TERM PAPER
Read the following case and answer the required questions:
Madchef, the latest burger joint in Dhanmondi has already created a lot of buzz among the young
crowd. Currently two of their best selling burgers are named Cuban and Cheesuz.
For the second half of 2015, estimated sales in units for each Burgers are as follows:
Month
July
August
September
October
November
December
January
(2015)
Cuban
Cheesuz
400
300
1200
1000
1400
1200
1100
1100
1200
1000
1200
1300
1400
1200
Madchef, provides you with the following additional information:
Sales price: The actual sales for May and the forecasted sales for June were Tk150,000 and
Tk155,000, respectively, for the Cuban burgers. The relevant numbers for the Chessuz burgers are
Tk70,000 (May sales) and Tk65,000 (June sales). Madchef prices the Cuban at Tk200 per unit and
the Chessuz set at Tk500 per unit.
Inventory policy for Finished goods: Madchef’s policy for finished goods inventory is to stock
30% of the forecasted demand for the next month. As of June 30, Madchef expects to have 120
units of the Cuban burgers and 90 units of Chessuz set in stock. These inventories were valued at
Tk180.00 and Tk400.00 per unit, respectively. Madchef uses the FIFO (First-In-First-Out) method
to value its inventories.
Production requirements: The Cuban Buger consumes 1.25 pound of meat per unit, whereas the
Chessuz Burger consumes 2.50 pounds of meat per unit. Meat costs Tk80.00 per pound.
The cost of all other materials is Tk20.00 per unit for the Cuban set and Tk45 per unit for the
Chessuz set.
The Cuban set requires 0.50 direct labor hours per unit, and the Chessuz set requires 0.75 labor
hours per unit. Labor costs Tk35 per hour.
Fixed manufacturing overhead is expected to be Tk48,000 per month. Of this amount, Tk22,000
represents depreciation and other noncash expenses. Madchef does not have any variable
manufacturing overhead.
Inventory policy—raw materials: With regard to the meat used to produce each burger, Madchef
likes to have an ending materials inventory to meet all of the material needs for the next month’s
anticipated production.
Madchef expects to have 200 pounds of meats in inventory as of June 30, 2014. (Note: The
beginning inventory does not follow the stated stocking policy exactly.)
Payables policy: Madchef pays for half of its material purchases in the month of purchase and the
remainder the following month. Accounts payable for materials and other items were expected to be
Tk22,500 on June 30, 2014.All other materials are purchased on a cash basis during the month
when they are used.
Collection policy: For both the Cuban and Chessuz set, 50 percent of any month’s sales are for
cash. Ten percent of the credit sales are collected in the month of sale, 70% are collected the
following month, and 15% are collected in the second month after the sale. The remaining 5% of
receivables are deemed uncollectible.
Sales and administration costs: Monthly nonmanufacturing expenses consist of the following:
Salaries and wages Tk10,000
Commissions 10% of sales revenue
Rent Tk25,000
Other expenses 4% of sales revenue
Depreciation Tk1,500 (for office equipment)
Except depreciation, all nonmanufacturing expenses are paid in cash when incurred.
Cash and financing: Madchef maintains a minimum cash balance of Tk130,000. Borrowing can
make up any anticipated shortfalls. Ignore interest on the loan in your calculations. For simplicity,
assume that the bank will only lend (and accept repayments) in Tk1,000 increments. (Minimize the
amount borrowed, however.) Cash on hand on June 30 is expected to be Tk30,000.
Special items for cash budget: Madchef needs to make a payment of Tk100,000 during July for
equipment previously purchased on credit. The firm also has scheduled a dividend payment of
Tk20,000 in September.
Required:
1. Prepare the following Budgets for Madchef for the months : July, August, September, October,
November & December
i.
ii.
iii.
iv.
v.
vi.
vii.
viii.
ix.
The Sales Budget
The Production Budget
The Direct Materials Budget
The Direct Labor Budget
Manufacturing Overhead Budget
Ending Finished Goods Inventory Budget
Selling & Administrative Expense Budget
The Cash Budget
The Budgeted Income Statement
2. Prepare the following Schedules:
i.
ii.
Expected Cash Collections
Expected Cash Disbursement for Materials
3. Prepare a variance analysis of Direct Materials and Direct labor for the month of July based on
the following informationActual price of Meat was 85 taka per pound and there was no difference between the forecasted
quantity and actual quantity of raw materials used.
Actual Direct labor rate was $45 and forecasted Direct labor hours remained unchanged.
Submission Deadline: 18th April, 2pm.