Budgeting & Control COURSE CODE : BCO 322 COURSE NAME: BUDGETING & CONTROL Task brief & rubrics Task This is Master Budget Case: · Individual task · Y

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This is Master Budget Case:

· Individual task

· You must answer all the questions.

· When solving problems, you must clearly explain all the steps you are doing, and why are you making those steps.

· Show all your workings, a numeric answer is not enough.

· You should submit a document in Excel format showing all calculations.


· Use one page per answer.

· Cover, Table of Contents, References and Appendix are excluded of the total wordcount.

· Font: Arial 12,5 pts.

· Text alignment: Justified.

Submission: Week 6 Via Moodle (Turnitin). Wednesday, March 6th 23:59.

Weight: This task is a 40% of your total grade for this subject.

It assesses the following learning outcomes:

· Estimate sales.

· Develop production and cost budgets

· Develop budgeted financial statements

· Understand the planning process and its advantages


After finishing your BBA at EU Business School, you are looking forward to find a job that suits with your interests, studies and capabilities, after attending several meetings you see an email from your brother.

You had not seen him for a long period, you are excited to hear from him. His email was explaining that he was thinking about investing in a new project and he wanted to receive your input and advice regarding the project.

He wants you to prepare projected financial statements to have an idea of the profitability of the project and how could the project be structured.

Following we have the data that your brother Peter has delivered to you:

Sales: The expected sales are 1.000.000 units for the first year, 2.000.000 in the second year, 2.750.000 in the third year, 3.250.000 in the fourth year and a 3% growth in units from the fourth year to the fifth year.

The sales price per unit is 10€ per unit on the first two years, but once the product has been introduced in the market, the sales price will increase to 11€ for the years 3, 4 and 5.

Cost of goods sold: The recipe of the product explains that COGS will have a cost of 6€ per unit, and no change is expected during the rest of the project.

Production labor: The first year the plant needs 6 technicians with a cost of 40000€ per person per year, 70 production workers with an annual cost of 30.000€ per employee per year, and 1 manager with a cost of 90.000€ per person per year. The next years the production labor will increase, due to the fact that the production of the plant will also be increasing. The year 2 the cost will be 50% higher than year 1, the year 3 the cost will be 60% higher than year 1, the year 4 the cost will be 75% higher than year 1 and in year 5 the cost will be 80% higher than year 1.

Investment: the required investment is 3.500.000€, of which 2.000.000 will be depreciated over a period of 10 years and the rest will be depreciated over a period of 4 years. No more investments will be required during the years 2 until 5.

Utilities expense: We expect a cost of 0.20€ per unit on the first year, as the energy seems to have price pressure in the future, we believe that the energy cost per unit will be increasing a 5% year over year until year 5.

Maintenance cost: it will be outsourced, and we expect a cost of 0.3€ per unit in average for the first year. As the machinery gets older, we expect the maintenance costs to increase, we believe that the average cost per unit will grow at a 5% rate year over year.

General and administration costs are expected to be 200.000€ for the first year, 210000 for the second year, and for the following years the cost should increase in line with the sales volume growth, so if the sales in units grow a 10%, then the G&A cost should also grow a 10% from the previous period.

The days to collect accounts receivable are 90, the days to pay suppliers are 30.

The company will need an inventory of 30 days.

After receiving all of this information, you realize that you have no idea about how your brother is going to finance this project, so you send an email requesting for this information. The answer from Peter is not concrete, he says “I have 2.000.000€ that I could invest, the rest you will have to convince the banks to give us a loan, as I am not willing to chare the property of the company with other investors.”

You know that the tax rate is 25% and the interest rate is 5%.

So now is your turn to show everything you have learned and prepare a Profit & loss account for the next 5 years and a balance sheet for the same period.

Calculate Return on Equity, return on sales and debt to assets ratio.

Do you think that you will be able to obtain the loan from the bank? Explain.




The student demonstrates an excellent understanding of the concepts.


The student demonstrates a good understanding of the concepts.


The student demonstrates a fair understanding of the concepts.


The student demonstrates some, but insufficient understanding of the concepts.


The student demonstrates insufficient understanding of the concepts. They may mention some relevant ideas or concepts, although it is clear that the relationship between them is not understood by the student.


The student demonstrates insufficient understanding of the concepts and does not mention any relevant ideas or concepts.


The student leaves the question blank or cheats.

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