Budgeting

1-sales budget
Quarter 1 Quarter 2 Quarter 3 Quarter 4 Total

Units Sold 3600 ton 3600 3600 3600 14400 ton

Selling Price EGP 50,000 EGP 50,000 EGP 50,000 EGP 50,000 EGP 50,000

Total target Sales 180,000,000 180,000,0000 180,000,000 180,000,000 720,000,000

(Revenue)
 2- Production Budget
Quarter 1 Quarter 2 Quarter 3 Quarter 4 Total

Expected Units Sold 3600 3600 3600 3600 14400

+ required ending 0 0 0 0 0
inventory

= Units Required 3600 3600 3600 3600 14400

Beginning Inventory 0 0 0 0 0

= Units to Be Produced 3600 3600 3600 3600 14400

3-a Direct Material Budget
Quarter 1 Quarter 2 Quarter 3 Quarter 4 Total

DM Units Needed for 10,000 ton 10,000 10,000 10,000 40,000 ton
Production

+ Desired Ending DM 0 0 0 0 0
inventory

= Purchase Required 10,000 10,000 10,000 10,000 40,000

− Beginning DM 0 0 0 0 0

= DM Purchase Needed 10,000 10,000 10,000 10,000 40,000

for Production

X Unit Price EGP 8,000 8,000 8,000 8,000 EGP 8,000

= DM Purchase Costs 80,000,000 80,000,000 80,000,000 80,000,000 320,000,000

 3b- Labor Budget:
Quarter 1 Quarter 2 Quarter 3 Quarter 4 Total
Units to Be 3600 3600 3600 3600 14400 ton
Produced
Direct Labor Cost EGP 252,000 252,000 252,000 252,000 EGP 1008,000
Indirect Labor EGP 216,000 216,000 216,000 216,000 EGP 864,000
Cast
Expected Cost of EGP468,000 468,000 468,000 468,000 EGP 1872,000
Labor
Note that:

Direct labor = technical workers wages+ production workers wages

Indirect labor = production mangers salary+ maintenance salaries+

engineering salaries + drivers' salaries
 3c- Overhead Budget:
Quarter 1 Quarter 2 Quarter 3 Quarter 4 Total

Units to Be Produced 3600 ton 3600 3600 3600 14400

Variable MOH
Indirect material 1,800,000 1,800,000 1,800,000 1,800,000 7,200,000

Fixed MOH

Electricity Costs 50,000 50,000 50,000 50,000 200,000

Water costs 5,000 5,000 5,000 5,000 20,000

Manufacturing 15,000 15,000 15,000 15,000 60,000

Security protection

Maintenance Costs 240,000 240,000 240,000 240,000 960,000

Depreciation 2,575,000 2,575,000 2,575,000 2,575,000 10,300,000

Expenses

Total Overhead Costs 4,685,000 4,685,000 4,685,000 4,685,000 18,740,000

4- Selling & Administrative and Other Expenses Budget:
Quarter 1 Quarter 2 Quarter 3 Quarter 4 Total

Sales units 3600 3600 3600 3600 14400

Variable Selling & Administrative Expense 0 0 0 0 0

Fixed selling & administrative expense

Selling and Adm. Salaries 183,000 183,000 183,000 183,000 732,000

Advertising and public relation 400,000 400,000 400,000 400,000 1,600,000

Transportation cost 50,000 50,0000 50,000 50,000 200,000

General expenses 100,000 100,000 100,000 100,000 400,000

Total selling &administrative expense 733,000 733,000 733,000 733,000 2,932,000

Note that:

Selling and Adm. Salaries = general manger salary+ sales manager salary+
office salaries+ accountants' salaries
 5-BUdget Income Statement:

Quarter 1 Quarter 2 Quarter 3 Quarter 4 Total

Sales Revenue 180,000,000 180,000,0000 180,000,000 180,000,000 720,000,000

COGS
DM Purchase Costs 80,000,000 80,000,000 80,000,000 80,000,000 320,000,000

Expected Labor Cost 468,000 468,000 468,000 468,000 1872,000

Overhead Cost 4,685,000 4,685,000 4,685,000 4,685,000 18,740,000

Total COGS (85,153,000) (85,153,000) (85,153,000) (85,153,000) (340,612,000)

= Gross Margin 94,847,000 94,847,000 94,847,000 94,847,000 379,388,000

− Selling & (733,000) (733,000) (733,000) (733,000) (2,932,000)

Administrative Expenses

Net Income Before Tax 94,114,000 94,114,000 94,114,000 94,114,000 376,456,000

Tax Expense (20%) (18,822,800) (18,822,800) (18,822,800) (18,822,800) (75,291,200)

Net Income After Tax 75,291,200 75,291,200 75,291,200 75,291,200 301,164,800

 Let us assume that:

- Sales and purchase are made on a cash basis

- We have EGP 30,000,000 to invest. In the project.
 Quarter 1 Quarter 2 Quarter 3 Quarter 4 Total

Beginning Cash Balance Zero 4,866,200 82,732,400 160,598,600 Zero

+ Cash Receipts from Sales 180,000,000 180,000,0000 180,000,000 180,000,000 720,000,000

Total Cash Available 180,000,000 184,866,200 262,732,400 340,598,600 720,000,000

Direct Material Purchase 80,000,000 80,000,000 80,000,000 80,000,000 320,000,000

Cash payment:

Expected Labor Cost 468,000 468,000 468,000 468,000 1872,000

Overhead except depreciation 2110,000 2110,000 2110,000 2110,000 8440,000

Selling and Adm. Salaries 183,000 183,000 183,000 183,000 732,000

Advertising and public relation 400,000 400,000 400,000 400,000 1,600,000

Transportation cost 50,000 50,0000 50,000 50,000 200,000

General expenses 100,000 100,000 100,000 100,000 400,000

Income Taxes 18,822,800 18,822,800 18,822,800 18,822,800 75,291,200

Initial Investment

Equipment & Other Assets 103,000,000 - - - 103,000,000

Total Payment (205,133,800) (102,133,800) (102,133,800) (102,133,800) (511,535,200)

Difference (cash excess or (25,133,800) 82,732,400 160,598,600 238,464,800 208,464,800

deficiency)
Investments or Borrowing 30,000,000 - - - 30,000,000

Ending Cash Balance 4,866,200 82,732,400 160,598,600 238,464,800 238,464,800

Accounting payable = 0

Indicators:
Payback period = Net initial Investment

Net annual cash inflow

Net initial investment= 103,000,000

Annual Cash inflow = (180,000,000 x4)=720,000,000

Annual cash outflow=((102,133,800 x4)= 408,535,200

Net annual cash inflow= 720,000,000 -408,535,200=311,464,800

Payback period = 103,000,000

311,464,800
=0.33

year Net present value:

Net Present Value: Suppose that life of assets is 10 years and rate of return = 14%
Predicted Cash Flows Years P.V Factor P.V of Cash Flow

Initial Investment (103,000,000) 0 1.000 (103,000,000)

Annual Operating (340,612,000) 1﹣10 5.216 (1,776,632,192)

Cost

Taxes (75,291,200) 5.216 (392,718,899)

1 ﹣10

Annual Cash Inflows 720,000,000 1 ﹣10 5.216 3,755,520,000

Net Present Value 1,483,168,909

Since, Net Present Value is positive, therefore, the project is acceptable.

Break-Even Points:

Break-Even Points = Annual Fixed Costs / Contribution margin/unit

Annual Fixed Costs = 864,000 + 11540,000 + 2,932,000 = 15,336,000

Variable Cost Per ton:

D.M= 8,000 x 2.5 for ton= 20,000

D.L= 1008,000 /14400=70
Indirect material=180 x2.5 for ton=450

Variable cost/ton = 20,000+ 70+450 = 20,520

Selling price/ton = EGP 50,000
So, break-even points in units = 15,336,000 / 50,000-20520= 520.21

Break-Even Points in EGP = 520.21*50,000 = EGP 26,010,500

END OF Budgetiing