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ASSUMPTIONS
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1) Our company works following the "Just-In-Time" method; therefore our inventories are low during the course of all the year and our desired ending inventory of finished goods is just the 20% of the next month's budgeted sales. For what regards raw materials inventory, our desired ending inventory is 25% of the following month production needs.
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2) The purchase price of direct matererials does not include VAT
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3) We decided to sell our products at higher prices than our competitors since we sell high quality products
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4) Some manufacturing overhead costs, such as the purchase of lubricant or utilities are subjected to VAT (100% of variable mfg ovh and 20% of fived mfg ovh). The same thing goes for selling and administrative costs (30% of s&a costs): payment to professionals, advertising and office supplies purchases are costs subjected to VAT
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5) We adopted a straight-line amortization plan of ten years for our equipment, starting from the year 2020
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6) In order to allocate manufacturing overhead to our products, we have chosen direct labor hours as allocation base
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7) Since our company is based in Italy, we consider direct labor as a fixed cost
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8) During the month of August we have a lower production capacity, therefore we also face a decrease in sales
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9) The firm has a small dimension and low volumes but it's currently in its lifecycle's growing phase, so we expect higher production and sales volumes in the future. This is why the 2021 forecasted sales are higher than the previous year
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10) We used the absorption costing method to find the unit product cost
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11) We have chosen to use the traditional format of the income statement
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12) We pay VAT monthly since our amount of taxable activity per annum is greater than € 700.000. On 16 December we paid the November VAT, and on 27 December we paid a VAT account of 88%. In January of the folllowing year we have a debt for VAT of 12% of December's due VAT
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13) We assume that every table is sold with approximtely four chairs (on average)
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14) We have computed the inventories value using the production cost
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