Letter of Transmittal

March 31, 2016

Mabel D Costa
Lecturer, Department of Accounting and Finance
School of Business
North South University.

Subject: Submission of Group Project

Dear Mabel,
We have pleasure in submitting the final group project on master
budgeting of a local tailoring shop. We would like to take this
opportunity to thank you for the guidance and support you have
provided us with during the course of this report.
To prepare the report we collected the most relevant information in
order to make it as analytical and reliable as possible. We have
dedicated our best effort to achieve the objectives of the report and
hope that our endeavor will serve the purpose.
Thank you again for your support and patience.

Yours sincerely
Sara Bashneen Rahman

Syeda Tanha Anwar

Shah Anika Nower

Sanzida Hossain

Introduction
A budget is a detailed plan for the future that is usually expressed in formal
quantitative terms. Budget are used for two distinct purposes-planning and
control. Planning involves developing goals and preparing various budgets to
achieve those goals. Control involves gathering feedback to ensure that the
plan is being properly executed or modified as circumstances change. To be
effective, a good budgeting system must provide for both planning and
control. Good planning without effective control is a waste of time.
The master budget is the aggregation of all lower- level budgets produced by
a company's various functional areas, and also includes budgeted financial
statements, cash forecast, and a financing plan. The master budget is
typically presented in either a monthly or quarterly format, or usually covers
a company's entire fiscal year. An explanatory text may be included with the
master budget, which explains the company's strategic direction, how the
master

budget

will

assist

in

accomplishing

specific

goals,

and

the

management actions needed to achieve the budget. There may also be a

discussion of the headcount changes that are required to achieve the
budget.
A master budget is the central planning tool that a management team uses
to direct the activities of a corporation, as well as to judge the performance
of its various responsibilities. A master budget is a set of interconnected
budgets of sales, production costs, purchases, incomes, etc. and it also
includes pro forma financial statements. A budget is a plan of future financial
transactions. A master budget serves as planning and control tool to the
management since they can plan the business activities during the period on
the basis of master budget. At the end of each period, actual results can be

compared with the master budget and necessary control actions can be
taken.

Components of Master Budget

Master budget has two major sections which are the operational budget and
the financial budget. They have following components:

Operational Budget
1.

Sales Budget

2.

Production Budget

3.

Direct Material Purchases Budget

4.

Direct Labor Budget

5.

Overhead Budget

6.

Selling and Administrative Expenses Budget

Financial Budget
1.

Schedule of Expected Cash Collection

2.

Schedule of Expected Cash Disbursement

3.

Cash Budget

4.

Budgeted Income Statement

5.

Budgeted Balance Sheet

We are preparing the master budget on a local tailoring shop for the year of
2017. We are going to prepare both operating and financial budget for this

tailoring shop. The tailor is located in Uttara, Dhaka and named Jannat
Tailors.

Reason behind choosing a tailoring shop:

According to the requirements only small businesses are applicable for
preparing the master budget. Tailoring is one kind of a small business where
we can find almost all the components of master budgeting. Therefore we
choose a tailoring shop.

Objectives of the report

1. To find out sales budget, production budget, direct material and direct
labor budget for the year 2017.
2. To compute the manufacturing overhead budget and selling and
administrative budget for the year 2017.
3. To compute the financial budgets of the tailoring shop for the year
2017.

Methodology of the report

We did primary research for every possible kind of information. We
interviewed the owner of the tailor shop to find out further information about
his business.

Sources of data collection

For any kind of data we chose primary sources of data collection where
interviewing the owner is one of the important part of data collection.

Manufacturing Overhead Budget

The manufacturing budget lists all costs of production other than direct
materials and direct labor. Here, Jannat tailors considers threads, needles,
chalk, scissor, and scale as indirect materials. Iron, table and machines are
equipment.
So, Jannat tailors uses variable manufacturing overhead rate of 30tk. per
unit produced. Fixed manufacturing overhead is 16,000tk per semi-annually,
where 5000tk of noncash cost which is the simply depreciation cost of the
equipment.

Year 2017
Jan-Jun

Jul-Dec

Total

Production

577

548

1125

Requirement
*Variable MOH

30

30

30

Rate
Total Variable

17310

16440

33750

MOH
+ Fixed MOH

16000

16000

32000

Total MOH Cost

33310

322440

65750

-Noncash cost

5000

5000

10000

Cash

28310

27440

55750

disbursement
MOH Cost
Predetermined overhead cost= Total Manufacturing overhead cost/
Budgeted labor hour cost
= 65750/ 4500
= 15 per hour

Ending Finished Goods Budget

According to the direct material budget Jannat Tailors has been used 30inchs
of direct material for each unit of production required and per inch cost 1tk.
According to direct labor budget per order requires 4 hours of labor hour and
per labor hour costs 25tk.
According to the manufacturing overhead budget per labor hour costs 15tk.

Product
Cost per
unit

Quantity

Cost

Total

Direct Material

30 inches

30

Direct Labor

4 hours

25

100

Manufacturing
overhead(both
variable &
fixed)
Unit Product
Cost

4 hours

15

60

190

Budgeted Finished Goods Inventory= Ending inventory unit . Unit

cost
= 55 . 175
= 9625tk
So, lastly we get 190tk of total unit product cost by adding direct
material, direct labor and manufacturing overhead cost.

Selling and Administrative Budget

Selling and administrative budget lists the budgeted expenses for
areas other than manufacturing.
Here, variable selling and administrative cost per order is 30tk.
Fixed selling and administrative cost is 13000tk per semi-annually
which includes 800tk for depreciation cost.

Year 2017
Selling units
*Variable
selling &
administrative
expenses per
order
Variable selling
&
administrative
expenses
Fixed selling &
administrative
expenses
Total selling &
administrative
expenses
Less
Depreciation
Cash
Disbursement
for selling &
administrative

Jan-Jun

Jul-Dec

Total

570
30

550
30

1120
30

17100

16500

33600

13000

13000

26000

30100

29500

59600

800

800

1600

29300

28700

58000