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MAGNA COMPANY-đã chuyển đổi
MAGNA COMPANY-đã chuyển đổi
Contents
Introduction ................................................................................................................................ 2
MASTER BUDGET................................................................................................................ 3
CASH BUDGET.................................................................................................................... 12
TASK 4 ................................................................................................................................... 12
Conclusion ............................................................................................................................... 17
References ................................................................................................................................ 17
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Magna Company Case
Abstract: In this case, we have solved some of the given tasks with the
position as an Accountant Assistant included: Prepare Master Budget for
Magna’s Manager; Consider possible factors that lead to the variance between
the actual and the proposed budget; Calculate some ratios to assess the
Magna’s performance in the future, Analyzing the relationship between total
overheads and quantity (units).
Introduction
Last but not least, we calculated and evaluated some budgeted performance indicators relate
to cost and profits centres. We applied knowledge of learned financial analysis to understand
what those ratios are showing. From the above calculations, we analyzed the relationship
between cost and quantity to help managers control production efficiency.
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Magna Company Case
MASTER BUDGET
MAGNA COMPANY
Quarterly Sales Budget
Four quarters of 2017
Sales budget: to estimate unit sales and unit price, analyze economic and market
conditions, forecast the customer needs from marketing personnel.
The objective of sales budget is to plan and control expenditure of resources (money,
material, facilities and people) necessary to achieve the desired sales objective. It aims at
leveraging and maximizing profits.
MAGNA COMPANY
Quarterly Production Budget in units
Four quarters of 2017
Production budget in units: contains details of the number of units that are intended to
be produced by a business in a particular period. This budget is made after the preparation of
the sales budget. It helps a company plan its manufacturing schedule and ensure that it
produces an adequate quantity of goods.
To answer three questions: How many units does it intend to sell during the budget
period?, What is the number of units of inventory that it holds at the beginning of the budget
period?, How many units does it want to have in stock at the end of the period?
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Master Budgets
Direct Material Usage Budget in units Quarter I Quarter II Quarter III Quarter IV
Budgeted production 80,000 87,500 92,500 88,000
Budgeted input per unit 12 12 12 12
Plastic
Budgeted usage 960,000 1,050,000 1,110,000 1,056,000
Budgeted input per unit 8 8 8 8
Linning material
Budgeted usage 640,000 700,000 740,000 704,000
Total direct material usage 1,600,000 1,750,000 1,850,000 1,760,000
MAGNA COMPANY
Quarterly Direct Material Purchases Budget
Four quarters of 2017
Quarter I Quarter II Quarter III Quarter IV
Plastic Linning Plastic Linning Plastic Linning Plastic Linning
Budgeted DM usage 960,000 640,000 1,050,000 700,000 1,110,000 740,000 1,056,000 704,000
Add: Target ending inventory 105,000 70,000 111,000 74,000 105,600 70,400 77,000 46,200
Total requirements 1,065,000 710,000 1,161,000 774,000 1,215,600 810,400 1,133,000 750,200
Deduct: Beginning inventory 80,000 50,000 105,000 70,000 111,000 74,000 105,600 70,400
Total DM purchases 985,000 660,000 1,056,000 704,000 1,104,600 736,400 1,027,400 679,800
Purchase price ($) 16.5 6 16.5 6 16.5 6 16.5 6
Total purchases ($) 16,252,500 3,960,000 17,424,000 4,224,000 18,225,900 4,418,400 16,952,100 4,078,800
Total Direct material purchases
20,212,500 21,648,000 22,644,300 21,030,900
(Plastic & Linning) ($)
Master Budgets
Direct materials budget: to calculate the materials that must be purchased, by time
period, in order to fulfill the requirements of the production budget. It is typically presented
in either a monthly or quarterly format in the annual budget. In a business that sells products,
this budget may contain a majority of all costs incurred by the company, and so should be
compiled with considerable care.
The basic calculation used by the direct materials budget is (Jan, 2011):
Raw materials required for production
+ Planned ending inventory balance
= Total raw materials required
- Beginning raw materials inventory
= Raw materials to be purchased
MAGNA COMPANY
Quarterly Direct Labour Budget
Four quarters of 2017
Direct labour budget: to calculate the number of labor hours that will be needed to
produce the units itemized in the production budget. A more complex direct labor budget will
calculate not only the total number of hours needed, but will also break down this information
by labor category. The direct labor budget is useful for anticipating the number of employees
who will be needed to staff the manufacturing area throughout the budget period.
The direct labour budget is presented in either a monthly or quarterly format. The
basic calculation used by the budget is to import the number of units of production from the
production budget and to multiply this by the standard number of labor hours for each unit.
Magna Company Case
MAGNA COMPANY
Quarterly Manufacturing Overhead Budget
Four quarters of 2017
Variable Total
Amount Fixed Quarter I Quarter II Quarter III Quarter IV
per Unit Cost
Variable costs
Factory supplies 1.5 180,000 196,875 208,125 198,000
Utilities 0.7 84,000 91,875 97,125 92,400
Shop maintenance 0.5 60,000 65,625 69,375 66,000
Other 1.8 216,000 236,250 249,750 237,600
Total variable costs 4.5 540,000 590,625 624,375 594,000
Fixed costs
The total of all costs in this overhead budget are converted into a per-unit overhead
allocation, which is used to derive the cost of ending finished goods inventory, and which in
turn is listed on the budgeted balance sheet.
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Magna Company Case
MAGNA COMPANY
Quarterly Selling, General & Administrative Expense Budget
Four quarters of 2017
Variable Total
Amount Fixed Quarter I Quarter II Quarter III Quarter IV
per Unit Cost
Sales 280 21,000,000 25,200,000 23,800,000 28,000,000
Variable costs
Commissions 3.00 225,000 270,000 255,000 300,000
Shipping 0.75 56,250 67,500 63,750 75,000
Other 1.25 93,750 112,500 106,250 125,000
Total variable
5.00 375,000 450,000 425,000 500,000
costs
Contribution
275 20,625,000 24,750,000 23,375,000 27,500,000
margin
Fixed costs
Salaries 48,000 48,000 48,000 48,000 48,000
Depreciation 40,000 40,000 40,000 40,000 40,000
Other 25,000 25,000 25,000 25,000 25,000
Total fixed costs 113,000 113,000 113,000 113,000 113,000
Income from
178,000 20,512,000 24,637,000 23,262,000 27,387,000
operations
Selling, general, administrative expense budget: is comprised of the budgets of all
non-manufacturing departments, such as the sales, marketing, accounting, engineering, and
facilities departments. The selling and administrative expense budget is typically presented in
either a monthly or quarterly format.
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Magna Company Case
MAGNA COMPANY
Quarterly Product cost per Unit
Four quarters of 2017
MAGNA COMPANY
Quarterly Production Budget in dollars
Four quarters of 2017
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Magna Company Case
MAGNA COMPANY
Quarterly Budgeted Income Statement
Four quarters of 2017
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Magna Company Case
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Magna Company Case
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Magna Company Case
CASH BUDGET
MAGNA COMPANY
Quarterly Budgeted Income Statement
Four quarters of 2017
In the first quarter, all of account receivable balce in Jan 1st, 2017 ($1,200,000) is
collectible fully and 10% sales of this quarter is collected by cash. So, receipts from
customers in 1st quarter is $1,200,000 + 10%*$21,000,000 = $14,100,000.
In the second quarter, 10% sales of this quarter and 10% sales of the previous quarter
is collected by cash = 10%*$25,200,000 + 10%*$21,000,000 = $4,620,000
TASK 4: Actually, in 2017, the Magna Company sold 350,000 units (as budget)
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Magna Company Case
➔ Rise in price: The rise in the general price level may increase the input costs of the
vendor and as a result vendor may increase the price of the materials. The rise in price
is very common reason of an unfavorable variance.
➔ Transportation: Transportation is a part of total direct materials cost. Any change in
the transportation expenses can change the total and per unit cost of direct materials
available for use and can become the reason of favorable or unfavorable direct
materials price variance.
Direct labour efficiency is favourable because
➔ A simplified product design to reduce assembly time
➔ A reduction in the amount of scrap produced by the process
➔ Increasing the amount of automation
➔ Altering the workflow
If these can be done, then the standard number of hours required to produce an item is
decreased to more closely reflect the actual level of efficiency.
Direct labour rate is adverse because
➔ Increase in the national minimum wage rate
➔ Hiring of more skilled labor than anticipated in the standard (this should be reflected
in a favorable labor efficiency variance)
➔ Inefficient hiring by the HR department
➔ Effective negotiations by labor unions
Fixed overhead expenditure is adverse because
➔ This is caused by actual fixed overhead being more than budgeted.
➔ It could be caused by price increase, or a different pattern of overhead expenditure.
➔ increase in cost of services used
➔ excessive use of services
➔ change in type of services used
Fixed overhead capacity is favourable because
➔ labour force working overtime
➔ This is caused by actual labour hours being more than budgeted leading to an under
absorption of overhead.
Fixed overhead efficiency is favourable because
➔ labour force working more efficiently
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Magna Company Case
➔ This is caused by the standard hours for actual production being more than actual
hours worked.
❖ Cost centres
❖ Profit centre
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Magna Company Case
Production costs of sales/sales greater than 1 quarterly estimation shows that COGS>
Sales and Managa are having problems in calculating cost and selling price of products.
From the “Manufacturing Overhead Budget”, we have the below chart show the
relationship between total overheads and quantity (units)
800000
700000
600000
500000
400000
300000
200000
100000
0
0 10000 20000 30000 40000 50000 60000 70000 80000 90000 100000
VC FC TC
From the graph showing the relationship between total overheads and quantity. Total
cost is the total fixed cost and variable cost. At the output level of 0, the total cost is always
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Magna Company Case
equal to the fixed cost. Variable costs always vary by quantity. If output is low, variable costs
are low, output increases, variable costs increase.
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Magna Company Case
Conclusion
− Managers tend to ignore new business opportunities, because all resources are
already allocated toward attaining the budget, and their personal incentives are
tied to the budget.
Thus, enforcing a master budget can skew the operational performance of a business.
Because of this problem, it may be better to employ the master budget as just a rough
guideline for management's near-term expectations for the business. (Hyles, 2016)
References
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