These are sold to local restaurants. The company manufactures French fries using a single production line that runs eight hours per day. The potatoes are purchased and stored in suitable warehouses from which they are distributed on a first-in first-out (OFF) basis. The production of French fries involves a number of processes. They are: cleaning, sorting, peeling, manual inspection, cutting, machine inspection, blanching, drying, frying, draining, freezing, and packaging (Beijing Time Progress Development Co.
Ltd 2002). When they are packed they are moved to the cold storage area of the arouses. In order to ensure that sufficient finished goods are in stock the potatoes purchased in any month is equal to the current period’s sale plus 25 per cent of the following month’s sale. Sales commission is paid at a rate of 8% on sales. This is paid in the following month. Host’s goal is to breakable every month. The company is currently selling more than enough Bibb bags of French fries to do this.
Expansion may be necessary to meet the needs of customers. However, at this point there is no major demand French fries made from Russet potatoes. The company is planning to purchase another machine o produce French fries made from Idaho potatoes. This is necessary as the larger food chains prefer that brand. The demand for Host’s product would be greater and sales would be steadier. The months in which demand was higher are months in which Idaho potatoes were scarce.
Sales budget The sales budget shows the budgeted sales for the 12 month period -January to December. Production and inventory levels normally depend on it [pick] Production/Purchases Budget The quantity of French fries produced depends on the budgeted sales for the period as well as the changes in the inventory levels The totals do not include January in bold The totals do not include the figures in bold. After the production budget is prepared the direct materials followed by the and direct labor cost budget can be prepared.
They are shown in the respective tables following. Direct Materials Budget The direct materials used shows the amount of materials used to produced a given level of output as well as the cost per unit. Direct Labor Budget Overheads Budget s budget snows the indirect expenses that vary Witt the level to prod N.B.: The amounts shaded n blue is not included in the total action. The overheads budget shows the cost of all overheads – variable and fixed. Variable overheads change as the number of units produced changes.
Marketing Budget The marketing budget shows the amounts paid to sales representatives as well as the transportation cost associated with selling. Administration Budget The administration budget shows the administrative costs that s expected to be incurred on the project. This includes the salaries of those who do not work in the factory but provide customer service and other matters associated with getting the products out in an efficient and reliable manner. Finished Goods Inventory Budget The cash budget along with the Budgeted Income Statement and balance sheets are shown following.
Income statement and Balance Sheet are shown in the following Income Statement I HOST Statement I I Revenue I Cottonwoods Sold: 70370 Opening inventory Production cost Manufacturing Cost Available for sale 1 1530 130210 I I Gross profit Operating Costs: 1 10 1 122814 1 14686 1 13240 1 130740 1 1 I Cost of Goods Sold I Budgeted Income I Direct I Variable I I Fixed I Cost of Goods I I Less: Closing inventory 140160 1 1 I Marketing I Admonish traction I I Total Operating Costs I I Net Income 116816 1 123343 The Income Statement provides information on whether a profit s made or a loss is incurred for the year.
The profit is carried to the profit and loss budget. Balance Sheet The budgeted balance sheet shows the budgeted financial position at the end of the year. A healthy position is anticipated as the company made sufficient profits to pay its expenses. The budgeted balance sheet also indicates that capital was introduced in the form of fixed assets. The fixed assets have been depreciated at a rate of 10% per annum. Break-even Analysis The breakable analysis is a very important measure it indicates the number of units that should be produced in order to cover different levels of production. The analysis using figures from Table 1 is shown below.