25 Jul Travel Space Trailers Budgeting Case Attached is the case info, the excel spreadsheet with the instructions on a word document in order to complete the case. Please use word and/
Need help with budgeting case analysis. Attached is the case info, the excel spreadsheet with the instructions on a word document in order to complete the case. Please use word and/or excel to complete the needs of the case.
See attachments.
Travel Space Trailers Budgeting Case
1. Read the case
2. Use the exhibits in the Excel file to prepare a six-month budget. Use the blanks tab in the Excel file to prepare:
a. Sales budget
b. Production budget (note: ending inventory should be 300 units + 20% of next month’s sales)
c. Purchases budget
d. Cash budget (note the collections pattern for sales is provided and accounts payable is paid the following month Exhibit 7 provides beginning accounts payable balances). The company wants to maintain a $100,000 cash balance, so you may need to borrow to maintain the desired balance.
3. Based on the descriptions of the budgeting process for Travel-Space Trailers, recommend ways in which the budgeting process could be improved.
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EXHIBITS
| ORIGINAL CASE FACTS | ||||||||||||||||||||
| Do not make changes to these numbers | ||||||||||||||||||||
| EXHIBIT 1. | EXHIBIT 6. | EXHIBIT 9. | ||||||||||||||||||
| ACTUAL AND PROJECTED SALES IN NUMBER OF TRAILERS | BUDGETED EXPENSES FOR THE FIRST SIX MONTHS 2021 | ACTUAL 2020 AND PROJECTED 2021 SALES | ||||||||||||||||||
| Actual Sales | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | January | February | March | 2020 | 2021 | |||||||||
| 13,765 | 14,880 | 15,991 | 17,809 | 19,634 | 23,322 | Aluminum | $ 816,000 | $ 1,056,000 | $ 888,000 | Actual | Projected | |||||||||
| Other materials | 54,000 | 264,000 | 222,000 | January | 1,983 | 2,500 | ||||||||||||||
| Projected Sales | 2021 | 2022 | 2023 | 2024 | 2025 | Wages | 624,000 | 1,008,000 | 1,104,000 | February | 3,218 | 4,000 | ||||||||
| 28,000 | 33,600 | 40,320 | 48,384 | 58,060 | Heat, light, & power | 130,000 | 195,000 | 220,000 | March | 3,981 | 5,000 | |||||||||
| Equipment rental | 390,000 | 390,000 | 390,000 | April | 3,240 | 3,000 | ||||||||||||||
| Equipment purchases | 300,000 | 300,000 | 300,000 | May | 1,755 | 2,000 | ||||||||||||||
| EXHIBIT 2. | Depreciation | 250,000 | 250,000 | 250,000 | June | 901 | 1,000 | |||||||||||||
| FINISHED GOODS INVENTORY | Selling & admin | 400,000 | 400,000 | 400,000 | July | 763 | 1,000 | |||||||||||||
| Budget: December 31, 2020 | 1,000 | trailers | August | 611 | 1,000 | |||||||||||||||
| April | May | June | September | 1,622 | 2,000 | |||||||||||||||
| Current finished goods | 300 | trailers *plus* | Aluminum | $ 552,000 | $ 336,000 | $ 240,000 | October | 1,678 | 2,000 | |||||||||||
| inventory formula | + | 20% | of the next month's sales | Other materials | 138,000 | 84,000 | 90,000 | November | 1,439 | 2,000 | ||||||||||
| Wages | 672,000 | 432,000 | 240,000 | December | 2,131 | 2,500 | ||||||||||||||
| Heat, light, & power | 135,000 | 110,000 | 110,000 | Total Trailers | 23,322 | 28,000 | ||||||||||||||
| EXHIBIT 3. | Equipment rental | 340,000 | 340,000 | 340,000 | ||||||||||||||||
| SHEET ALUMINUM | Equipment purchases | 300,000 | 300,000 | 300,000 | ||||||||||||||||
| Trailer requirements | 30.0 | square yards | Depreciation | 275,000 | 275,000 | 275,000 | EXHIBIT 10. | |||||||||||||
| Selling & admin | 400,000 | 400,000 | 400,000 | ACTUAL AND BUDGETED SALES | ||||||||||||||||
| Cost per square yard in the Spring | $ 15.00 | November 2020 (actual) | $ 1,439,000 | |||||||||||||||||
| Cost per square yard in December/January | $ 8.00 | December 2020 (actual) | $ 2,131,000 | |||||||||||||||||
| EXHIBIT 7. | January 2021 (budgeted) | $ 2,500,000 | ||||||||||||||||||
| ACCOUNTS PAYABLE FOR ALUMINUM AND OTHER MATERIALS | February 2021 (budgeted) | $ 4,000,000 | ||||||||||||||||||
| EXHIBIT 4. | PURCHASED DURING DECEMBER 2020 | March 2021 (budgeted) | $ 5,000,000 | |||||||||||||||||
| SHEET ALUMINUM BUDGETED COST | A/P: Aluminum | $ 700,000 | April 2021 (budgeted) | $ 3,000,000 | ||||||||||||||||
| $ 8.00 | cost per square yard | A/P: Other materials | $ 150,000 | May 2021 (budgeted) | $ 2,200,000 | |||||||||||||||
| June 2021 (budgeted) | $ 1,100,000 | |||||||||||||||||||
| EXHIBIT 5. | EXHIBIT 8. | EXHIBIT 11. | ||||||||||||||||||
| RAW MATERIALS INVENTORY | BANK LOAN DETAILS / MINIMUM CASH BALANCE REQUIRED | ACCOUNTS RECEIVABLE COLLECTION SCHEDULE | ||||||||||||||||||
| Sheet aluminum on hand | 50.0% | of the following month's | Requested loan amount | $ 800,000 | Of a month's sales collected in: | |||||||||||||||
| at the end of each month | production needs | Loan duration (in days) | 90 | Month of sale | 25% | |||||||||||||||
| Month following sale | 10% | |||||||||||||||||||
| Raw materials inventory budget | 39,000 | square yards | Mininum cash balance required by directors | $ 100,000 | Second month following sale | 60% | ||||||||||||||
| December 31, 2020 | – The remainder is uncollectible – | |||||||||||||||||||
| EXHIBIT 12. | ||||||||||||||||||||
| SUGGESTED CONSTANT PRODUCTION LEVELS | ||||||||||||||||||||
| First suggested level | 3,000 | |||||||||||||||||||
| Second suggested level | 3,500 |
Budget
| PRODUCTION BUDGET | Steps/Hints | ||||||||
| Feb | March | April | May | June | Six Months | 1. Use sales from Exhibit 9 (units) and Sales dollars – Exhibit 10 | |||
| Budgeted sales | 2. Use desired inventory from Exhibit 2 | ||||||||
| Add: desired ending inventory | 3. Beginning inventory is given in Exhibit 2, and beginning inventory = prior month ending inventory | ||||||||
| Total needs | 4. Sheet metal required is Exhibit 3 and cost is provided in Exhibit 4 | ||||||||
| Less: beginning inventory | 5. Ending iinventory for raw materials provided in Exhibit 5 | ||||||||
| Trailer production | 6. Collections pattern is provided in Exhibit 11 | ||||||||
| 7. Expenses are provided in Exhibit 6 and Exhibit 7 provides payment information on accounts payable (materials purchases) | |||||||||
| PURCHASES BUDGET | 8. Borrowing and minimum cash balance provided in Exhibit 8. Balance at beginning of year is at minimum | ||||||||
| Jan | Feb | March | April | May | June | Six Months | |||
| Trailer production | |||||||||
| Sheet metal needs per trailer | |||||||||
| Total production needs | |||||||||
| Add: desired ending inventory | |||||||||
| Total materials needs | |||||||||
| Less: beginning inventory | |||||||||
| Total sheet metal purchases | |||||||||
| Cost per square yard | |||||||||
| Total cost | |||||||||
| CASH BUDGET | |||||||||
| Jan | Feb | March | April | May | June | Six Months | |||
| Cash beginning balance | |||||||||
| Add: cash collections | |||||||||
| Month of sale | |||||||||
| Month following sale | |||||||||
| Second month following sale | |||||||||
| Total cash collections | |||||||||
| Total cash available | |||||||||
| Less: cash disbursements | |||||||||
| Aluminum | $ – 0 | ||||||||
| Other materials | |||||||||
| Wages | |||||||||
| Heat, light, & power | |||||||||
| Equipment rental | |||||||||
| Equipment purchases | |||||||||
| Selling & admin | |||||||||
| Total cash disbursements | |||||||||
| Excess (deficiency) | |||||||||
| Financing: | |||||||||
| Borrowings: Original | |||||||||
| Borrowings: Additional | |||||||||
| Repayments | |||||||||
| Interest | |||||||||
| To be invested (excess) | |||||||||
| Total financing | $ – 0 | ||||||||
| Cash balance ending | $ – 0 | ||||||||
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INTRODUCTION The year is 2021. Travel-Space Trailers manufactures teardrop-style travel trailers bought primarily by young families and retirees interested in a light, low-cost trailer that can easily be pulled by a mid- sized family car. The market for travel trailers has expanded nicely over the past few years because of the number of families seeking a relatively low-cost, outdoor vacation experience. Due to the COVID-19 virus, sales of travel trailers “exploded” in 2020 with dealership sales as much as 170% higher than the prior year. But in the view of Travel-Space Trailers’ president, Shane Moynihan, the real growth in the future is the retiree market.
Shane, the second president of Travel-Space Trailers, took over leadership of the family business from his father Paul Moynihan, who retired six years ago and owns the company. Paul prefers to take a hands-off approach in his role as owner, as he trusts his son Shane to handle the business. Shane grew up hanging out at the factory and worked several different jobs. He also worked for Travel-Space Trailers every summer during college. He was a mediocre student at Central State University (CSU), where he earned a bachelor’s degree in management.
Shane believes that the vigorous health of the average retiree, coupled with the national trend toward a return to nature, will translate into continuing sales growth for Travel-Space Trailers. As Shane loves to say, “Camping recently moved from number seven to number six on the list of top 10 leisure activities in the United States, and the retiree market continues growing every day.”
THE RETIREE MARKET The retiree market carries a lot of consumer clout, and the spending power of this demographic is likely to increase. People who are 50 years old and older are expected to inherit an estimated $14 to $20 trillion dollars during the next 20 years. Retirees also make up a significant part of the total U.S. population. According to the U.S. Census Bureau, in 2017 retirees represented 47.8 million individuals and 14.9% of the populace. Florida has the highest percentage of senior citizens, but California has the greatest number of people who are 65 years of age and older, followed by Florida, New York, Pennsylvania, and Texas.
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Travel-Space Trailers: A Budgeting Experience
Nicholas J. Fessler Gordon Ford College of Business Western Kentucky University
Christine A. Denison Debbie and Jerry Ivy College of Business Iowa State University
ISSN 1940-204X
Research indicates that for an organization to meet the needs of the senior market, the following must be addressed:
1. Independence and control, 2. Intellectual stimulation and self-expression, 3. Security and peace of mind, and 4. Quality and value.
Seniors respond to benefit-driven messages; to attract them, advertising must communicate tangible benefits rather than features and amenities.
COMPETITION All forms of vacation and leisure activities, including theme parks, beach or cabin rentals, health spas, resorts, and cruise vacations, compete with Travel-Space Trailers for the consumer dollar. Other recreational purchases, such as automobiles, snowmobiles, boats, and jet-skis, are indirect competitors.
Travel trailer manufacturers such as Crossroads RV, Jayco, Coachman RV, and Camp also offer moderate-to-low-priced travel trailers. Manufacturers that offer more diverse product lines, such as high-end trailers with luxury accommodations, could compete for the affluent senior market.
Coachman RV, a direct Travel-Space Trailers competitor, has become a leader in the recreational vehicle, motor home, and travel trailer industry through a commitment to quality and value based on excellence in engineering and attention to detail. Creative engineering, combined with high-accuracy analysis, reduced material costs at Coachman RV by more than 60% and labor costs by 78%.
THE SALES FORECAST The forecasted increase in Travel-Space Trailers unit sales can be seen in the company’s sales projections. Exhibit 1 shows actual sales for the years 2015 through 2020 and projected sales for the years 2021 through 2025.1
Although weather, such as hurricanes, flooding, and droughts, can have a significant effect on the travel trailer industry), Travel-Space Trailers’ management believes these problems will be mitigated in the future by global warming. All sales projections are made by Shane as Travel-Space Trailers’ president.
FORECASTED INVENTORY LEVELS A love of travel can sometimes lead to love in real life. Nichole Volante’s love of the outdoors led her to a job as the administrative assistant for Shane. Two years later, the two were married. Despite Nichole’s lack of business education, Shane saw in Nichole an outstanding aptitude for sales and leadership, and he quickly made her the vice president of marketing and sales.
Nichole was primarily concerned about maximizing sales volume. To keep from losing sales, Nichole directed the company to maintain finished goods inventory on hand at the end of each month equal to a specified percentage of the next month’s sale. Exhibit 2 shows the formula, and the budgeted finished goods inventory on December 31, 2020.
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1 Exhibits are included in the Excel file provided with the case.
Brent Sloan, Travel-Space Trailers’ production manager, disagrees with Nichole and is always trying to get her to consider adopting flexible inventory levels. Brent, a grizzled veteran, has been a production manager for more than 20 years in three different industries. Nichole refuses to talk to Brent, as she is certain his suggestion would negatively affect her yearly bonus of up to 20% based on sales. Nichole received the entire 20% in 2020 as sales were up. Adding fuel to the proverbial fire, Shane refused to give Brent his bonus due to the high number of customer complaints about product quality, even though Brent felt it was earned because actual trailer production met or exceeded the budgeted production amount for the year, which was supposed to be the criteria for earning his bonus. Brent has started browsing employment websites.
MATERIALS PURCHASES Sheet aluminum represents the company’s single most expensive raw material. Exhibit 3 shows the specific amount of aluminum required for each trailer and costs per square yard. The wholesale cost of sheet aluminum varies dramatically according to the time of year. The cost per square yard can vary from season to season, as new construction tends to start in the spring, and in December and January, travel and, therefore, demand is lowest (see Exhibit 3).
The use of aluminum in vehicles, including travel trailers, is increasing rapidly due to a heightened need for fuel-efficient, environmentally friendly vehicles. Aluminum can provide a weight savings of up to 55% compared to an equivalent steel structure, improving gas mileage significantly. The aluminum industry and suppliers are dispersed across 80% of the country, yet they are largely concentrated in four regions: the Pacific Northwest, the industrial Midwest, the Northeastern Seaboard, and the mid-South. Although this is a broad geographic presence, Travel-Space Trailers will be affected by distribution costs.
Jazmine Caple is Travel-Space Trailers’ recently hired vice president of purchasing and materials handling. Jazmine is eager to implement a just-in-time (JIT) inventory system as a way of lowering Travel-Space Trailers’ aluminum cost. To offset the expense of distribution, Travel-Space Trailers is in Pennsylvania. Shane told Jazmine when she was hired that she would receive a bonus based on her ability to lower total material cost. Assuming the success of Jazmine’s efforts, Shane has instructed the Accounting department to budget aluminum for a specific dollar amount per square yard (see Exhibit 4).
Initially enthusiastic about her job and ability to earn a significant bonus, Jazmine has since become discouraged and angry. She is unable to convince Travel-Space Trailers’ current aluminum suppliers to sign a prime vendor contract, and her efforts to locate an alternative vendor willing to accept the conditions of a JIT contract have similarly failed. She blames Brent. Travel-Space Trailers’ current aluminum vendor refuses to sign a JIT prime vendor contract due to Brent’s uneven production schedule.
But Jazmine is also frustrated with the Accounting department, which does not seem to be able to consistently pay vendors in a timely manner, and potential vendors are aware of this reputation. Jazmine’s frustrations are giving her second thoughts about having accepted what once appeared to be an exciting employment opportunity.
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In keeping with the policy set by Brent, the amount of aluminum on hand at the end of each month must be equal to a specific percentage of the following month’s production needs for sheet aluminum (see Exhibit 5). The budgeted amount of raw materials inventory on December 31, 2020, appears in Exhibit 5. The company does not keep track of work-in-process inventories.
Budgeted expenses for aluminum and other materials, as well as wages, heat, light and power, equipment rental, equipment purchases, depreciation, and selling and administrative for the first six months of 2021 are provided in Exhibit 6.
Accounts for aluminum and other materials are paid in full the month following their purchase. Accounts payable for aluminum and other materials purchased during December 2020 are described in Exhibit 7. These amounts will be paid in January 2021.
BUDGET PREPARATION To minimize company time lost on clerical work, Travel-Space Trailers’ Accounting department prepares and distributes all budgets to the various departments every six months. Shane said, “Freeing departmental managers from the budgeting process allows them to concentrate on more pressing matters.” The accounting manager, Paola Rodriguez, recently received a 20% bonus for having prepared the budgets on time with little or no help from the other functional areas. Paola played competitive golf during college and is known around the company for her “golf mornings,” when she arrives at the office late due to her need to practice and keep her game sharp.
Careful analysis of the budget that Paola prepared will reveal that she increased the average budgeted selling price per trailer in May; she wonders if any of her colleagues will notice. Paola is also responsible for the other accounting activities of Travel-Space Trailers, including accounts payable and accounts receivable.
CASH Travel-Space Trailers’ vice president of finance is Trey Jernigan, a fraternity brother of Shane’s while at CSU. Trey has requested a short-term loan from the bank at a yet-to-be-determined interest rate (see Exhibit 8). Since Travel-Space Trailers has had trouble paying off its loans in the past, the loan officer at the bank has asked the company to prepare a cash budget for the six months ending June 30, 2021, to support the requested loan amount. The cash balance on January 1, 2021, is budgeted at the minimum cash balance required by Travel-Space Trailers’ board of directors (see Exhibit 8).
HUMAN RESOURCES To accomplish the company’s corporate strategic goals, Travel-Space Trailers encourages upward communication among all its employees, from senior management to line employees. Decision making, although not an entirely democratic process, is based on a team approach. As Travel-Space Trailers’ president, Shane encourages managers to think in terms of the marketplace and to look at the business of travel trailers as a whole rather than as functional department successes and decisions. In fact, Shane is so committed to the idea of cooperative management and teamwork that he has hired three separate human resource consultants in the past six months to lead the company’s managers through team-building exercises.
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ADDITIONAL INFORMATION Unit sales for 2020 (actual) and 2021 (projected) by month are in Exhibit 9.
Actual sales in dollars for the last two months of 2020 and budgeted sales in dollars for the first six months of 2021 are in EXHIBIT 10. Experience shows the pattern of sales collection (see Exhibit 11).
Shane plans to replace all rented equipment with owned equipment over the next three years. Equipment rental expense dropped from March to April due to the acquisition of owned equipment and the fact that equipment rental agreements are adjusted quarterly. The replacement of rental with owned equipment will also increase depreciation expense on the income statement starting in April.
Yun Li, an intern newly hired by Travel-Space Trailers, suggests preparing the production budget assuming stable production (see Exhibit 12).
YOUR ROLE Owner Paul is aware that Travel-Space Trailers is experiencing difficulties, and he has hired you, an independent consultant, to investigate. Write a letter to Paul explaining your recommendations. Paul is not likely to respond to lots of raw numbers, so develop and include in your letter data visualizations that will convince him to intervene and make the changes that you recommend.
EXHIBITS If your instructor has provided you with alternative data values, be sure to use the alternative data.
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Actual Sales 2015 2016 2017 2018 2019 2020
13,765 14,880 15,991 17,809 19,634 23,322
Projected Sales 2021 2022 2023 2024 2025
28,000 33,600 40,320 48,384 58,060
EXHIBIT 1. ACTUAL AND PROJECTED SALES IN NUMBER OF TRAILERS
Budget: December 31, 2020 1,000 trailers
Current finished goods 300 trailers *plus*
Inventory formula + 20% of the next month's sales
EXHIBIT 2. FINISHED GOODS INVENTORY
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$8.00 cost per square yard
EXHIBIT 4. SHEET ALUMINUM BUDGETED COST
Sheet aluminum on hand at the end of each month 50.0% of the following month's production needs
Raw materials inventory budget December 31, 2020 39,000 square yards
EXHIBIT 5. RAW MATERIALS INVENTORY
January February March
Aluminum $816,000 $1,056,000 $888,000
Other materials 54,000 264,000 222,000
Wages 624,000 1,008,000 1,104,000
Heat, light, & power 130,000 195,000 220,000
Equipment rental 390,000 390,000 390,000
Equipment purchases 300,000 300,000 300,000
Depreciation 250,000 250,000 250,000
Selling & admin 400,000 400,000 400,000
April May June
Aluminum $552,000 $336,000 $240,000
Other materials 138,000 84,000 90,000
Wages 672,000 432,000 240,000
Heat, light, & power 135,000 110,000 110,000
Equipment rental 340,000 340,000 340,000
Equipment purchases 300,000 300,000 300,000
Depreciation 275,000 275,000 275,000
Selling & admin 400,000 400,000 400,000
EXHIBIT 6. BUDGETED EXPENSES FOR THE FIRST SIX MONTHS 2021
Trailer requirements 30.0 square yards
Cost per square yard in the Spring Current finished goods $15.00
Cost per square yard in December/January $8.00
EXHIBIT 3. SHEET ALUMINUM V
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