Develop a 2018 budget for Ace Manufacturing Company. Deliver the
budget in spreadsheet format. Please include justifications for your
budgetary decisions. The justifications should be written somewhere on
the spreadsheet. Below is a very rough outline of the company. Use this
as the basis for your assumptions about the company and the resulting
2018 budget. You may add detail as you require to complete the budget.
For example yearly sales, unit sales, sales mix, employee salaries,
costs of the land and building to maintain, product development costs,
testing costs, costs to suppliers, shipping and freight costs for
incoming material and outgoing products. Company background: Ace
develops and manufactures garden carts for the home user. Ace has 3
products in production and one in development. Ace development,
manufacturing and administration is all located in one building that is
40,000 sq. ft. in size. Product A has 80% material cost and 20%
labor and overhead. Product B is 75-25 and Product C 70-30. Ace Mfg.
sells to Ace Hardware Stores nationwide and sells directly to consumers
by way of being an Amazon supplier. Ace employs 10 people total.
President / VP of Operations, administrative assistant / office manager,
VP Finance & Controller, 1 R&D engineer, 1 manufacturing
engineer, 2 production employees, 1 purchasing / material handling
employee, 1 technical marketing / customer support and 2 salesman. Product
D is being developed in the lab with an introduction expected in June
2018. January through June consumes material for prototypes, project
material for analysis and testing resources.
Ace Manufacturing Company
Company Background
Building- 40000sq ft
Employees-10
Product Mix
Product A Product B Product C
Material Cost
80%
75%
70%
Labor Overhead
20%
25%
30%
Product D underdevelopement-expected introduction June 2012
Employees
Salaries/Wages
President- VP of Operations
$95,000
Administrative assistant/office manager
$60,000
VP Finance & Controller
$92,000
1 R&D engineer
$80,000
1 manufacturing engineer
$80,000
2 production employees
$15/hr
1 purchasing/material handling employee
$50,000
1 technical marketing/customer support
$85,000
2 salesman
$40,000
Estimates supporting budgets
Product A
Product B
Product C
Product D
2012 Estimates
Quantities
Unit Selling Prices
6000
$125
5500
$110
3000
$60
3500
$80
Direct Materials
Direct Labor
Factory Overhead
Product A
Product B
Product C
Product D
Product Costs by Percentage
Product A Product B Product C Product D
80%
75%
70%
80%
14%
18%
21%
14%
6%
8%
9%
6%
Direct Materials
Direct Labor
Factory Overhead
Total Product Cost
Product Costs Per Unit
Product A Product B Product C Product D
$17.60
$11.25
$8.40
$13.60
$3.08
$2.63
$2.52
$2.38
$1.32
$1.13
$1.08
$1.02
$22
$15
$12
$17
WIP
Finished goods
Jan 1 2012
Product A Product B Product C Product D
350
325
200
0
1100
1000
500
550
WIP
Finished Goods
Dec 31 2012
Product A Product B Product C Product D
350
325
200
200
800
800
350
400
Estimated
Inventory Jan. 1, 2012
Direct materials
Product A
Product B
Product C
Product D
Total direct materials
Work in process:
Finished goods:
Estimated Inventory
January 1, 2012
1200
800
700
0
$21,120 (1200 units * $17.60)
$9,000 (800 units * $11.25)
$5,880 (700 units * $8.40)
$0
$36,000
$11,496
$54,550
Desired
Inventory Dec. 31, 2012
$7,040
$4,500
$1,680
$4,080
$17,300
$14,216
$40,600
(400 units * $17.60)
(400 units * $11.25)
(200 units * $8.40)
(300 units * $13.60)
Desired Inventory
December 31, 2012
400
400
200
300
Master Budget
Ace Manufacturing Company
Sales Budget
For the Year Ending December 31, 2012
Unit Sales Unit Selling
Product
Volume
Price
Total Sales
A
6000
$125
$750,000
B
5500
$110
$605,000
C
3000
$60
$180,000
D
3500
$850 $2,975,000
Total
18000
$4,510,000
Ace Manufacturing Company
Production Budget
For the Year Ending December 31, 2012
Expected units to be sold
Plus desired ending inventory, December 31, 2012
Total
Less estimated beginning inventory, January 1, 2012
Total units to be produced
Units
Product A
Product B Product C Product D
6000
5500
3000
3500
400
400
200
300
6400
5900
3200
3800
1200
800
700
0
5200
5100
2500
3800
Ace Manufacturing Company
Direct Materials Purchases Budget
For the Year Ending December 31
Direct Materials
Product A Product B Product C Product D
Total
Units required for production
5200
5100
2500
3800
Plus desired inventory, December 31, 2010
400
400
200
300
Total
5600
5500
2700
4100
Less estimated inventory, January 1, 2012
1200
800
700
0
Total Units Direct Materials to be purchased
4400
4700
2000
4100
Unit Price
?$17.60
?$11.25
?$8.40
?$13.60
Total direct materials to be purchased
$77,440
$9,000
$16,800
$55,760 $159,000
Hours Required for Production
Hourly Rate
Total direct labor cost
Ace Manufacturing Company
Direct Labor Cost Budget
For the Year Ending December 31, 2012
Direct Materials
Product A
Product B Product C Product D
Total
1800
1765
865
1315
$12.00
$12.00
$12.00
$12.00
$21,600.00 $21,180.00 $10,380.00 $15,780.00 $68,940.00
Ace Manufacturing Company
Factory Overhead Cost Budget
For the Year Ending December 31, 2012
Indirect Factory Wages:
Technical marketing/customer service salary exp.
Manufacturing Engineer Salary
R&D engineer salary expense
Material Handling employee salary expense
Power and light
Maintanence
Insurance & property taxes
Product development and testing costs
Indirect materials
Shipping & Receiving
Total factory overhead cost
$95,000
$80,000
$80,000
$50,000
$45,000
$42,000
$40,000
$35,000
$19,203
$20,000
$506,203
Ace Manufacturing Company
Cost of Goods Sold Budget
For the Year Ending December 31, 2012
Finished goods inventory, January 1, 2012
Work in process inventory, January 1, 2012
Direct materials:
Direct materials inventory,
January 1, 2012
$36,000
Direct materials purchases
$159,000
Cost of direct materials available for use
$195,000
Less direct materials inventory,
December 31, 2012
$17,300
Cost of direct materials placed in production
$177,700
Direct labor
$68,940.00
Factory overhead
$506,203
Total manufacturing costs
Total work in process during period
Less work in process inventory
December 31, 2012
Cost of goods manufactured
Cost of finished goods available for sale
Less finished goods inventory
December 31, 2012
Cost of goods sold
$54,550
$11,496
$752,843
$764,339
$14,216
$750,123
$804,673
$40,600
$764,073
Sales Budget
The product mix includes different size garden carts: product A-large, product Bmedium, product C-small. Product D is being developed and is a hybrid of a medium cart
and a large cart. Its focus is to be a more maneuverable medium sized cart for more rocky
terrain. The selling price of product D is set low to increase sales during the first season
product launch. The selling price of product D may increase in future years depending on
the customer and sales responses after the first year. It is expected the launch of product
D will slightly decrease sales from product A and product B but not affect product C
because of its features.
Production Budget
The expected units of product D to be sold are slightly on the optimistic side because it is
predicted that the lower selling price for a higher quality product will increase customer
buying incentive. Garden carts are considered to be a seasonal product. To keep the small
amount of employees with a job, the company manufactures carts year round. The
company keeps two manufacturing schedules. During the months March-August the
manufacturing department runs at a slightly higher production rate than months
September-February. The production schedule for the second half of the year depend on
the amount of products sold during that time period. A certain amount of products must
be kept in available in inventory by March 1st, the beginning of gardening season. This
year is unique because of the launch of Product D.
Direct Materials Budget
The total product cost includes factory overhead, direct labor and direct materials. The
percentages of the total product cost allocated to each product differ and are given in the
problem statement. It was my assumption that the factory overhead and direct materials
portion could be separated by percentage further. Of the total factory overhead and direct
materials cost, it was assumed 30% is factory overhead and 70% is direct labor. (See
estimate tables)
From January – June Product D will consume most of the material for prototypes and
testing. This causes the beginning material inventory in January is expected to be higher
than usual for products A, B and C.
Direct Labor Cost Budget
Each product type requires a about the same amount of time to product a unit. It is
estimated that each unit of production requires 0.346hrs. There are two production
employees who are able to handle this production schedule. They are paid $12/hr.
Factory Overhead Budget
One factory overhead cost is a percentage of the cost of products produced and are
considered an indirect materials cost. Product D causes factory overhead costs to be out
of the norm. This includes salaries and product development and testing costs.
Cost of Goods Sold Budget
Production is slightly lower during months September-February, so WIP during January
and December is lower than months March-August. Inventory is expected to build up for
the gardening season from the much lower sales during the winter/fall months than the
spring/summer months.
Budgeted Income Statement
Most values come from al the other budget statements. The interest revenue comes from
an investment that is $500/month. Also, to develop the new product, Ace Manufacturing
took out a 5-year $75,000 loan at 8% interest. Ace Manufacturing Company is put in the
23% income tax bracket.
Company Recommendations/Overview
Ace Manufacturing Company will have to carefully monitor the production schedule and
pricing for their products over the next few years to see the impact product D has on the
sales mix. They will have to consider lost sales from the rest of the product mix and their
overall production capacity. If sales increase by a large enough amount without taking
away from the other products, a new machine may need to be purchased as well as
another person hired. There is a possibility that this will offset the profits and make
factory overhead and direct labor run way below their efficiency. The company may even
consider dropping one of the other products or outsourcing if faced with a production
capacity issue. Also, once product D is completely developed, factory overhead should
drop considerably if the company has no further interest in research and development.
These extra funds could be used to fund the company’s operations by investing the
money in assets. There is a possibility that the current machinery is outdated and could be
sold for a profit or disposed of for a salvage amount. New machinery could be purchased
that has a higher capacity. Overall the company will be faced with several financial
decisions depending on how successful product D is in comparison to the company’s
current resources.

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