This report is made possible through the help and support from everyone, including: parents, teachers, family, friends, and the Almighty Allah.
We would like to take this opportunity to express our profound gratitude and deep regard to Ashraful Arefin for the chance to do this project. We would also like to thank him for his exemplary guidance, patience, motivation, and immense knowledge. Working under him was an extremely knowledgeable experience for us. We would also like to thank our group mates for their support and hard work throughout his project.
For the preparation and the completion of the report, we have chosen a tea stall that we will base our report on. The reason behind choosing a tea stall is that it includes most of the information needed to prepare any kinds of budget starting from sales budget to the budgeted income statement and balance sheet. Every tea stall uses raw materials for production, incurs labor costs, variable and fixed manufacturing costs and selling and administrative expenses. This is why we found tea stalls the most reliable stall to prepare this report on.
The tea stall we have chosen is known as “Mamun er Malai Chaa” which is located in Shantinagar bazar. Mr.Mamun, owner of the tea stall, started this stall about two years back in Shantinagar with the idea of serving people with a new taste of tea by selling Malai chaa rather than just normal tea. Within a short time, many people liked his tea and service and were impressed with the new kind of product he came up with that people in Shantinagar were not used to having. With the passage of time, “Mamun er Malai Chaa” has gained popularity, not only in
Shantinagar but also in outside areas. People from Bailey Road and Malibagh come to his stall to sit around with friends and family and spend time sipping his tasty Malai chaa.
The report includes all the components of Master budget based on the information collected from Mamun er Malai Chaa which includes information about the daily sales, purchase of materials, selling and administrative expenses and labor costs as well as cash disbursements. Throughout the report, the information collected has been analyzed and placed in their respective budgets in order to serve the purpose of the report.
The tea stall sells about 150-200 cups per day. According to Mr. Mamun, owner of the tea stall, the sales in the first and the last quarter of the year are always more than that of the second and third quarters. Having been asked the reason behind this, he said that since the first quarter includes January, February and March and the last quarter includes October, November and December, most of the quarters are actually winter season when people like to have tea more than they usually do. But during the second and third quarters, due to the season being summer and the city being immensely hot, people choose having cold drinks than having tea. Therefore, it has been budgeted that the stall sells 200 cups per day for the first quarter, 170 per day for the second quarter, 150 per day for the third quarter and
220 cups per day for the fourth and last quarter. The tea stall assumes 30 days in one month and charges 10 taka per cup of tea.
The stall does not allow sales on credit and any cup of tea purchases by a consumer is paid at the moment of purchase. This is why total cash from sales is collected at the moment of sales.
Mamun Er Malai Chaa
Sales Budget
For the years ended 31 December 2016
Quarters
Budgeted sales per quarter (cups)
Selling price per cup (Taka)
1
18000
10
180000
2
15300
10
153000
3
13500
10
135000
4
19800
10
198000
Total
66600
10
666000
Schedule of expected cash collections
For the years ended 31 December 2016
Quarter
First quarter sales
Second quarter sales
Third quarter sales
Fourth quarter sales
Total cash collection
1
180000
2
3
4
153000
135000
180000
153000
135000
198000
198000
Total
180000
153000
135000
198000
666000
The product the tea stall sells is simply tea which is a perishable product and cannot be stored to be sold in the next quarter. This is why there is no beginning or ending inventory as the firm produces the tea as orders arrive and deliver right away. So, the production budget is likely to be the same as sales budget.
Mamun Er Malai Chaa
Production Budget
For the years ended 31 December 2016
The tea stall needs different materials to produce tea and they include tea-leaf, sugar, milk and water. In order facilitate the production of tea, the stall also needs kerosene for heating and lighting. The firm is budgeted to use 2 bags of tea-leaf costing 55 Taka each, 1 packets of sugar 40 Taka each, two buckets of water costing 250 in total, 2 litres of milk costing 120 Taka in total and kerosene costing
30 Taka every day. The stall does not use condensed milk to make tea as the kind of tea it makes (MALAI CHAA) required boiled milk.
The owner also assumes that no inventory of direct materials is going to be remain at the beginning or end of the quarters.
Mamun Er Malai Chaa
Direct Materials Budget
For the years ended 31 December 2016
Quaters
Units of production (cups)
Direct material cost per cup (Taka)
Total cost disbursement on direct materials
1
18000
2.75
49500
2
15300
2.75
42075
3
13500
2.75
37125
4
19800
2.75
54450
Total
66600
2.75
183150
The tea stall employs two workers to make tea and deliver the orders to the customer instantly. Each of the workers is budgeted to work for 12 hours starting from 10 am till 10 pm. Therefore, total labour hours worked by both workers per day is budgeted to be 24 hours, thus for every quarter it is 2160 hours.
The tea stall plans to pay each worker 12000 Taka per month and thus, the total budgeted labour cost per quarter for both workers is 72,000 Taka. Therefore, per hour direct labour cost is budgeted to be 33.33 Taka.
Based on the information provided by the production budget, the direct labour hour that a worker is budgeted to take to make one cup of tea can be calculated by dividing the total hours by the required production.
Mamun Er MalaiChaa
Direct Labor Budget
For the year ended 31 December 2016
Quarter
Units of production
Direct labor per cup
Total lobor hours required
Total lobor hours guranteed
Hourly wage rate
Total direct labor cost
1
18000
0.05
900
2160
33.33
72000
2
15300
0.05
765
2160
33.33
72000
3
13500
0.05
675
2160
33.33
72000
4
19800
0.05
990
2160
33.33
72000
Total
66600
0.05
3330
8640
33.33
288000
The variable manufacturing overhead cost per hour is 33.33 taka and the rest of the total direct labour cost is the fixed manufacturing overhead. Since, the tea stall is a small business and does not depreciate its fixed assets such kettle, stove, etc. the wages paid to the workers are the manufacturing overhead costs. However, the heating and lighting expenses are also part of the manufacturing overhead and therefore, should be included in the total manufacturing overhead costs. According to the owner, they have to pay 60 Taka per day for each bulb and use only two light bulbs in the tea stall. Therefore, the total electricity expense is budgeted to be
10800 Taka. Moreover, the tea stall does not incur any non-cash costs such as depreciation. Mamun Er Malai Chaa
Manufacturing Overhead Budget
For the year ended 31 December 2016
Budgeted direct labour hours
Variable manufacturing overhead rate
Total variable manufacturing overhead costs
Fixed manufacturing overhead costs
Total manufacturing overhead costs
Non-cash costs
Cash disbursments for manufacturing overhead costs
The tea stall’s selling and administrative expenses are quite lower than that of any other business. It is because it does not advertise and market for the goods it sells which cancels out the cost of advertising. However, the tea stall is budgeted to incur a daily maintenance cost of 50 taka per day which sums up to 4500 Taka per quarter. There are no variable selling and administrative expense of the tea stall.
Mamun Er Malai Chaa
Selling and administrative expense budget
For the year ended 31 December 2016
Budgeted direct labor hours
Variable selling and adminstrative expense rate
Total variable selling and admistrative expense
Fixed selling ans admistrative expense
Total selling and admistrative expense
1
900
0
0
4500
4500
Quarters
2
3
765
675
0
0
0
0
4500
4500
4500
4500
4
990
0
0
4500
4500
Total
3420
0
0
18000
18000
The cash budget will show the budgeted amount of cash remaining at the end of
2016. The tea stall’s budgeted cash collections can be picked up from the sales budget and the budgeted cash disbursements can be picked up from the other budgets prepared in the report. The owner of the company said that the tea stalls expenditure on equipment such as kettle, stove, bucket, cups, spoons, containers, stall stand etc. is budgeted to be 20000 Taka in only the first quarter for the whole year. Mamun Er MalaiChaa
Cash Budget
For the years ended 31 December 2016
Quarters
Beginning cash balance
Cash receipts
Total cash available
Cash Disbursement
Direct Materials
Direct labor
Manufacturing overhead
Selleing and adminstrative cost
Purchase of equipment
Total disbursments
Ending cash balance
1
30000
180000
210000
2
23203
153000
176203
3
21331
135000
156331
4
9409
198000
207409
Total
83943
666000
749943
49500
72000
40797
1
20000
186797
23203
42075
72000
36297
4500
0
154872
211331
37125
72000
33297
4500
0
146922
9409
54450
72000
43796
4500
0
174746
32663
183150
288000
154188
18000
20000
663337
32663
Mamun Er Malai Chaa
Budgeted Income Statement
For the year ended 31 December 2016
Sales
Cost of goods sold
Direct Materials
Direct labor
Manufacturing overhead costs
Cost of goods sold
Gross Margin
Selling and adminstrative expense
Net operating income
Total
666000
183150
288000
154188
625338
40662
18000
22662
Mamun Er Malai Chaa
Budgeted Balance Sheet
For the year ended 31 December 2016
Assets:
Cash
Equipment
Equity and liabilities:
Accounts payable
Capital
Net Profit
