goods Inventory Budget –
Part 4
Production costs per unit Quantity
Cost
Direct materials
5.00 lbs. $ 0.40
Direct labor
0.05 hrs. $ 10.00
Manufacturing overhead
0.05 hrs. $ 49.70
$
$
Budgeted finished goods inventory
Ending inventory in units
Unit product cost
Ending finished goods inventory
Total
2.00
0.50
2.49
4.99
5,000
$ 4.99
$ 24,950
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8-67
Ending Finished Goods Inventory Budget –
Part 5
Production costs per unit Quantity
Cost
Direct materials
5.00 lbs. $ 0.40
Direct labor
0.05 hrs. $ 10.00
Manufacturing overhead
0.05 hrs. $ 49.70
$
$
Budgeted finished goods inventory
Ending inventory in units
Unit product cost
Ending finished goods inventory
Total
2.00
0.50
2.49
4.99
5,000
$ 4.99
$ 24,950
Production Budget.
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8-68
Learning Objective 7
Prepare a selling and
administrative expense
budget.
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8-69
Selling and Administrative Expense Budget –
Part 1
At Royal, the selling and administrative expense budget is divided
into variable and fixed components.
The variable selling and administrative expenses are $0.50 per
unit sold.
Fixed selling and administrative expenses are $70,000 per month.
The fixed selling and administrative expenses include $10,000 in
costs – primarily depreciation – that are not cash outflows of the
current month.
Let’s prepare the company’s selling and administrative expense
budget.
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8-70
Selling and Administrative Expense Budget –
Part 2
Calculate the selling and administrative
cash expenses for the quarter.
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8-71
Quick Check 6
What are the total cash disbursements for selling
and administrative expenses for the quarter?
a. $180,000
b. $230,000
c. $110,000
d. $ 70,000
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8-72
Quick Check 6a
What are the total cash disbursements for selling
and administrative expenses for the quarter?
a. $180,000
b. $230,000
c. $110,000
d. $ 70,000
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consent of McGraw-Hill Education.
8-73
Selling Administrative Expense Budget –
Part 3
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consent of McGraw-Hill Education.
8-74
Learning Objective 8
Prepare a cash budget.
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8-75
Format of the Cash Budget
The cash budget is divided into four sections:
1. Cash receipts section lists all cash inflows excluding cash
received from financing;
2. Cash disbursements section consists of all cash payments
excluding repayments of principal and interest;
3. Cash excess or deficiency section determines if the company
will need to borrow money or if it will be able to repay funds
previously borrowed; and
4. Financing section details the borrowings and repayments
projected to take place during the budget period.
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8-76
Additional Cash Budget Information
Assume the following information for Royal:
➢Maintains a 16% open line of credit for $75,000.
➢Maintains a minimum cash balance of $30,000.
➢Borrows on the first day of the month and repays loans
on the last day of the month.
➢Pays a cash dividend of $49,000 in April.
➢Purchases $143,700 of equipment in May and $48,300
in June (both purchases paid in cash).
➢Has an April 1 cash balance of $40,000.
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The Cash Budget – Part 1
Schedule of Expected
Cash Collections.
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consent of McGraw-Hill Education.
8-78
The Cash Budget – Part 2
Schedule of Expected
Cash Disbursements.
Manufacturing
Overhead Budget.
Selling and Administrative
Expense Budget.
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consent of McGraw-Hill Education.
8-79
The Cash Budget – Part 3
Because Royal maintains
a cash balance of $30,000,
the company must borrow
$48,000 on its line-of-credit.
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8-80
The Cash Budget – Part 4
Because Royal maintains
a cash balance of $30,000,
the company must borrow
$48,000 on its line-of-credit.
Ending cash balance for April
is the beginning May balance.
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consent of McGraw-Hill Education.
8-81
The Cash Budget – Part 5
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consent of McGraw-Hill Education.
8-82
Quick Check 7
What is the excess (deficiency) of cash available
over disbursements for June?
a. $ 95,000
b. $(21,000)
c. $ 175,000
d. $ 130,500
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consent of McGraw-Hill Education.
8-83
Quick Check 7a
What is the excess (deficiency) of cash available
over disbursements for June?
a. $ 95,000
b. $(21,000)
c. $ 175,000
d. $ 130,500
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8-84
The Cash Budget – Part 6
$48,000 × 16% × 3/12 = $1,920
Borrowings on April 1 and
repayment on June 30.
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8-85
The Budgeted Income Statement – Part 1
Cash
Budget
Budgeted
Income
Statement
With interest expense from the cash budget, Royal
can prepare the budgeted income statement.
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8-86
Learning Objective 9
Prepare a budgeted income
statement.
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consent of McGraw-Hill Education.
8-87
The Budgeted Income Statement – Part 2
Sales Budget.
Royal Company
Budgeted Income Statement
For the Three Months Ended June 30
Sales (100,000 units @ $10)
Cost of goods sold (100,000 @ $4.99)
Gross margin
Selling and administrative expenses
Operating income
Interest expense
Net income
$ 1,000,000
499,000
501,000
260,000
241,000
1,920
$
239,080
Ending Finished
Goods Inventory.
Selling and
Administrative
Expense Budget.
Cash Budget.
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consent of McGraw-Hill Education.
8-88
Learning Objective 10
Prepare a budgeted balance
sheet.
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consent of McGraw-Hill Education.
8-89
Additional Budgeted Balance Sheet
Information
Royal reported the following account balances
prior to preparing its budgeted financial
statements:
•Land – $50,000
•Common stock – $150,000
•Retained earnings – $248,650 (April 1)
•Equipment – $175,000
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8-90
Budgeted Balance Sheet – Part 1
30% of June
sales of
$300,000.
11,500 lbs.
at $0.40/lb.
5,000 units
at $4.99 each.
50% of June
purchases
of $56,800.
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consent of McGraw-Hill Education.
8-91
Budgeted Balance Sheet – Part 2
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consent of McGraw-Hill Education.
8-92
End of Chapter 8
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consent of McGraw-Hill Education.
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