Imagine, you are planning to start a new small, home-based business. You are going to make and sell a single food item.

What is the food item that your business will sell?

ASSUME ALL AMOUNTS AS PER THE MARKET

• You are starting your business next month, so currently you have no beginning inventory of finished goods or raw materials. Also, there is no beginning balance for accounts payable or accounts receivable.
• Since the business is very small and home-based, there is no direct labour cost for your business. Labour wage (if any) is assumed to be fixed and part of Manufacturing Overhead.
• All the manufacturing costs you incur for your business fall under any one of the two categories: direct material (Direct Material) or Manufacturing Overhead. (Remember indirect material is part of Manufacturing Overhead)
• To calculate the Direct Material cost for your product, find out a simple recipe for the product you are planning to sell. You MUST NOT visit any physical store to collect any data. All information must be collected from the internet. If you can’t find any information you need on the internet, make reasonable guesses.
• For each of your direct materials fill out the following table. Make more copies of the table if necessary. You need to have a separate table for each direct material.

Direct Material 1:

Direct material item name
Quantity required for each unit of product
Desired ending inventory as a percentage of following month’s production requirement
Price per unit of direct material

Direct Material 2:

Direct Material Name
Quantity Required for Each Unit of Product
Desired Ending Inventory as a Percentage of Following Month’s Production Requirement
Price Per Unit of Direct Material

Direct Material 3:

Direct Material Name
Quantity Required for Each Unit of Product
Desired Ending Inventory as a Percentage of Following Month’s Production Requirement
Price Per Unit of Direct Material

• Based on the recipe and information you have collected from the internet, calculate the total direct material cost for making one unit of your product.

• Now, we will calculate Manufacturing Overhead costs for your business. Remember, Total MOH = Variable Manufacturing Overhead + Fixed Manufacturing Overhead.
• Assume, indirect materials are the only thing included in your variable Manufacturing Overhead. Identify some indirect materials for your product, and assume a rate of variable Manufacturing Overhead cost for each unit of product.
• You do not have to make any budget for indirect material. The variable Manufacturing Overhead rate you have assumed in the previous table will be used for preparing the Manufacturing Overhead budget
• Since depreciation is part of fixed Manufacturing Overhead, we will now calculate depreciation expenses.
• To calculate depreciation expense, first, identify the equipment you will need to make your product. Next, find the cost(s) of the equipment from the internet. Then, make estimation(s) about useful life. Finally, calculate the depreciation expense per month using a straight-line depreciation method. Show your calculations in the following table.

Add more rows to the table if necessary.

Equipment Name	Cost	Useful Life	Depreciation Expense

• Write down the total depreciation expense included in fixed Manufacturing Overhead based on your calculations in the last table.
• All the equipment you have identified above will be purchased in the first month of your business, i.e. in September 2021.
• Identify all other monthly fixed Manufacturing Overhead expenses for your business. Remember, it is a small, home-based business so you do not have to make many complicated assumptions. You have already calculated depreciation expenses in the above table. List all fixed expenses, including depreciation expenses calculated above, in the following table.

Add more rows to the table as necessary.

Fixed MOH Expense Item Name	Fixed Expense Per Month

• Write down the total fixed MOH expense, including depreciation expense, based on the list you have prepared in the last table.
• Remember, Total selling and administrative (Sn’A) expense = Variable Sn’A + Fixed Sn’A
• Your variable Sn’A expense consists of only two items - delivery expense per unit and packaging cost per unit. Write your estimations about delivery expense per unit and packaging cost per unit in the following table. Also, add the two numbers to calculate the total variable Sn’A expense for each unit of product.
• Your fixed advertising expense consists of only one item - facebook advertising expense. Write your estimation about your monthly Facebook advertising expense. This is your total fixed Sn’A expense per month.
• Calculate your total variable expenses for each unit of a product by adding the direct material cost per unit, variable MOH rate per unit, and variable Sn’A expense per unit of product.
• Calculate your selling price per unit by charging a 200% mark-up on per unit variable expense.
• Now, we will make some estimations about the number of units of product your business expects to sell over the next 12 months. Fill out the following table about sales estimates.

Month	Estimated Units of Product Sold
September
October
November
December
January
February
March
April
May
June
July
August

• Assume all sales will be in cash and you will collect 100% of the revenue.
• Since you are going to sell a food item, no ending inventory of finished goods will be maintained. Each unit will be manufactured after an order is received.
• All purchases for all direct materials are made fully in cash.
• You want to draw a dividend of BDT 20,000 every month as the sole owner of your business. [This is your dividend; you will not use this money for operating your business.]
• At the end of each month, you want to have at least BDT 50,000 cash available for operating your business.
• You will start the business with a cash investment of BDT 500,000.
• You can borrow up to BDT 200,000 from your best friend to invest in your business.
• You will not repay any borrowed amount, even if you have sufficient cash available, any time during the next year.

Requirements:

Based on the assumptions you have formed above, prepare a Master Budget consisting of the following components in the Google Sheet attached to this assignment.

1. Sales Budget [No schedule of cash collection will be needed as all sales are on cash.]
2. Direct Material Budget(s) [Make a separate budget for each direct material. No schedule of cash disbursements for direct material will be necessary as all purchases will be made in cash.]
3. Manufacturing overhead budget.
4. Selling and Administrative Expense Budget
5. Cash Budget

Answer rating: 100% (QA)

Direct Material 1 Direct material item name maidha flour Quantity required for each unit of product ... View the full answer