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Master Budget Case: ToyWorks Ltd. (A)
ToyWorks Ltd. is a company that manufactures and sells a single product, which they call a Toodle. For planning and control purposes they utilize a monthly master budget, which is usually developed at least six months in advance of the budget year. Their fiscal year end is December 31.
During the summer of 2007, Chris Leigh, the ToyWorks controller, spent considerable time with Pat Frazer, the Manager of Marketing, putting together a sales forecast for the next budget year (January to December, 2008). Unfortunately, their collaboration worked so well they eloped to Las Vegas, were married by an Elvis impersonator, and settled down somewhere in the desert. Prior to their departure they e-mailed letters of resignation and a cryptic sales forecast to the President of ToyWorks.
Their sales forecast consisted of these few lines: • For the year ended December 31, 2007: 475,000 units at $10.00 each* • For the year ended December 31, 2008: 500,000 units at $10.00 each • For the year ended December 31, 2009: 500,000 units at $10.00 each
*Expected sales for the year ended December 31, 2007 are based on actual sales to date and budgeted sales for the duration of the year.
ToyWorks’s President felt certain that the marriage wouldn’t last, and expected Chris would be back any day. But the end of the year is quickly approaching, and there is still no word from the desert. The President, desperately needing the budget completed, has approached you, a management accounting student, for help in preparing the budget for the coming fiscal year. Your conversations with the president and your investigations of the company’s records have revealed the following information:
1. Peak months for sales correspond with gift-giving holidays. History shows that January, March, May and June are the slowest months with only 1% of sales for each month. Sales pick up over the summer with July, August and September
ToyWorks Ltd. is a company that manufactures and sells a single product, which they call a Toodle. For planning and control purposes they utilize a monthly master budget, which is usually developed at least six months in advance of the budget year. Their fiscal year end is December 31.
During the summer of 2007, Chris Leigh, the ToyWorks controller, spent considerable time with Pat Frazer, the Manager of Marketing, putting together a sales forecast for the next budget year (January to December, 2008). Unfortunately, their collaboration worked so well they eloped to Las Vegas, were married by an Elvis impersonator, and settled down somewhere in the desert. Prior to their departure they e-mailed letters of resignation and a cryptic sales forecast to the President of ToyWorks.
Their sales forecast consisted of these few lines: • For the year ended December 31, 2007: 475,000 units at $10.00 each* • For the year ended December 31, 2008: 500,000 units at $10.00 each • For the year ended December 31, 2009: 500,000 units at $10.00 each
*Expected sales for the year ended December 31, 2007 are based on actual sales to date and budgeted sales for the duration of the year.
ToyWorks’s President felt certain that the marriage wouldn’t last, and expected Chris would be back any day. But the end of the year is quickly approaching, and there is still no word from the desert. The President, desperately needing the budget completed, has approached you, a management accounting student, for help in preparing the budget for the coming fiscal year. Your conversations with the president and your investigations of the company’s records have revealed the following information:
1. Peak months for sales correspond with gift-giving holidays. History shows that January, March, May and June are the slowest months with only 1% of sales for each month. Sales pick up over the summer with July, August and September