To: President, Kathy Smith
Date: December 3, 2008
Subject: Master Budget for 2008
In response to your request of estimating 2008 budgets, the disclosed report was made to provide detailed estimate of all disbursement and inflows expected to take place in year 2008. This memo presents highlights of the master budget of 2008 while the disclosed CD and report (appendix of this memo) show more details of the budget. In budgeting for 2008, several assumptions were made to achieve more accurate estimates. However, the main ones were about the flow of inventory and depreciation methods used. Although, the submitted report shows results based on FIFO inventory flow method and SYD depreciation method, the excel sheets in the budget CD allow the user to select FIFO or LIFO for inventory flow method. It also provides a drop-down list of the three depreciation methods, SYD, DDB and SLN. At the end of the memo conclusions and recommendations are presented.
In this part I provide brief highlights of the master budget. To get more details about the assumption and the calculation, kindly refer to the appendix.
• The total estimated sales budget for the four quarters of 2008 is 16530 units for year 2008 as shown in figure 1 in quarterly basis. With a selling price of $149, the total sales amount is expected to be $2,462,970.
Figure 1: Sales Budget
• The total required production to meet the sales above is 17440 units.
• The total direct material required for production is 35,380 units of direct material and the total direct materials cost is $707,600.
• The total direct labor hours required is 34,880 hours and the total direct labor cost is $348,800.
• The total manufacturing overhead cost is $ 643,307, including noncash costs.
• The total Selling and administrative cost is $ 630,630, also including noncash expenses.
• After calculating total expected sales and total expected...