Master Budget the Variable Manufacturing

¶ … Master Budget

The variable manufacturing cost as a percentage of the aggregate selling price for each product line for 2008 is the following. For the 2008 lipstick product line, the percentage of variable cost to selling price is 88.4%. For the 2008 Nail Polish product line, the percentage of variable cost to selling price is 80.7%. The 2008 Creams product line, the percentage of variable cost to selling price is 50%.

The variable manufacturing cost as a percentage of the aggregate selling price for each product line in 2009 is the following. For the 2009 lipstick product line, the percentage of variable cost to selling price is 94%. For the 2009 Nail Polish product line, the percentage of variable cost to selling price is 85%. For the 2009 Creams product line, the percentage of variable cost to selling price is 50%.

The variable manufacturing cost as a percentage of the aggregate selling price for each product line in 2010 is the following. For the 2010 lipstick product line, the percentage of variable cost to selling price is 92.7%. For the 2010 Nail Polish product line, the percentage of variable cost to selling price is 83%. For the 2010 Creams product like, the percentage of variable cost to selling price is 51.5%.

The mark up on lipstick in 2008 was 11.6%, for Nail Polish it was 19.3%, and for Creams it is 50%. The mark up on lipstick in 2009 was 6%, for Nail Polish it was 15%, and for Creams it was 50%. The mark up on lipstick in 2010 was 6.7%, the mark up on Nail Polish in 2010 was 17% and on Creams it was 48.5%/

2.) the calculation that converts the wholesale price of the 12/31/2008 lipstick inventory from 11.5mm to the cost of 9.7mm is the cost of goods manufactured from cost of inventory on hand 12/31/2007.

3.) if the variable manufacturing cost per unit stayed equal in 2009 and 2010, the sales volume on nail polish after the price reduction would increase to a maximum of the projected 11.6. The variance between the budgeted and expected sales is a function of the increase in the variable manufacturing cost. However, should there be no actual increase, the variance in projected and actual sales should be reduced to zero.

4.) Based on the level of annual total sales dollars needed to break even in 2008, 2009, and 2010, the approximate level of annual sales is 90% of the 2010 sales, or 28mm.

5.) Given the lump sum loan repayment in 2012, the firm is likely to break-even due to the offsetting increase in operating capital due to the loan repayment.

6.) Budgeted Income Statement

Sales

40

Cost of Goods Sold

27.7

Gross Margin

12.3

Marketing & Promotion

3.4

General Administration

1.3

Interest

1.8

Pretax Income

5.8

Cash FlowBudget

Cash receipts from Customers

40 mm

Cash disbursements

Variable Manufacturing

14.2

Fixed Manufacturing

1.0

Marketing & Promotion 3.4

General Administration 1.3

Interest

1.8

Total Disbursements

21.7

Beginning Cash

5.5

+Receipts

40

-Disbursements

21.7

-Loan Repayment

10

Ending Cash

13.8

Pro-Forma Year-End Balance Sheet

Assets

Cash