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Budget sensitivity analysis, strategic and operating plans, business risks

INPUT SECTION–BUDGET ASSUMPTIONS
Quarter
FirstSecondThirdFourth
Revenue Assumptions:
Forecasted housing starts (local area)6,00024,0007,0002,000
Average number of sinks per house3.02.93.03.1
Market share35%35%35%35%
Average selling price per unit$85.00$85.00$85.00$85.00

Production Cost Assumptions:
Variable Production Costs:
Direct material-Pounds per unit40404040
Direct material-Cost per pound$0.50$0.50$0.50$0.50
Direct labor-Hours per unit3333
Direct labor-Cost per hour$12.00$12.00$12.00$12.00
Desired ending sink inventory as % of next quarter’s sales10%10%10%10%
Desired ending DM inventory as % of next quarter’s DM requirement10%10%10%10%
Variable Production Costs Per Direct Labor Hour:
Indirect labor$0.3000$0.3000$0.3000$0.3000
Supplies$0.2667$0.2667$0.2667$0.2667
Other$0.1000$0.1000$0.1000$0.1000
Fixed Production Cost:
Depreciation$9,000$9,000$9,000$9,000
Fixed overhead allocation base: Direct labor hours

Selling and Administration Cost Assumptions:
Variable Costs:
Commission as % of revenue10%10%10%10%
Bad debts as % of revenue2%2%2%2%
Fixed Costs:
Salaries$40,000$40,000$40,000$40,000
Depreciation$2,400$2,400$2,400$2,400
Other$8,300$7,400$9,200$7,300

Cash Flow Assumptions:
Revenue Collections:
During quarter sold66%66%66%66%
During next quarter32%32%32%32%
Direct Material Payments:
During quarter purchased66.6667%66.6667%66.6667%66.6667%
During next quarter33.3333%33.3333%33.3333%33.3333%
Current Year Income Tax–Estimated Payments$0$80,000$40,000$40,000
All other costs paid as incurred
Dividends Declared & Paid$0$0$0$50,000

Short-Term Financing Assumptions:
Minimum Cash Balance$30,000$30,000$30,000$300,000
Annual Interest Rate for Borrowing8%8%8%8%
Assume no interest earned on cash balances

Income Statement Assumption:
Income Tax Rate30%30%30%30%

Prior Year Balances Carried Over to Current Year:
Assets:
Cash$45,820
Raw materials inventory (cost)$10,00020,000Pounds
Finished goods inventory (Cost)$30,250600Sinks
Accounts receivable$118,000
Allowance for bad debts$(7,378)
Land, building and equipment$912,000
Accumulated depreciation$(114,000)

Liabilities and Equity:
Accounts payable (purchases)$72,370
Income taxes payable$7,000
Credit Line Loan Payable$-
Common stock$750,000
Retained Earnings$165,322

Beginning Balance Sheet Math Check:
Total Assets$994,692
Total Liab & Equity$994,692

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