ACC 202 Peyton Approved Final Project Part I and II
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Sunday, 9 August 2015

ACC 202 Peyton Approved Final Project Part I and II

ACC 202 Peyton Approved Final Project Part I and II
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ACC 202 Peyton Approved Final Project Part I
You are a manager for Peyton Approved, a pet supplies manufacturer. This responsibility requires you to create budgets, make pricing decisions, and analyze the results of operations to determine if changes need to be made to make the company more efficient.



You will be preparing a budget for the quarter July through September 2014. You are provided the following information. The budgeted balance sheet at June 30, 2014, is:

Peyton Approved
Budgeted Balance Sheet
30-Jun-15
ASSETS

Cash

$42,000

Accounts receivable

259,900

Raw materials inventory

35,650

Finished goods inventory
241,080

Total current assets

578,630

Equipment
$720,000


Less accumulated depreciation
240,000
480,000

Total assets

$1,058,630





LIABILITIES AND EQUITY

Accounts payable

$63,400

Short-term notes payable

24,000

Taxes payable

10,000

Total current liabilities

97,400

Long-term note payable

300,000

     Total Liabilities

397,400

Common stock
$600,000


Retained earnings
    61,230


Total stockholders’ equity

661,230

Total liabilities and equity

$1,058,630




All assumptions are new and apply to the July through September budget period.

1.     Sales were 20,000 units in June 2015. Forecasted sales in units are as follows: July, 18,000; August, 22,000; September, 20,000; October, 24,000. The sales price per unit is $18.00 and the total product cost is $14.35 per unit.
2.     The June 30 finished goods inventory is 16,800 units.
3.     Company policy calls for a given month's ending finished goods inventory to equal 70% of the next month's expected unit sales.
4.     The June 30 raw materials inventory is 4,600 units. The budgeted September 30 raw materials inventory is 1,980 units. Raw materials cost $7.75 per unit. Each finished unit requires 0.50 units of raw materials. Company policy calls for a given month’s ending raw materials inventory to equal 20% of the next month’s materials requirements.
5.     Each finished unit requires 0.50 hours of direct labor at a rate of $16 per hour.
6.     Overhead is allocated based on units of production. The predetermined variable overhead rate is $1.35 per unit produced. Depreciation of $20,000 per month is treated as fixed factory overhead.
7.     Monthly general and administrative expenses include $12,000 administrative salaries and 0.9% monthly interest on the long-term note payable.
8.     Sales commissions are 12% of sales and are paid in the month of the sales. The sales manager’s monthly salary is $3,750 per month. The following critical elements must be addressed by completing the budget templates found on the “Budgets” tab.

Specifically, the following critical elements must be addressed when creating an Operating Budget by completing the budget templates found on the “Budgets” tab of your student workbook.

Step 1: Prepare a Sales Budget
·       Complete Part A - Sales Budget on the budget tab by using the information found in the budgeted balance sheet above.
·       Consider assumption 1 while completing this critical element: Sales were 20,000 units in June 2015. Forecasted sales in units are as follows: July, 18,000; August, 22,000; September, 20,000; October, 24,000. The sales price per unit is $18.00 and the total product cost is $14.35 per unit.
·       You can find an example of a sales budget in Exhibit 22-5 on page 1324.

Step 2: Prepare a Production Budget
·       Complete Part C - Production Budget on the budget tab below by using the information found in the budgeted balance sheet above.
·       Consider assumption 1 while completing this critical element: Sales were 20,000 units in June 2015. Forecasted sales in units are as follows: July, 18,000; August, 22,000; September, 20,000; October, 24,000. The sales price per unit is $18.00 and the total product cost is $14.35 per unit.
·       Consider assumption 2 while completing this critical element: The June 30 finished goods inventory is 16,800 units.
·       Consider assumption 3 while completing this critical element: Company policy calls for a given month’s ending finished goods inventory to equal 70% of the next month's expected unit sales.
·       You can find an example of a production budget in Exhibit 22-6 on page 1325.


Step 3: Prepare a Manufacturing Budget (See text example Exhibits 22-7, 22-8, and 22-9 on pages 1326–1328)
Complete Part E - Manufacturing Budget on the budget tab by using the information found in the budgeted balance sheet above. The manufacturing budget consists of three parts, the Raw Materials Budget, the Direct Labor Budget, and the Factory Overhead Budget.

Raw Material Budget
·       Consider assumption 4 while completing this critical element: The June 30 raw materials inventory is 4,600 units. The budgeted September 30 raw materials inventory is 1,980 units. Raw materials cost $7.75 per unit. Each finished unit requires 0.50 units of raw materials. Company policy calls for a given month's ending raw materials inventory to equal 20% of the next month's materials requirements.
·       Consider units to be produced found in the production budget while completing this critical element.

Direct Labor Budget
·       Consider assumption 5 while completing this critical element: Each finished unit requires 0.50 hours of direct labor at a rate of $16 per hour.
·       Consider units to be produced found in the production budget while completing this critical element.

Factory Overhead Budget
·       Consider assumption 6 while completing this critical element: Overhead is allocated based on units of production. The predetermined variable overhead rate is $1.35 per unit produced. Depreciation of $20,000 per month is treated as fixed factory overhead.
·       Consider units to be produced found in the production budget while completing this critical element.

Step 4: Prepare a Selling Budget
·       Complete Part G - Selling Expense Budget.
·       Consider assumption 8 while completing this critical element: Sales commissions are 12% of sales and are paid in the month of the sales. The sales manager's monthly salary is $3,750 per month.

Step 5: General and Administrative Expense Budget
·       Complete Part I - General and Admin Expense Budget.
·       Consider assumption 7 while completing this critical element: Monthly general and administrative expenses include $12,000 administrative salaries and 0.9% monthly interest on the long-term note payable.

Specifically, the following critical elements must be addressed when performing the Budget Variance Analysis using the budget variance worksheet.

The actual quantity of material used was 31,000 with an actual cost of $7.75 per unit. The actual labor hours were 33,000 with an actual rate per hours of $15.

Step 1: Complete A. Develop a variance analysis including a Budget Variance performance report and appropriate variances for materials, labor, and overhead.

·       Start with the Labor and Materials variance tab.
·       Standard costs/quantities come from raw materials budget and the labor budget.
·       Use Exhibits 23-11 on page 1416 and 23-12 on page 1419 as guides.
·       After completing the Labor and Materials variance tab, transfer variances to Budget Variance Report tab.

Congratulations! You have completed the workbook portion of your Final Project Part I. To complete the discussion portion of Final Project Part I, complete the Final Project Part I Student Discussion document.
ACC 202 Peyton Approved Final Project Part II
One of the measures of success in any business is profitability. All successful managers and business owners must have an understanding of how to assess the profitability of a company. This is done through the use of accounting.
By working through the accounting cycle, you will understand how money flows through a company and what other components are included in the assessment of profitability and financial stability. Using this information can also help you determine whether or not the organization can afford to stay open employing current practices. The accounting information helps you determine what types of changes might need to be made to allow the organization to become profitable if it is currently struggling financially. This process also helps you understand the level of commitment to attention to detail that is required in a successful business venture.
In the ratio analysis and memo, you will use course-provided information to 1) demonstrate the purpose and importance of the ratios used, and 2) communicate the results of operations to stakeholders and/or interested parties.
This assessment addresses the following course outcomes:
- Apply the accounting cycle to business transactions for communicating financial data
- Interpret financial statements for informing business decisions
- Analyze the importance of industry standards and regulations in the implementation of the accounting cycle in supporting responsible practices
Your dog, Peyton, has severe allergies and cannot have the usual store-bought dog treats. You have been making homemade treats for him that are all-natural and hypo-allergenic. Over the past year, you have been making and selling these treats out of your home and have been quite successful. You now have an opportunity to open your own dog treat bakery. You have decided on a corporate form of business and have named your company "Peyton Approved."
During the first part of this final project, you were asked to follow the business transactions for a six-month period from that initial stage of analysis and recording through the reporting process. Now, you will use this information to compose a memorandum to the bank detailing the results of operations as communicated in the financial statements you have produced based on the business transactions for the period.
Use your completed workbooks to prepare your ratio analysis and memo, which will include an overview of the company's accounting system, discussion of the results of operations and what those results mean, and a discussion on what changes in operations might need to be made to make the company more profitable. This memo will be used as part of a loan package to request additional funding for potential expansion in year two.
1. Ratio Analysis
a) Create a ratio analysis. Be sure to include all required ratios.
b) Annotate each ratio. What does the ratio tell you?
c) Why is ratio information useful? What decisions will you make based on the ratio?
2. Prepare a Memo to a Bank
a) Provide an overview of the company's accounting system. What basis of accounting is used? Why?
b) What strategies is the business using to ensure responsible accounting practices? Why have these strategies been selected?
c) Describe the overall accounting process. For example, when are entries made, how often are statements produced and reviewed, and why?

Describe the internal controls for cash that are in place.
d) Analyze the results of operations. What do these results tell a business?
e) What do the statements themselves tell about the strengths and weaknesses of the company's financial position? What does the ratio analysis tell someone about the strengths and weaknesses in the company's financial position?
f) Discuss the changes in operations that might need to be made to make the company more profitable. Justify why each change may be

necessary.
g) What are the companys financial strengths and weaknesses? What specific changes can be made to alleviate the weaknesses?
h) What opportunities can the company explore because of its strengths? How would these be beneficial?

ACC 202 Peyton Approved Final Project Part I and II
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