MA022 – Managerial Accounting
Spring 2012 – Professor Porter
The Build-It Company Budgeting Project (adapted from Hilton 9 ed. Managerial Accounting)
A budget is a detailed plan that explains how a company will acquire and use resources during a particular
time period. Budgets are used for a variety of reasons, including planning, allocating resources,
communicating, controlling operations, evaluating performance and providing performance incentives.
In addition to being an important part of the managerial accountant’s responsibilities, many people in
different departments throughout an organization are called upon to prepare and evaluate budgets as part of
their job. It is important to have a solid understanding of the budgeting process to be successful in any area
of an organization
This project gives you a sample company for which you and the other member of your team will prepare a
number of the schedules that are required to complete the annual Master budget for the company. You will
start with the sales budget and continue through various other elements of the budget and then prepare
budgeted financial statements for the company.
Your final product should be well organized and make sense to the reader. Imagine that Build-It is an actual
company and think about the different departments that will use the budget. Put the budget information in a
format that is useful and easy to understand for the users. The most important matter is for you to generate
accurate budget information based on the information and assumptions that have been provided but you will
be rewarded for a clear presentation and lose points if I have to work too hard to understand what you have
done. The ultimate usefulness of a budget often varies based on the manner in which it is presented to
Please prepare each budgets using Excel and link the budgets together where appropriate. Please e-mail me
an electronic copy of the spreadsheet(s) on the project due date (or earlier). I will consider the efficiency
with which the spreadsheet has been set up when grading the project (e.g., use of formulas whenever
possible, linking cells to avoid required duplication in data entry).
You may complete the project individually or in groups of two or three. Each person in a group will receive
the same grade. You are free to ask questions, preferably in class, along the way.
The due date is Tuesday, April 24 by your registered class time. The Build-It Company Budgeting Project
The Build-It Company is a manufacturer of lamps. Build-It has two products: the Family Room (FR) lamp
(a larger, simpler lamp) and the Living Room (LR) lamp (a smaller, fancier lamp). The primary raw
materials are brass, glass, and an electrical kit for each lamp). Each FR lamp requires four feet of brass
sheeting and the LR lamp requires three feet of more expensive brass sheeting. Build-It uses the same glass
materials to build both the FR and LR lamps but there is more waste when making LR lamps. Each lamp
requires an electrical kit. The LR lamp kit is more costly than the FR kit. Other raw materials, such as felt
and glue, are insignificant in cost and are treated as indirect material.
Build-It’s controller is preparing the annual master budget for 2013 and has gathered the following
1. Sales in the fourth quarter of 2012 are expected to be 25,000 FR lamps and 20,000 LR lamps. The
sales manager predicts that over the next two years the sales in each product line will increase by
3,000 units each quarter over the previous quarter (first quarter 2013 sales will increase from the
fourth quarter 2012 sales referred to herein). This forecast is based on a review of the historical
sales data over the past five years.
2. Build-It’s sales history shows that 90% of all sales are on credit, with the remainder in cash. The
company’s collection experience shows that 80% of credit sales are collected during the quarter in
which the sale is made, while 20% is collected in the following quarter. (100% of Build-It’s
receivables are collectable.)
3. Currently, the FR lamp sells for $225 and the LR lamp sells for $300. These prices are expected
remain constant throughout 2013.
4. Build-It’s production manager attempts to end each quarter with enough finished goods inventory
to cover 25% of the next quarter’s sales. Direct materials are delivered on a ‘just in time’ basis (no
5. All Build-It direct material purchase are made on account and 75% of each quarters purchases are
paid in cash during the same quarter as the purchase. The other 25% is paid in the following
quarter. Payments to be made in the first quarter of 2013 for direct materials purchased in the
fourth quarter of 2012 will amount to $1,018,900.
6. Indirect materials are purchased as needed and paid for in cash. Work in process inventory is
7. The predetermined overhead rate is $8 per direct labor hour. The following manufacturing
Overhead costs are budgeted for 2013:
1 Quarter 2nd Quarter 3rd Quarter 4th Quarter Entire Year
Indirect Material $112,200 $123,900 $141,400 $157,300 $534,800
Indirect labor 311,100