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What incentives does this plan give to division managers?
What incentives does this plan give to division managers? - Is this a good plan? Would you want to be a division manager in this company? Why or why not?
Assessment 4 Part 2: Comprehensive Budget Plan
Prepared a budgeted income statement and balance sheet for United Mobile Corporation.
Part 2 Scenario
United Mobile Corporation appeared to be experiencing a good year. First quarter sales were one-third ahead of last year and the sales department predicted that this rate would continue throughout the year. The controller asked Megan Casey, a summer accounting intern, to draft a forecast for the year and analyze the differences from last year’s results. She based the forecast on first quarter results plus the expected production costs for the remainder of the year. She worked with production, sales, and other department heads to get the necessary information. The results of these efforts follow:
United Mobile Corporation: Expected Account Balances for December 31, Year 2
Item
Value
Value
Cash
$5,280
Accounts Receivable
$352,000
Inventory (January 1, year 2)
$211,200
Plant and Equipment
$572,000
Accumulated Depreciation
$180,400
Accounts Payable
$198,000
Notes Payable (due within one year)
$220,000
Accrued Payables
$102,300
Common Stock
$30,800
Retained Earnings
$476,080
Sales Revenue
$2,640,000
Other Income
$39,600
Manufacturing Costs:
Materials
$937,200
Direct Labor
$959,200
Variable Overhead
$572,000
Depreciation
$22,000
Other Fixed Overhead
$34,100
Marketing:
Commissions
$88,000
Salaries
$70,400
Promotion and Advertising
$198,000
Administrative:
Salaries
$70,400
Travel
$11,000
Office Costs
$39,600
Income Taxes
—
Dividends
$22,000
$4,164,380
$4,164,380
Adjustments for the change in inventory and for income taxes have not been made. The scheduled production for this year is 495,000 units and planned sales volume is 440,000 units. Sales and production volume was 330,000 units last year. The company uses a full-absorption costing and FIFO inventory system and is subject to a 40 percent income tax rate. The actual income statement for last year follows:
United Mobile Corporation: Statement of Income and Retained Earnings for the Budget Year Ended December 31, Year 1
Item
Value
Value
Value
Revenues:
Sales Revenue
$1980,000
Other Income
$66,000
$1,860,000
Expenses
Cost of Goods Sold
Materials
$580,800
Direct Labor
$594,000
Variable Overhead
$356,4000
Fixed Overhead
$52,800
$1,548,000
Beginning Inventory
$211,200
$,1795,200
Ending Inventory
$211,200
$1584,000
Selling:
Salaries
$59,400
Commissions
$66,000
Promotion and Advertising
$138,600
$264,000
General and Administrative:
Salaries
$61,600
Travel
$8,800
Office Costs
$35,200
$105,600
Income Taxes
$36,960
$1,990,560
Operating Profit
$55,440
Beginning Retained Earnings
$442,640
Subtotal
$498,080
Less Dividends
$22,000
Ending Retained Earnings
$476,080
Complete the following: