BUDGETING 101

Projecting and Evaluating Performance

Summary of the Case

Philonia Phelps has developed a

gourmet cat food.

Phionia sells it at $250 per case

only to close acquaintances.

The investor wants Phionia to

produce a budget for the six months of operations.

Summary of the Case (cont.)

Based on her experience to date, Fionia predicts the following sales in cases:
Nov Dec Jan Feb Mar Apr May Jun Jul Aug

4,300

4,600

5,000

5,500

6,100

6,800

7,000

7,200

7,400

7,500

Summary of the Case (cont.)

Each case of Finicky Feline Gourmet Cat Dinner

requires 5 pounds of prime lamb meat, 10 pounds of short grain Chinese rice, 2 pounds of wild caught Alaskan salmon, and 1 pound of secret vitamins and supplements.
Phionia plans to maintain end-of-month

inventories equal to 10 percent of the next months projected sales.

Summary of the Case (cont.)

All the ingredients inventories are to

be maintained at 5 percent of the production needs for the next month, but not to exceed 1000 pounds of any ingredient.
January will begin with all

inventories at the projected levels.

Summary of the Case (cont.)

Phionia has the following price quotes good for the following year:

Item Lamb Rice Salmon Vitamins

$ per pound $ 15.00 1.20 24.00 45.00

Summary of the Case (cont.)

The production process requires direct labor

at two skill levels, (1) ingredient preparation, $18 per hour and (2) cooking and canning, @24 per hour.
It takes one hour to process one batch. Only six batches can be produced per day.

Each batch produces enough food to fill 100 cases. Manufacturing overhead is $6,000 fixed per month plus $15 per case.

Direct Material Budget

(lamb)
Jan Units to be produced Lamb per case Lamb req. per production +ending inventory Total Lamb Required -Beg. Inventory Lamb to purchase Cost per pound Feb Mar Apr May Jun

5,050 5,560 6,170 6,820 7,020 7,220

Total cost of lamb

Direct Material Budget

(lamb)
Jan Units to be produced Lamb per case Lamb req. per production +ending inventory Total Lamb Required -Beg. Inventory Lamb to purchase Cost per pound Feb Mar Apr May Jun

5,050 5,560 6,170 6,820 7,020 7,220 5 5 5 5 5 5

Total cost of lamb

Direct Material Budget

(lamb)
Jan Units to be produced Lamb per case Lamb req. per production +ending inventory Total Lamb Required -Beg. Inventory Lamb to purchase Cost per pound Feb Mar Apr May Jun

5,050 5,560 6,170 6,820 7,020 7,220 5 5 5 5 5 5 25,25 27,80 30,85 34,10 35,10 36,10 0 0 0 0 0 0

Direct Material Budget

(lamb)
Jan Units to be produced Lamb per case Lamb req. per production +ending inventory Total Lamb Required -Beg. Inventory Lamb to purchase Cost per pound Feb Mar Apr May Jun

5,050 5,560 6,170 6,820 7,020 7,220 5 5 5 5 5 5 25,25 27,80 30,85 34,10 35,10 36,10 0 0 0 0 0 0 1,390 1,000 1,000 1,000 1,000 1,000

Direct Material Budget

(lamb)
Jan Units to be produced Lamb per case Lamb req. per production +ending inventory Total Lamb Required -Beg. Inventory Lamb to purchase Feb Mar Apr May Jun

5,050 5,560 6,170 6,820 7,020 7,220 5 25,25 0 1,390 26,64 0 1,263 25,37 7 5 27,80 0 1,000 28,80 0 1,390 27,41 0 5 30,85 0 1,000 31,85 0 1,000 30,85 0 5 34,10 0 1,000 35,10 0 1,000 34,10 0 5 35,10 0 1,000 36,10 0 1,000 35,10 0 5 36,10 0 1,000 37,10 0 1,000 36,10 0

Direct Material Budget

(lamb)
Jan Units to be produced Lamb per case Lamb req. per production +ending inventory Total Lamb Required -Beg. Inventory Lamb to purchase Feb Mar Apr May Jun

5,050 5,560 6,170 6,820 7,020 7,220 5 25,25 0 1,390 28,03 0 1,263 5 27,80 0 1,000 30,08 5 1,390 5 30,85 0 1,000 34,26 0 1,000 5 34,10 0 1,000 37,61 0 1,000 5 35,10 0 1,000 38,71 0 1,000 5 36,10 0 1,000 39,80 5 1,000

Cost per pound

Direct Material Budget

(lamb)
Jan Units to be produced Lamb per case Lamb req. per production +ending inventory Total Lamb Required -Beg. Inventory Lamb to purchase Feb Mar Apr May Jun

5,050 5,560 6,170 6,820 7,020 7,220 5 25,25 0 1,390 28,03 0 1,263 26,76 7 5 27,80 0 1,000 30,08 5 1,390 28,69 5 5 30,85 0 1,000 34,26 0 1,000 33,26 0 5 34,10 0 1,000 37,61 0 1,000 36,61 0 5 35,10 0 1,000 38,71 0 1,000 37,71 0 5 36,10 0 1,000 39,80 5 1,000 38,80 5

Direct Material Budget

(lamb)
Jan Units to be produced Lamb per case Lamb req. per production +ending inventory Total Lamb Required -Beg. Inventory Lamb to purchase Feb Mar Apr May Jun

5,050 5,560 6,170 6,820 7,020 7,220 5 25,25 0 1,390 28,03 0 1,263 26,76 7 5 27,80 0 1,000 30,08 5 1,390 28,69 5 5 30,85 0 1,000 34,26 0 1,000 33,26 0 5 34,10 0 1,000 37,61 0 1,000 36,61 0 5 35,10 0 1,000 38,71 0 1,000 37,71 0 5 36,10 0 1,000 39,80 5 1,000 38,80 5

Direct Material Budget

(lamb)
Jan Units to be produced Lamb per case Lamb req. per production +ending inventory Total Lamb Required -Beg. Inventory Lamb to purchase Feb Mar Apr May Jun

5,050 5,560 6,170 6,820 7,020 7,220 5 25,25 0 1,390 28,03 0 1,263 26,76 7 5 27,80 0 1,000 30,08 5 1,390 28,69 5 5 30,85 0 1,000 34,26 0 1,000 33,26 0 5 34,10 0 1,000 37,61 0 1,000 36,61 0 5 35,10 0 1,000 38,71 0 1,000 37,71 0 5 36,10 0 1,000 39,80 5 1,000 38,80 5

Manufacturing labor budget

Jan Units to be produced Direct labor required per unit Direct labor required per production Labor cost per hour Total labor cost Feb Mar Apr May Jun

5,050 5,560 6,170 6,820 7,020 7,220

Manufacturing labor budget

Jan Units to be produced Direct labor required per unit Direct labor required per production Labor cost per hour Total labor cost Feb Mar Apr May Jun

5,050 5,560 6,170 6,820 7,020 7,220 .013 .013 .013 .013 .013 .013

Manufacturing labor budget

Jan Units to be produced Direct labor required per unit Direct labor required per production Labor cost per hour Total labor cost Feb Mar Apr May Jun

5,050 5,560 6,170 6,820 7,020 7,220 .013 .013 .013 .013 .013 .013

65.65 72.28 80.21 88.66 91.26 93.86

Manufacturing labor budget

Jan Units to be produced Direct labor required per unit Direct labor required per production Labor cost per hour Total labor cost Feb Mar Apr May Jun

5,050 5,560 6,170 6,820 7,020 7,220 .013 .013 .013 .013 .013 .013

65.65 72.28 80.21 88.66 91.26 93.86 42 42 42 42 42 42

Manufacturing labor budget

Jan Units to be produced Direct labor required per unit Direct labor required per production Labor cost per hour Total labor cost Feb Mar Apr May Jun

5,050 5,560 6,170 6,820 7,020 7,220 .013 .013 .013 .013 .013 .013

65.65 72.28 80.21 88.66 91.26 93.86 42 42 42 42 42 42

3942.1 2

2,757.3 3,035.7 3,368.8 3,723.7 3,832.9 6 2 2 2