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Case
In this casea full set of budgets will be prepared and presented in appropriate
format. Reports will be prepared to explain how budget numbers were determined.
The following are general requirements for this budget case. Specific requirements
are listed after the relevant case data.
Harveys Budget1
Harvey Manufacturing manufactures and sells two industrial products: a selfbalancing screw driver and a self-balancing saw. Both products are manufactured in
a single plant.
Harveys general manager, Mr. Lipscomb, and president, Mr. Owens, want a budget
prepared for the fiscal year 2013. They have asked various employees to gather
information that they believe will be necessary for preparation of a budget. The
information is presented below.
Neither Mr. Lipscomb nor Mr. Owens is skilled in budget preparation. Both
executives have used budgets and have participated to some degree in budget
preparation in prior years, but neither has prepared a full budget.
Sales and selling price per unit
Historical sales for 2012 the two products are shown below.
Harveys sales typically peak in the summer months, beginning with May. Harveys
general manager, Mr. Lipscomb, recommends that the budget be prepared with the
units sold in the high sales months of May, June, and July be used as the bases for
determining the annual forecast. Mr. Lipscombs recommendation is that annual
sales be budgeted at 64,000 per month for screwdrivers and 42,000 per month for
saws.
Mr. Lipscomb also believes that the budgeted selling price per unit should be equal
to the highest selling price that could be achieved in 2012. He would like to budget
102 per unit for screwdrivers and 130 per unit for saws. Mr. Lipscomb states that
his management team experimented with pricing in the prior year, beginning with
the first month of the year.
You review the unit sales and unit selling price information for 2012 and recommend
a budget based on 60,000 units of screwdrivers at 100 each and 40,000 units of
saws at 125 each. Mr. Lipscomb challenges your conclusion. Likewise Mr. Owens,
the company president, would like to hear an explanation of the budget numbers
and how or why you calculated those numbers.
Production Requirements
Each unit produced requires the following materials, labor, and overhead, all of
which is variable.
Inventories
Inventories are listed below. The beginning inventories are the actual amounts on
hand at the beginning of the year. The ending inventories shown are the amounts
that the operations manager has determined to be necessary to ensure smooth
production processes.
Other information
Fixed manufacturing overhead
Fixed manufacturing overhead is 214,000, including 156,000 of noncash expenditures.
Fixed manufacturing overhead is allocated on total units produced.
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Summary:
Your finished case will consist of six or seven budgets (a sales budget, a production
budget in units, a purchases budget, a budgeted income statement, a contribution
Harveys budget is adapted from a published case. (Source and citation are available upon
request to faculty only).