Signature Assignment
Creating and Using a Master Budget
Downloads: The following downloads include the Case Assignment and Excel workbooks in which to complete the assignment.
Background: This case is intended to help students in a graduate cost or managerial accounting course gain an in-depth knowledge of budgeting by developing and using a multi-product, multi-period master budget. The case consists of two segments that can be used in conjunction or separately. The first segment allows students to create a master budget. The second segment allows students to use their budgets to make recommendations for improving company performance. Only a portion of the first segment will be required in this course. The use of multiple products and introduction of incentives to improve company performance add a degree of complexity above that found in most budgeting problems. Working on this type of case provides you with a greater understanding of both the flexibility of a master budget and of the information, such a budget can provide to decision-makers. In addition, the case illustrates the incentives for budget padding, providing an opportunity to conduct a discussion of ethical budgeting and potential consequences in a rich context.
Timeline: You will have three weeks to complete this assignment. The depth of this assignment will require you to block 1-3 hours per week to read, analyze, compute, and review the data contained in the narrative. It is highly recommended that you begin the assignment during week two. The Budget Sample Workbook will be discussed in class during week two and will give you a head start understanding how this budget assignment is designed. Chapter 8 in your textbook will also help with your understanding.
Format: The assignment will be completed in Excel on your computer. Submit the assignment using an Excel XLSX workbook. Each budget schedule is to be contained on a separate spreadsheet tab. You are to utilize the power of Excel for totaling and referencing/linking amounts contained in other spreadsheets. Your grade is based upon the accuracy and formatting of each spreadsheet. Cells must be referenced (aka linked) between cells and tabs; this is how you will show your work and demonstrate comprehension of the use and purpose of budgets. The Signature Assignment will be assessed a 25-pt deduction if cells are not referenced/linked.
What is Graded? In addition to the spreadsheet tabs, you are expected to provide a narrative recommendation for improving performance. This recommendation will be the last tab in your Excel file. Use Word Wrapping, Alignment, and punctuation for readability. The following spreadsheet tabs will be graded:
- Assumptions
- Sales
- Collections
- Production
Draft: A draft of this assignment is due by Friday of the third week by 11:59 PM Pacific Time. Upload your Excel workbook to the via the Draft Signature Assignment link in Week 3. Your instructor will review your draft budget and provide feedback. The draft will be lightly graded, the feedback will have a positive impact on your project grade. Use the following file name format: Last name Signature Draft.
Final Submission: The final version of this assignment is due on Friday of the fourth week by 11:59 PM Pacific Time. Upload your Excel workbook to the Final Signature Assignment link in Week 4. Use the following file name format: Last name Signature Final.
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Juliette’s Pastries: Creating and Using a Master Budget
BACKGROUND
Juliette’s Pastries is a medium-sized regional bakery that
specializes in providing orders to grocery and convenience
stores. Because of the popularity of its brand, it has also
opened a small café for walk-in business.
In order to maintain its high-quality standard, Juliette
produces only three products: breakfast muffins, fresh bread,
and chocolate chip cookies. Although business has been good
in the past few years, a lucky contact with a large chain has
recently allowed it to expand its brand out of the local region.
Growth has been high since the new contract went into
effect.
Andy Griff, the chief executive officer (CEO) and
founder, has arranged a meeting with a venture capital
firm next week. Hopefully the meeting will result in the
sale of some of Juliette’s stock and an opportunity to
establish a significant line of credit with the venture capital
firm. These extra funds, if Andy can secure them, should
provide sufficient money to meet Juliette’s growth targets for
the next few years. The venture capital firm’s assessment
team has asked Andy to provide a quarterly master budget for
the year that just began, complete with pro forma financial
statements, at the meeting. They have expressed special
interest in Juliette’s earnings per share (EPS), cash flow from
operations, and profit margins, indicating that good numbers
in these areas will be essential for final approval.
In typical managerial style, Andy immediately assigned
the task of creating the budget to Nicole Quarterman, who
has just been hired as Juliette’s controller. Since this project
is her first assignment, Nicole started by making appointments
with each of the divisional managers to gather information
for the budget and to learn more about the company.
PART I: CREATING THE BUDGET MEETINGS WITH DIVISIONAL MANAGERS
MEETING WITH THE SALES DEPARTMENT
Walking down the hallway towards the office of Jeff Barza,
the sales manager, Nicole read the results for last quarter
which ended on December 31, 2015. Juliette’s Pastries sold
45,000 one-dozen packages of muffins for $5.50 each, 65,000
one-dozen packages of cookies for $4.75 each, and 85,000
one-dozen loaves of bread for $5.25 each. When Nicole got
to Jeff’s office, he motioned her in to have a seat.
“Is it time for our meeting already?” he asked. “Where
does the day go?”
“Who knows? It seems like one minute I’m having my
morning muffin and the next I’m saying good-bye to
everyone,” Nicole said with a sigh. “There’s never time to
get everything done. And now I get to do the budget.” Jeff
started to laugh. “Thanks,” she muttered. “I knew I could
count on your support.”
“I’m sorry. I just laugh at the amount of time you are going
to put into something that isn’t really used anyway, except for
setting bonuses, of course.”
“Not really used? I don’t know how it’s been around here
in the past, but this year, at least, the budget will prove to be
a valuable tool.” Nicole waved away Jeff’s retort. “Anyway,
one way or another I must create one and, as you know, the
process always starts with projected sales. Do you have a copy
of last quarter’s results?”
“Yes, right here somewhere,” Jeff said, shuffling papers
around on his desk. “Got it!” he exclaimed, waving it gently
as he pulled it from under a stack of other papers. “Now,
what do you want to know exactly?”
“Well, Andy thinks that since we have established a
strong following both locally and in our new markets, we
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can raise our prices slightly next year without a sharp drop in
sales. He was thinking $6.00 for muffins, $5.25 for cookies, and
$5.50 for bread. What do you think?”
“I agree,” Jeff said eagerly. “I’ve been pushing that for years.
Of course, I think that sales will drop some in the first quarter of
next year. They always drop off a bit after the holidays anyway,
but with the increase in sales price . . . I’d say a 20 percent drop
from the fourth quarter results we have here.” He looked up
questioningly and raised an eyebrow.
Nicole frowned. “That sounds kind of high. Based on
what I saw in the dairy industry, I was thinking the drop
would only be about 10 percent.”
Jeff looked a little uncomfortable and shuffled around in his
chair. “Well, it’s a little different for a Boulangerie. Our price is
a little more elastic than dairy products. Besides, 20 percent is a
more conservative estimate, and, in the past, we wanted no
surprises.” He looked at her and challenged, “Are you going to
change that?”
“Yeah, but we’ll be using this master budget to create a
cash flow budget and pro forma financial statements to show
our new investor. We need to look good, not bad.”
Nicole frowned. She didn’t want to start making changes and
enemies in her first few months.
“I guess so. But look—my bonus is tied to how well I meet
my estimates. If we estimate low results and then go up . . .”
Seeing the look on her face, he quickly changed direction.
“Besides, Nicole, we are raising the prices. A 10 percent drop is
normal after Christmas, but couple that with the increased
prices, and 20 percent is reasonable.”
Nicole frowned, and then sighed. She didn’t quite accept his
reasoning, but it would be better to have him on her side until
she understood the company politics a bit better. “Okay, Jeff. I’ll
take your word for it. We’ll use 20 percent. After all, you’re the
expert.”
“You’ve got that right!” Jeff said, trying to hide his relief.
He was obviously really counting on that bonus. He looked at a
couple of sales reports and market projections on the desk in
front of him. “After that, I think sales will grow steadily at about
5 percent a quarter with these new prices. Fourth-quarter sales
will be high because of the holidays— let’s say 20 percent,
instead of 5 percent, from the third to the fourth quarter. The
first quarter of the following year will continue the 5 percent
growth as though the holiday jump didn’t occur. And I’m not
messing with those estimates. That’s really my best guess, given
what I’ve seen in the past.” He looked up. “Does that give you
all you need?” “Just a few more questions. Have you made any
changes to the credit policy? The information I have from last
year says that we make about 10 percent of our sales through
our café and that we don’t sell to those customers on credit.”
Jeff smiled. “Yep, but we do sell on credit to the business
customers. If we didn’t, they’d go somewhere else. So, we give
our business customers a lot of leeway in paying us. It makes it a
little hard on us, but it keeps them loyal. Anyway, we collect 30
percent of the credit sales within the current quarter, 45 percent
in the following quarter, and 25 percent in the quarter after that.
The good news is that we don’t have any bad debt. Our
customers are mostly large chains with strong sales and even
better reputations. Since they are large companies, they take
their time paying small companies like us, but we get the money
from all of them in the end.”
“Then I have only two more questions. What were total sales
during the third and fourth quarters of last year, and are we still
collecting any of that money?”
Jeff pulled up a file. “Total sales were $802,000 and
$1,002,500, respectively, and we are still collecting quite a bit of
that money based on our collection breakdown.”
“I think that does it, then. If I’ve forgotten something, I’ll
come back and bug you later. It’s more fun to interrupt you
several times anyway. And you owe me one now.”
MEETING WITH THE PRODUCTION DEPARTMENT
Nicole sighed as she headed to her meeting with Phil Mainster,
Juliette’s head chef. She wasn’t sure about that large drop Jeff
wanted her to use, but as the new member of the staff she
wasn’t sure what she should do. Of course, she didn’t have
much time to think about it now anyway. She had met Phil
before, so she knew that it was going to be an interesting
meeting.
As she had suspected, she found Phil in the Boulangerie
instead of his office. “Phil,” she called as she hurried towards
him, “did you forget our meeting?”
“Me, forget?” Phil asked in a surprised voice. “I never
forget anything!” Nicole had to chuckle at the large streak of
flour across his face. “You said you wanted to see our
production facility, and I’m ready to show it to you.”
Nicole shook her head. “No, Phil. I didn’t say I wanted to
see the production facility; I said I wanted to talk to you about
the budget for next year.”
“Oh, of course you did.” Phil’s round face had turned a
deeper shade of pink. “Then why don’t we go to my office
and talk?”
Nicole sighed. “That’s a great idea, Phil.”
As they sat down, Nicole asked her first question. “Okay,
Phil, I need to know how much inventory we keep on hand.”
“Well, we can’t keep much in the way of finished goods
on hand. My cookies and bread would dry out if we kept them
too long. I’d say that we normally keep only about two days’
worth of inventory on hand to avoid shipping issues or
problems with the café.”
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“Okay and you make your estimates based on a 90-day
quarter?”
Phil nodded impatiently. “Please, Nicole, don’t ask
obvious questions.”
“I’m sorry. Let’s talk about your pantry. You take care of
purchasing too, don’t you?”
“Yessirree. We decided it would be easier for me to run
purchasing than to have a separate manager do it. After all, I do
everything else around here.”
“Well, we want it done right.”
Phil chuckled. “I’ll have to remember that one. Martha will
love it. Okay, let’s talk about raw materials. Some days we
must produce a lot to meet our orders, so I normally try to keep
15 percent of the next quarter’s raw materials on hand at all
times.”
“Is that what we’ve got on hand now for the coming
year?”
“Of course. Jeff and I had already talked about the
possibility of raising prices and his estimate of a 20 percent
drop in demand, so I’m ready to go.”
Nicole considered telling Phil that she was unsure the 20
percent drop would really materialize but changed her mind.
There would be time to get the extra ingredients ordered if sales
only dropped 10 percent, and she didn’t want anyone
to think she had caved in to peer pressure. “Good. Can you
give me some estimates of how long it takes to make each
package of cookies, bread, and muffins?”
“Are you kidding? We don’t really move each item from
start to finish. We do them in large batches, so I have no idea
how long each final package takes.” Seeing Nicole’s frown, he
quickly went on. “But I can tell you that one of my mixers can
mix either 12 dozen cookies, 8 dozen muffins, or
4 dozen loaves of bread in 15 minutes. The bakers then take
another half an hour to get the dough ready and bake it.”
“The batch sizes are the same for each product?”
“Yep. I try to keep things as standard as possible.
The packaging department is the slowest. They must double
wrap the cookies and muffins—once to keep them fresh and
once in the fancy packages marketing came up with—so it
takes 15 minutes to package either two one-dozen packages
of cookies or two one-dozen packages of muffins. The bread
is a little faster. In 15 minutes, we can package about eight
dozen loaves of bread.”
“Do you happen to know what we are paying each group of
employees?”
Phil grabbed a piece of paper. “We pay the mixers $7.50 an
hour, the bakers $8.00 an hour, and the packers $6.50 an hour.”
“Perfect. Then I just have one more question.”
“Let me guess. You want a breakdown of ingredients for
each item we bake.”
“You must be psychic, Phil.”
“No, I just remember being bugged about this by the last
controller.” He handed Nicole a piece of paper with a table on it.
“Here they all are. Just make sure you don’t let it out of the
building! I don’t want my secret recipes to get out.” “Don’t
worry. I’ll be careful.” Nicole glanced down at the price sheet.
“Wow. I wish I could buy my groceries at these prices.”
Phil chuckled. “So, do I. You must remember, though,
Exhibit 1
Summary of Ingredients
Ingredients
Cost / Lb.
Cookies Muffins Bread
Lbs./Dozen
Total / Dozen
Lbs./Dozen
Total / Dozen
Lbs./Dozen
Total / Dozen
Flour $0.15 0.50 $0.08 0.50 $0.08 3.00 $0.45
Margarine $0.25 0.75 $0.19 0.25 $0.06
Sugar $0.20 1.00 $0.20 0.50 $0.10 0.25 $0.05
Eggs (each) $0.05 2.00 $0.10 2.00 $0.10
Milk (per gallon) $1.25 0.10 $0.13 0.25 $0.31
Cocoa $1.50 0.25 $0.38
Peanut Butter Chips $0.75 1.00 $0.75
Mini Chocolate Chips $0.75 1.00 $0.75
Shortening $0.50 0.25 $0.13
Baking Packet* $0.10 1.00 $0.10 1.00 $0.10 1.00 $0.10
$1.79 $1.31 $1.04
* The Baking Packet consists of ingredients too small to be purchased by the pound, so the bakery buys them in prepared packets.
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Exhibit 2
List of Selling and Administrative Expenses
that we buy in bulk, lots and lots of bulk. That lets us get
some great deals from our local vendors.”
“I guess that makes sense. Thanks for taking time to see me.”
“Just make sure you don’t leave without taking a cookie
or two.” Phil held out a plate loaded with perfect, if two-day
old, cookies. “If we don’t eat them, they go into the trash!”
“My pleasure!”
MEETING WITH THE ACCOUNTING DEPARTMENT
Nicole hurried back to her own office. She had a staff meeting
in 15 minutes. She should be able to get most of the
information she still needed from Sarah, since she wrote the
checks. Even though Sarah only worked part-time, she’d been
with the Boulangerie from the beginning and seemed to know
just about everything about the accounting system. Anything
Sarah didn’t know, Bob, their new summer intern, would have
found out for her by now. He was very good at digging up
information once he was pointed in the right direction.
“We thought you were going to stand us up,” Sarah said
as Nicole hurried into the office.
“Actually, we hoped you were,” Bob quipped. “We don’t
want to get stuck doing the budget, so we hoped that you
would forget to come.”
“Don’t worry,” Nicole said with a sigh. “Andy wants me
to take care of it personally. He seems to think it would be
good for me to get to know the company or something. So,
have you gathered all the information that I asked for?”
“Of course,” Sarah said. “Where do you want us to start?”
“Let’s start with our accounts payable.”
“That’s me,” Bob said. “Most of our vendors require that
we pay for everything within 30 days of making our purchase.
That means that 85 percent of our purchases are paid for
within the quarter they are made. And, before you ask, we
ordered $210,984 worth of inventory during the last quarter
last year, so we still owe 15 percent of that, or $31,648.”
“Thanks, Bob, but I knew that last part. After all, it’s right
there in the balance sheet.”
“Oh, yeah,” Bob said turning pink. “I forgot about that.”
Sarah laughed. “So, you calculated it by hand?”
“Well, yeah. I wanted to be prepared for the meeting today.”
“All right, you two,” said Nicole, jumping in before
Sarah could pick on the young man anymore. “Let’s move
on to our overhead assumptions.”
“Sure,” Sarah said. “Last year we allocated variable
overhead at $1.50 for each direct labor hour. This year, I
think that we’re going to need to increase that to $2.00 to
cover increases in security fees, utility rates, and energy
prices. We also spend about $160,000 a quarter in fixed
overhead. Also, don’t forget that we usually use total direct
labor hours to calculate a predetermined overhead rate when
calculating the unit cost.”
“Unit cost?” asked Bob. “Oh, wait,” he said nodding, “I
remember. We must include direct materials, direct labor, and
manufacturing overhead to get the cost of producing each
unit. Direct materials are calculated from the recipe and
direct labor cost from the employee information that Phil
gave you. But we need to multiply the number of hours it takes
to make each product by the predetermined overhead rate so
that we can figure a per-unit applied overhead amount. Sorry
to interrupt.”
“No problem.” Nicole nodded approvingly at the young
intern while finishing up her notes. “Just one last question,
Sarah. How much of that overhead is from depreciation?”
“Eight percent of the fixed amount.”
“ Bob, tell me about our sales costs.”
“Well, we don’t really have that much in variable sales
costs. We give a one percent commission to our sales staff.”
“Is that based on profit or sales price?” Sarah asked.
“Total sales price. Sorry, I forgot to mention that. The
commission is paid both for business sales and sales in the
café. Also, here’s the table of fixed selling and administrative
expenses.”
S&A Expense Cost / quarter
Advertising $40,000
Cleaning supplies 1,000
Janitorial service 6,000
Office staff salaries 25,000
Office supplies 3,000
Rent – Office 9,000
Sales salaries 35,000
Top management salar 80,000
Utilities – Office 1,800
Total $200,800
Nicole took the paper. “Thanks. Okay, Sarah, tell me
about our debt.”
“Well, at the end of last year, we secured a $1,109,969
mortgage at 6 percent interest. Our payment each quarter is
$20,000. Since it’s a mortgage, the calculations are kind of
fun. Each payment requires us to pay a lot of interest and a
little bit of principal. To break up the $20,000 into the two
parts, we have to multiply the current mortgage value by 6
percent and divide by 4. . .”
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“Divide by 4?” asked Bob.
“Well, yeah, 6 percent is the annual rate. Since we make
quarterly payments, we divide the annual rate by 4.”
“Oh,” Bob said sheepishly. “I should have remembered
that.”
“Yes, you should have,” Nicole said with a smile. She was
very pleased with how well Bob was progressing during his
summer with the firm. Hiring an intern had been one of her first
changes, and it seemed to be working out well. If the company
continued to grow, maybe he could be hired full-time once he
graduated in a couple of years. “Go ahead, Sarah.”
“Right. So, our first payment will be made at the end of
the upcoming quarter. We’ll end up paying $16,650 as
interest and $3,350 in principal. This means that the value of
the mortgage in the second quarter will be $1,106,619. That’s
the original $1,109,969 minus the $3,350, Bob.”
“Thanks, Sarah. I appreciate the help,” Bob retorted,
rolling his eyes.
“I appreciate it, too,” Nicole said. “If I remember right, we
have to pay the $20,000 each quarter. Our contract prohibits
us from paying any additional principal for the first three
years.”
Sarah nodded. “Yep, kind of a bummer, but that was the
only way we could get that 6 percent interest rate.”
“Okay,” Nicole said. “The last thing is a recap of how we
handle income taxes. I think that has pretty much stayed the
same?”
“It sure has,” Bob responded, rifling through a tax folder.
“Our corporate tax rate is 30 percent, and a portion of our
estimated taxes must be paid each quarter to avoid late fees. Our
policy is to pay 110 percent of the taxes that we owed last year
over the course of the current year. Since we paid
$15,000 last year, we will need to pay $16,500 this year.”
“And we’ll pay that equally over the four quarters?”
“Right. At the end of the year, we calculate our actual
taxes owed as 30 percent of net income. Any difference
between the cash we paid for taxes over the year and actual
income tax expense on the income statement is put into income
taxes payable if we haven’t paid enough and into deferred tax
assets if we paid too much.”
“Right,” Nicole said. “I think that’s about it.”
“Don’t forget the balance sheet from last year,” Bob said,
handing her a sheet of paper.
“Thanks. I’m starting to lose track of everything. I must be
getting old.”
“Oh, I wouldn’t say that” Bob quipped, then added with a
grin, “at least, not as long as you’re my boss.”
MEETING WITH THE CEO
“So, how goes the battle, Nicole?” Andy asked as she came
into his office.
“Oh, it’s going. Actually, I think we’re just about there. I
just need to check some numbers with you, and I’ll be all set.
Then it’s just a matter of actually creating the budget. That’s
the fun part, you know.”
Andy laughed. “Right. That’s why you’re the accountant
and I’m not. So, what do you need?”
“First, I just want to confirm a couple of things from some
earlier meetings. You told me a couple of weeks ago that the
board of directors now wants us to have $40,000 worth of cash on
hand at all times and to pay $25,000 in dividends each quarter. Is
that still the plan?”
“Yes, it is. I think it’s a little restrictive myself, but sometimes we
Exhibit 3 – Balance Sheet, Dec. 31 1
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must do as we’re told. Because of the expansion, though, we
are going to have to issue another 50,000 shares of common
stock to the venture capital firm in the first week of the third
quarter. We won’t plan on changing our dividend payment
schedule this year, but we will probably have to increase the
amount we pay in future years. For now, though, the big
factor is the capital infusion of $400,000 we’ll get from selling
our stock.”
“In the third quarter? Why are they waiting that long?”
Andy shrugged. “Because that’s when they will have the
money to make the investment. They’re waiting for another
deal to go through.”
“Okay, so increase common stock issued by 50,000 shares
and paid-in-capital by $400,000 in the third quarter, got it.
My next question is about the expansion of our PPE that you
just mentioned. I estimate that we will need to buy $75,000
worth of new equipment in the first quarter, $100,000 in
the second, $50,000 in the third, and $35,000 in the fourth.
Since many of our long-term assets have already been fully
depreciated, this new expansion shouldn’t significantly change
my depreciation estimates. Does that sound about right to
you?”
“Assuming we get this arrangement settled, it sounds
perfect.”
“Can you give me a few more details about what else
we’re hoping to get from these new investors? I’ll need to
include those estimates.”
“Sure. What we are really hoping for, other than the
purchase of 50,000 shares of stock of course, is a $1 million
revolving line of credit. Basically, if we need additional
funding, we can pull on the line of credit. The interest rate
on the new credit line will be 8 percent and they will require that
we pay off any accumulated interest before we repay any
principal.”
“Well, I think that gives me everything I need. Just so you
know, I am going to use simple interest calculations for the
interest estimates. It’s not 100 percent accurate, but it is typical
for creating a master budget. It also simplifies things
considerably and ensures that information flows through the
budget easily. I’ll also assume that any additional debt from the
line of credit is taken out on the first day of the quarter and any
payments are made at the end of the quarter. That ensures that
the interest estimates should be fairly accurate, even with the
simple interest calculation.”
“I think you lost me somewhere in there.”
“Sorry about that. Sometimes I go too fast. To get our
interest payments when we repay our line of credit (assuming
that we have any to repay and the funds to make a payment), I
will multiply the amount I’m repaying times the quarterly
interest rate times the number of quarters the money has been
outstanding. So, if we draw $1,000 on the line of credit in the
second quarter and repay it in the third quarter, I will multiply
$1,000 by 2 percent and again by 2 percent for the two
quarters that I assume are outstanding. Does that help?”
“Not really, but I think I understand enough that I can
explain your assumptions if I have to.”
“Well, let me try again . . .”
“No, don’t worry about it,” Andy said quickly. “As long as
I know about what you’re doing, and I don’t have to do it
myself, I’m good with just about anything.”
Nicole grimaced. “Thanks. I think I’ll estimate my salary up
a couple hundred thousand,” she said jokingly.
PART II – USING THE MASTER BUDGET MEETING OF THE SENIOR STAFF (TWO WEEKS LATER)
“Alright, everyone, let’s settle down and get to work.”
Everyone took their seats around the table as Andy,
Juliette’s Pastries CEO, shuffled through his papers. “As you
know, the venture capital firm we are hoping to work with
has indicated that it will not approve the deal unless we can
demonstrate a strong projected EPS, cash flow from
operations, and profit margin. Since you have all had a
chance to review our new master budget and our pro forma
financial statements, you know that we’re in a bit of trouble
along those lines. To put it bluntly, the numbers we are
currently showing are not good enough for the deal. No deal,
no funds. No funds, no growth. No growth, no big bonuses.”
He paused for a moment. “So, does anyone have any ideas
for ways that we can legitimately improve our numbers?”
“What exactly do you mean by ‘legitimately’?” Phil, the
head baker, asked.
“I mean ways that we can change our policies or
procedures.”
“I guess that means my idea of robbing a bank is out,”
Phil said dryly.
“And my idea of simply randomly changing numbers,”
agreed Sarah, the part-time staff accountant.
“Well,” Jeff, the head of marketing, said, “I think I have a
legitimate idea. We could increase our sales commissions by
2 percent. That should motivate our sales force to sell more.
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This case is based upon an original IMA case written by Jason Porter and Teresa Stephenson.
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I’d say that would increase our sales growth from 5 to 8
percent each quarter.”
“For my part,” Phil jumped in, “we could switch to a JIT
inventory system, keeping only about 3 percent of our needed
raw materials on hand. That would cut down on some of our
costs, but it would also require us to pay for our entire
inventory in the quarter it is purchased rather than paying 15
percent in the following quarter like we do now.”
Nicole, Juliette’s new controller, shook her head. “I think
our best bet is to speed up our collections. We’re too loose with
our credit. If we were to add an additional collections specialist
to our office staff, we could improve our collections to be 80
percent in the first quarter, 15 percent in the second quarter, and
5 percent in the third quarter. That would certainly improve our
cash flows. Given the job market right now, I think we could
hire a good collections specialist for
$30,000 a year.”
“They might help collections,” argued Jeff, “but those kinds
of tactics could hurt our sales. Our relaxed collections policy is
one of the things that set us apart from other vendors. If you
decide to try that, Andy, you’d better plan on an additional 3
percent drop in sales the first quarter.”
The table started to buzz with conversation as the
managers discussed the different options that had been
presented. In the confusion, Nicole took her chance to lean
over to Jeff. “Don’t you want to tell them?”
“Tell them what?” he said innocently.
“That you have us dropping our sales by too much in the
first quarter! If we changed our current 20 percent estimate to a
more realistic drop, it would take care of everything! Based on
the research I’ve been doing in the industry, we could use 10
percent instead of 20. Think about it. Our EPS would be higher
and so would our cash flow from operations. Why, even our
profit margin would increase because our fixed costs would be
allocated over more units.”
Jeff frowned at her. “It wouldn’t improve everything,
Nicole. It would totally kill my bonus. Look, the price rise
is a good idea with these other changes we are making. I
mean, we’re going to need the extra cash, but that is going to
cost us some sales. I’d much rather be conservative and get a
great bonus than give them a rosy number and get fired.”
Nicole sighed. “Jeff . . .” she tried again.
“Another option,” Jeff said loudly, before Nicole could
start in on him again, “would be to not raise our prices as
drastically. Let’s say we only increased our prices to $5.75
for muffins, $5.00 for cookies, and $5.50 for bread. By my
calculations, that would lead to only a 12 percent drop in
sales in quarter one with 7 percent growth in each of the
following quarters.”
Nicole frowned. Given Jeff’s pattern, it would be more
like a 2 percent drop, not 12 percent. Then she sighed. She
couldn’t win this argument with Jeff, especially not in the
middle of a meeting with everyone else watching and
listening. Besides, if she brought it up now, they would
wonder why she hadn’t brought it up before. They might
even think that she’d been trying to get a bigger bonus for
herself. And she would certainly make an enemy out of Jeff.
Their relationship was already strained. No, she couldn’t say
anything here. She’d just have to let it go and hope that one
of the other ideas would work out. Besides they really
would look better if they made a significant improvement
this first year. And if that happened, would it really matter
that Jeff had manipulated his way to a nice fat bonus?
“Well,” she said after a few more minutes, “I think these are
all good ideas, but I’m not sure that we’ll want to try all of
them. If we change too much at one time the assessment
team might think that we are just trying to fake our numbers
to give them what they want. I would suggest making one or
maybe two of these changes for now, then provide them
with a written explanation of the other ideas we want to try
moving forward.”
“I agree, Nicole,” Andy said. “Why don’t you run the
numbers, including how these changes would affect our use of
the line of credit, to see which of the changes will give
us the most bang. We’ll go ahead and make that change
now and add the others to our improvement plan. That way,
we can go to them with a current improvement and a plan
to keep improving.” He looked around the table.
“And if anyone gets any other ideas, let us know. The more
improvements we take to the table, the better our chances of
signing the deal.”
,
Assumptions
| |
|
Juliette's Pastries |
| Sales Information: |
| Quarterly Growth Assumption: |
|
|
5% |
| Extra Holiday Sales: |
|
|
15% |
| |
|
Muffins |
Cookies |
Bread |
| Prior Year: |
| |
Q4 |
45,000 |
65,000 |
85,000 |
Dozen |
| Current Year: |
| |
Q1 |
36,000 |
52,000 |
68,000 |
| |
Q2 |
37,800 |
54,600 |
71,400 |
| |
Q3 |
39,690 |
57,330 |
74,970 |
| |
Q4 |
47,628 |
68,796 |
89,964 |
| Next Year: |
| |
Q1 |
50,009 |
72,236 |
94,462 |
| Price per Dozen: |
|
$ 6.00 |
$ 5.25 |
$ 5.50 |
| Collection Information: |
| Historic Cash Collections: |
|
|
|
|
|
Current collections from last year's credit sales: |
| |
Cash Sales: |
|
10% |
| |
Credit Sales: |
|
90% |
|
|
|
|
|
|
Collected in Current Year |
| |
|
Collected in current qtr. |
|
30% |
|
|
LY Sales |
Received |
|
Q1 |
Q2 |
| |
|
Collected in next qtr. |
|
45% |
|
Q3 |
$ 802,000 |
$ 621,550 |
|
$ 180,450 |
| |
|
Collected in following qtr. |
|
25% |
|
Q4 |
$ 1,002,500 |
$ 370,925 |
|
$ 406,013 |
$ 225,563 |
| |
|
|
|
|
|
|
|
|
Total: |
$ 586,463 |
$ 225,563 |
| Manufacturing Information: |
| Ending Inventory Goal: |
|
|
2% |
Sales
| |
|
Sales Budget |
| |
|
|
|
Current Year |
|
|
|
Next Year |
| |
|
Q1 |
Q2 |
Q3 |
Q4 |
Total |
|
Q1 |
| Muffins |
| |
Budgeted Sales |
36,000 |
37800 |
39690 |
47628 |
161,118 |
|
50009 |
| |
Price per Dozen |
$ 6.00 |
$ 6.00 |
$ 6.00 |
$ 6.00 |
$ 6.00 |
| |
Total Revenue |
$ 216,000 |
226,800.00 |
238,140.00 |
285,768.00 |
$ 966,708 |
| Cookies |
| |
Budgeted Sales |
52000 |
54600 |
57330 |
68796 |
232726 |
|
72236 |
| |
Price per Dozen |
$ 5.25 |
$ 5.25 |
$ 5.25 |
$ 5.25 |
$ 5.25 |
| |
Total Revenue |
273,000.00 |
286,650.00 |
300,982.50 |
361,179.00 |
1,221,811.50 |
| Bread |
| |
Budgeted Sales |
68000 |
71400 |
74970 |
89964 |
304334 |
|
94462 |
| |
Price per Dozen |
$ 5.50 |
$ 5.50 |
$ 5.50 |
$ 5.50 |
$ 5.50 |
| |
Total Revenue |
374,000.00 |
392,700.00 |
412,335.00 |
494,802.00 |
1,673,837.00 |
| Total Sales Revenue |
|
$ 863,000 |
906,150.00 |
951,457.50 |
1,141,749.00 |
3,862,356.50 |
Collections
| |
|
Cash Collections Budget |
| |
|
|
Collected This Year in Quarter |
|
|
|
|
Acct. Rec. |
| |
|
Q1 |
Q2 |
Q3 |
Q4 |
Total |
|
Balance |
| Prior year sales |
|
586462.5 |
225562.5 |
|
|
812025 |
|
0 |
| This year's sales: |
| Q1 |
|
319310 |
349515 |
194175 |
|
863000 |
|
0 |
| Q2 |
|
|
335,275.50 |
366,990.75 |
203,883.75 |
906150 |
|
0 |
| Q3 |
|
|
|
352,039.28 |
385,340.29 |
737379.5625 |
|
214,077.94 |
| Q4 |
|
|
|
|
422,447.13 |
422447.13 |
|
719,301.87 |
| |
Total Collected |
905772.5 |
910353 |
913205.025 |
1011671.1675 |
3741001.6925 |
|
933379.8075 |
Production
| |
|
Production Budget |
| |
|
|
|
Current Year |
|
|
|
Next Year |
| |
|
Q1 |
Q2 |
Q3 |
Q4 |
Total |
|
Q1 |
| Muffins |
| |
Budgeted Sales |
36000 |
37800 |
39690 |
47628 |
161118 |
|
50009 |
| |
plus Target Ending Inventory |
840 |
882 |
1058.4 |
1111.32 |
1111.32 |
| |
less Beginning Inventory |
800 |
840 |
882 |
1058.4 |
800 |
| |
Required Production |
36040 |
37842 |
39866.4 |
47680.92 |
161429.32 |
| Cookies |
| |
Budgeted Sales |
52000 |
54600 |
57330 |
68796 |
232726 |
|
72236 |
| |
plus Target Ending Inventory |
1213.3333333333 |
1274 |
1528.8 |
1605.24 |
1605.24 |
| |
less Beginning Inventory |
1155.5555555556 |
1213.3333333333 |
1274 |
1528.8 |
1155.5555555556 |
| |
Required Production |
52057.7777777778 |
54660.6666666667 |
57584.8 |
68872.44 |
233175.684444444 |
| Bread |
| |
Budgeted Sales |
68000 |
71400 |
74970 |
89964 |
304334 |
|
94462 |
| |
plus Target Ending Inventory |
1586.6666666667 |
1666 |
1999.2 |
2099.16 |
2099.16 |
| |
less Beginning Inventory |
1511.1111111111 |
1586.6666666667 |
1666 |
1999.2 |
1511.1111111111 |
| |
Required Production |
68075.5555555556 |
71479.3333333333 |
75303.2 |
90063.96 |
304922.048888889 |
- You should respond to at least two of your peers by extending, refuting/correcting, or adding additional nuance to their posts. Your reply posts are worth 2 points (1 point per response.)
- All replies must be constructive and use literature where possible.
- You must apply intext citation and use credible sources
· You should respond to at least two of your peers by extending, refuting/correcting, or adding additional nuance to their posts. Your reply posts are worth 2 points (1 point per response.)
· All replies must be constructive and use literature where possible.
Reply from Silvio Raydel Lores
1. Describe value-added models (VAMs) and discuss the costs and benefits of using them to measure teacher impact on student performance?
Value-added models (VAMs) involve metrics to assess the change in student performance on a year-to-year basis while trying to isolate the ‘teacher effect’ from various confounding factors including the student’s prior performance (Darling-Hammond et al., 2012; Rebore, 2001). The development of VAMs is under the premise that the gains made by students are actually due to teachers. However, this assumption is often wrong. Some of these may include the size of the class, the quality of the curriculum, and the students themselves and their backgrounds (Darling-Hammond et al., 2012). Although VAMs can give information on how students are learning academically, their utilization in high-stakes teacher measurements has been demerited for fluctuating and for not painting a complete picture that recognizes other factors.
2. What are some alternative approaches to using VAMs and how can they be effectively employed?
Instead of relying on VAMs, several authors have called for a broader approach to the evaluation system. Some of these include Performance assessments, peer assessments, and Professional learning. Observations containing interactions and assessment of motivation together with document reviewing and collaboration with the mentor teachers have the effect of offering a broad picture of teacher performance (Rebore, 2001). In some districts, multiple classroom observations done in throughout the school year by trained observers have been effective in providing feedback to teachers and at the same provides reliable information on the effect of teacher practices on learning (Darling-Hammond et al., 2012).
3. What are some alternative approaches to using VAMs and how can they be effectively employed?
In Miami-Dade County Public Schools, teachers have been assessed by the IPEGS system in the course of their teaching practice. This process involves a principal offering focused observation, appraisal of the teachers after a short while, and appraising of the teachers using lesson plan submissions and student-teacher relations (Darling-Hammond et al., 2012). Furthermore, the evaluation of teachers is connected to the results of students in the exams at the end of a course, known as EOCs, and the resulting effectiveness rating. As for the benefits of this system, it should be admitted that utilizing one assessment only and evaluating the performance of a teacher based on student test scores and a single observation, the complexity of a classroom can obscure a complete picture of the teacher.
4. What are the best indicators of teacher effectiveness in your experience? How can these indicators be measured?
Classroom management, the level of students’ engagement, and the teachers’ capacity to adapt the delivery of instruction to accommodate diverse learning styles are some of the most reliable barometers of teacher performance (Darling-Hammond et al., 2012). These can be gauged through follow-up observations by trained Assessors, Students/learners’ feedback, and teacher’s self-reflective analysis of what they are practicing. In addition, accumulating the student work over time gives a more comprehensive idea about the extent to which a teacher contributes to the improvement of student learning outcomes.
5. Other than teacher effectiveness, what influences student achievement? To what extent can these influences be accounted for so that teacher effectiveness is measurable?
Learner performance is a function of factors outside the classroom for instance home background, socio-economic status, availability of resources as well as peer influence (Darling-Hammond et al., 2012; Rebore, 2001). Although such factors may concern teacher efficiency, they interfere with measures of a teacher’s contribution in many situations. To some extent, these influences can be mediated by schools that collect demographic information at the start of a course and monitor the student’s progress in several parameters rather than, or in addition to, tests.
6. Why might teacher effectiveness differ from class to class as well as from year to year or from test to test?
Teacher performance varies depending on the operation of the class and grade, as well as the subjects taught (Darling-Hammond et al., 2012). For instance, the teacher’s strength in teaching a group of high achievers may not be effective in handling a large group of ELL students. Also, the achievement outcomes can be dissimilar depending on the specific tests that have been administered, making the overall comparative assessment of teachers’ performance in the capacity more challenging.
7. What kind of performance assessments could teachers use to document their effectiveness? How would these be “scored”?
A portfolio of students’ works and the pre-and post-tests, the videotaped lessons of the teacher and the students can also be used as performance assessments. These could have been accompanied by standards-based assessments whose score is arrived at from rubrics that reflect professional teaching standards that offer a clear way of assessing a teacher.
8. What might be the role of a coach or mentor in terms of a teacher evaluation system? What might be the role of professional development?
Most LBS coaches and mentors undertake to provide teachers with specific guidance, actual peer observations, and reflective conversations that can positively support the improvement of teachers’ educational practices. These opportunities can also complement the goals of PD i.e., to provide experiences that foster teacher development in areas of performance that need enhancement) and evaluation so that analyses and evidence yielded results in tangible directions for the improvement of the teachers.
References
Darling-Hammond, L., Amrein-Beardsley, A., Haertel, E., & Rothstein, J. (2012). Evaluating teacher evaluation. Phi Delta Kappan, 93(6), 8–15.
Rebore, R. W. (2001). Human resources administration in education: A management approach. ERIC.
Reply from Mark Waters
1. Describe value-added models (VAMs) and discuss the costs and benefits of using them to measure teacher impact on student performance.
Value-added models (VAMs) are statistical tools designed to estimate the impact of teachers on student learning by analyzing changes in student test scores over time. These models attempt to isolate the effect of the teacher from other influencing factors by accounting for students' prior academic performance and socio-economic conditions (Darling-Hammond et al., 2012).
Benefits of VAMs include their data-driven approach, which offers a quantifiable measure of a teacher’s contribution to student progress. This can be useful for identifying effective teaching practices and holding teachers accountable for student outcomes. However, costs associated with VAMs include their reliance on standardized test scores, which may not fully capture a teacher’s effectiveness or a student’s learning experience. Additionally, VAMs can create high-pressure environments for teachers, potentially leading to a focus on test preparation rather than holistic educational practices (Darling-Hammond et al., 2012).
2. What are some alternative approaches to using VAMs and how can they be effectively employed?
Alternative approaches to using VAMs include evaluating teachers based on professional teaching standards, conducting classroom observations, and analyzing teaching artifacts. Professional teaching standards offer a framework to assess teachers on various pedagogical and management criteria (Darling-Hammond et al., 2012). Classroom observations, performed by trained evaluators, provide insights into teaching practices and student interactions, while analyzing teaching artifacts such as lesson plans and student work helps gauge instructional quality.
These methods can be effectively employed by integrating them into a comprehensive evaluation system that combines multiple approaches to offer a holistic view of teaching effectiveness. Such systems should emphasize formative feedback, providing teachers with constructive evaluations and opportunities for professional development, thereby supporting their growth rather than just summative judgments (Darling-Hammond et al., 2012).
3. How are teachers evaluated in your district (or a district you know well)? To what extent does the evaluation system in this district seem effective to you?
In many districts, teacher evaluations involve a blend of observations, self-assessments, and student feedback. For example, evaluations often include structured observations of teaching practices, which are assessed against established instructional standards and classroom management criteria (Darling-Hammond et al., 2012).
The effectiveness of such systems typically depends on factors like the clarity of evaluation criteria, the consistency in applying these criteria, and the extent to which feedback is used constructively. An effective evaluation system is one that provides clear expectations, supports teachers with constructive feedback, and offers resources for professional growth (Darling-Hammond et al., 2012).
4. What are the best indicators of teacher effectiveness in your experience? How can these indicators be measured?
Indicators of teacher effectiveness often include improvements in student learning outcomes, the quality of classroom interactions, and feedback from students and colleagues. These indicators can be measured through various methods. Detailed rubrics can be used to assess the quality of teaching practices observed during classroom evaluations. Tracking student performance over time and collecting feedback from students and parents through surveys or questionnaires also provide valuable insights (Darling-Hammond et al., 2012). Additionally, performance assessments such as portfolios and project-based tasks allow teachers to document and demonstrate their effectiveness in facilitating student learning.
5. Other than teacher effectiveness, what influences student achievement? To what extent can these influences be accounted for so that teacher effectiveness is measurable?
Student achievement can be influenced by factors such as family environment, school resources, and peer dynamics. For instance, socio-economic status, parental involvement, and the availability of school resources all play significant roles in student performance (Underwood & Mead, 2012). These influences can be partially accounted for through statistical controls and a contextual understanding of the educational environment. While it is challenging to isolate these external factors completely, careful consideration and adjustment in evaluation methodologies can help in assessing teacher effectiveness more accurately (Darling-Hammond et al., 2012).
6. Why might teacher effectiveness differ from class to class as well as from year to year or from test to test?
Teacher effectiveness may vary due to several factors, including differences in student demographics, classroom dynamics, and available resources. Variations in class size, student behavior, and the teacher’s level of experience and skills can all impact effectiveness. Additionally, different assessments and tests may measure various aspects of student learning, contributing to differences in perceived teacher effectiveness from one context to another (Darling-Hammond et al., 2012).
7. What kind of performance assessments could teachers use to document their effectiveness? How would these be “scored”?
Teachers can use performance assessments such as student work portfolios, project-based evaluations, and performance tasks to document their effectiveness. These assessments can be scored using detailed rubrics that outline specific criteria and expectations for quality. Rubrics help ensure consistency and fairness in evaluating the different aspects of teaching and student learning (Darling-Hammond et al., 2012).
8. What might be the role of a coach or mentor in terms of a teacher evaluation system? What might be the role of professional development?
Coaches and mentors play a crucial role in teacher evaluation systems by providing personalized support and feedback. They help teachers by modeling effective practices, offering guidance, and facilitating collaboration among peers (Darling-Hammond et al., 2012). Professional development is also essential as it offers teachers opportunities to enhance their skills, adapt to new educational strategies, and implement improvements based on evaluation feedback. Ongoing professional learning supports continuous growth and helps teachers refine their practices to better meet their students' needs (Darling-Hammond et al., 2012).
References
Darling-Hammond, L., Amrein-Beardsley, A., Haertel, E., & Rothstein, J. (2012). Evaluating teacher evaluation. Phi Delta Kappan, 93(6), 8-15. http://dx.doi.org/10.1177/003172171209300603Links to an external site.
Underwood, J., & Mead, J. F. (2012). A smart ALEC threatens public education. Phi Delta Kappan, 93(6), 51–55. https://doi.org/10.1177/003172171209300612Links to an external site.
