AC Brewery brews and sells local beers from the Southern Part of the Netherlands. Fiona and...

 

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AC Brewery brews and sells local beers from the Southern Part of the Netherlands. Fiona and Nina founded the company 2 years ago, with the initial plan to sell their beers to friends and family on a custom-order basis. However, with increasing demand, Fiona and Nina decided to quit their jobs and fully focus on their business with the AC Brewery. They rented an old factory area, bought (more) professional brewing equipment, and hired several employees. To finance most of these actions, they took a loan at the local bank, However, the bank put high pressure on them to create a good control environment and requested monthly budgets for the upcoming year. In the first step, Fiona and Nina decided to create two functional areas: brewing, and sales and administration. As Fiona and Nina both have a financial background, they focus on sales and administration. For brewing the beer, they hired a professional brew master. He receives a fixed salary of €60,000 per year for running the department, and a potential bonus of €5,000 if he achieves the cost-based targets (which is likely to be the case). The brewing department is run as cost center. As head of the brewing department, the brew master is responsible for the whole brewing process, starting from purchasing the ingredients (main ingredients are water, barley, hops and yeast), the brewing process, as well as the bottling of the beer. Fiona and Nina still need to prepare the monthly budget for the upcoming year. They plan to trace the expenses as far as possible directly to the two departments where they occur. Solely the rent for the building (€5,000 per month), the interest expenses (€1,000 per month), tax expenses (40% of pretax income), and the potential bonus for the manager of the brewing division (brew master) are exceptions of this and are treated as corporate profit and loss items. For the upcoming year (May 2019-April 2020), AC Brewery expects to sell and produce 200,000 bottles, of 0.25 liters each. Bottles are sold for €2.0. The total yearly expenses for the sales and administration department are estimated to be €150,000, and include all fixed marketing expenditures and salaries for the sales & administration staff. For the production of the beer, the direct material costs are estimated to be €0.5 per liter of beer. Moreover, the brewing. department manager will hire some workers to help him with the beer brewing on an hourly basis. These workers receive a wage of €15 per hour. In one hour, the department manager expects to brew on average 30 liters of beer. The depreciation of the machinery used to produce the beer is calculated as €18,000 for the 12-month period. For every hour the brewing department is working, there are additional variable overhead costs for electricity and oil of the machinery of in total C5/hour. Because demand for beers is higher during the summer period, 50% of sales is expected to occur during May, June, July and August. Sales are divided equally between months within each group of months. As the taste of the beer is best when it is freshly brewed, the brewing department adjusts their production according to the expected sales per month. All costs that do not vary with beer sales are divided equally throughout the year. a) Considering only costs, prepare a monthly budget for the brewing department. (5 points) b) Prepare an annual and monthly budgeted income statement for AC for the period May 2019 through April 2020. All the costs of the brewing department are treated as product costs and therefore can be included in costs of goods sold (COGS). (10 points) AC Brewery brews and sells local beers from the Southern Part of the Netherlands. Fiona and Nina founded the company 2 years ago, with the initial plan to sell their beers to friends and family on a custom-order basis. However, with increasing demand, Fiona and Nina decided to quit their jobs and fully focus on their business with the AC Brewery. They rented an old factory area, bought (more) professional brewing equipment, and hired several employees. To finance most of these actions, they took a loan at the local bank, However, the bank put high pressure on them to create a good control environment and requested monthly budgets for the upcoming year. In the first step, Fiona and Nina decided to create two functional areas: brewing, and sales and administration. As Fiona and Nina both have a financial background, they focus on sales and administration. For brewing the beer, they hired a professional brew master. He receives a fixed salary of €60,000 per year for running the department, and a potential bonus of €5,000 if he achieves the cost-based targets (which is likely to be the case). The brewing department is run as cost center. As head of the brewing department, the brew master is responsible for the whole brewing process, starting from purchasing the ingredients (main ingredients are water, barley, hops and yeast), the brewing process, as well as the bottling of the beer. Fiona and Nina still need to prepare the monthly budget for the upcoming year. They plan to trace the expenses as far as possible directly to the two departments where they occur. Solely the rent for the building (€5,000 per month), the interest expenses (€1,000 per month), tax expenses (40% of pretax income), and the potential bonus for the manager of the brewing division (brew master) are exceptions of this and are treated as corporate profit and loss items. For the upcoming year (May 2019-April 2020), AC Brewery expects to sell and produce 200,000 bottles, of 0.25 liters each. Bottles are sold for €2.0. The total yearly expenses for the sales and administration department are estimated to be €150,000, and include all fixed marketing expenditures and salaries for the sales & administration staff. For the production of the beer, the direct material costs are estimated to be €0.5 per liter of beer. Moreover, the brewing. department manager will hire some workers to help him with the beer brewing on an hourly basis. These workers receive a wage of €15 per hour. In one hour, the department manager expects to brew on average 30 liters of beer. The depreciation of the machinery used to produce the beer is calculated as €18,000 for the 12-month period. For every hour the brewing department is working, there are additional variable overhead costs for electricity and oil of the machinery of in total C5/hour. Because demand for beers is higher during the summer period, 50% of sales is expected to occur during May, June, July and August. Sales are divided equally between months within each group of months. As the taste of the beer is best when it is freshly brewed, the brewing department adjusts their production according to the expected sales per month. All costs that do not vary with beer sales are divided equally throughout the year. a) Considering only costs, prepare a monthly budget for the brewing department. (5 points) b) Prepare an annual and monthly budgeted income statement for AC for the period May 2019 through April 2020. All the costs of the brewing department are treated as product costs and therefore can be included in costs of goods sold (COGS). (10 points)

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a Monthly budget for the brewing department May Direct materials 50000 liters 05liter 25000 Labor 50... View the full answer