Concept explainers
Master Budgeting
Endless Mountain Company manufactures a single product that is popular with outdoor recreation enthusiasts. The company sells its product to retailers throughout the northeastern quadrant of the United States. It is in the process of creating a
The company's chief financial officer (CFO), in consultation with various managers across the organization has developed the following set of assumptions to help create the 2017 budget:
- The budgeted unit sales are 12,000 units, 37,000 units. 15,000 units, and 25,000 units for quarters 1-4, respectively. Notice that the company experiences peak sales in the second and fourth quarters. The budgeted selling price for the year is $32 per unit. The budgeted unit sales for the first quarter of 2018 is 13,000 units.
- All sales are on credit. Uncollectible accounts are negligible and can be ignored. Seventy-five percent of all credit sales are collected in the quarter of the sale and 25% are collected in the subsequent quarter.
- Each quarter's ending finished goods inventory should equal 15% of the next quarter's unit sales.
- Each unit of finished goods requires 3.5 yards of raw material that costs $3.00 per yard. Each quarter's ending raw materials inventory should equal 10% of the next quarter's production needs. The estimated ending raw materials inventory on December 31, 2017, is 5,000 yards.
- Seventy percent of each quarter's purchases are paid for in the quarter of purchase, The remaining 30% of each quarter's purchases are paid in the following quarter.
- Direct laborers are paid $18 an hour and each unit of finished goods requires 0.25 direct labor-hours to complete. All direct labor costs are paid in the quarter incurred.
- The budgeted variable manufacturing
overhead per direct labor-hour is $3.00. The quarterly fixed manufacturing overhead is $150.000 including $20,000 of depreciation on equipment. The number of direct labor-hours is used as the allocation base for the budgeted plantwide overhead rate. All overhead costs (excluding depreciation) are paid in the quarter incurred. - The budgeted variable selling and administrative expense is $1.25 per unit sold. The fixed selling and administrative expenses per quarter include advertising ($25.000). executive salaries ($64,000). insurance ($12,000). property tax ($8,000). and depreciation expense ($8.000). All selling and administrative expenses (excluding depreciation) are paid in the quarter incurred.
- The company plans to maintain a minimum cash balance at the end of each quarter of $30,000. Assume that any borrowings take place on the first day of the quarter. To the extent possible, the company will repay principal and interest on any borrowings on the last day of the fourth quarter. The company's lender imposes a simple interest rate of 3% per quarter on any borrowings.
- Dividends of $15,000 will be declared and paid in each quarter.
- The company uses a last-in, first-out (LIFO) inventory flow assumption, This means that the most recently purchased raw materials are the "first-out" to production and the most recently completed finished goods are the '"first-out" to customers.
Required:
The company's CFO has asked you to use Microsoft Excel to prepare the 2017 master budget. Your Excel file should include a tab that contains the December 31, 2016, balance sheet, a tab that summarizes the budgeting assumptions, and tabs corresponding to the following budget schedules and financial statements:
- Quarterly sales budget including a schedule of expected cash collections.
- Quarterly production budget.
- Quarterly direct materials budget including a schedule of expected cash disbursements for purchases of materials.
- Quarterly direct labor budget.
- Quarterly manufacturing overhead budget.
- Ending finished goods inventory budget at December 31.2017.
- Quarterly selling and administrative expense budget.
- Quarterly
cash budget . - Income statement for the year ended December 31, 2017.
- Balance sheet at December 31, 2017.
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Chapter IE Solutions
Introduction To Managerial Accounting
- Budgeted income statement and supporting budgets The budget director of Gold Medal Athletic Co., with the assistance of the controller, treasurer, production manager, and sales manager, has gathered the following data for use in developing the budgeted income statement for March: Estimated sales for March: Estimated inventories at March 1: Desired inventories at March 31: Direct materials used in production: Anticipated cost of purchases and beginning and ending inventory of direct materials: Direct labor requirements: Estimated factory overhead costs for March: Estimated operating expenses for March: Estimated other revenue and expense for March: Estimated tax rate: 30% Instructions Prepare a sales budget for March. Prepare a production budget for March. Prepare a direct materials purchases budget for March. Prepare a direct labor cost budget for March. Prepare a factory overhead cost budget for March. Prepare a cost of goods sold budget for March. Work in process at the beginning of March is estimated to be 15,300, and work in process at the end of March is desired to be 14,800. Prepare a selling and administrative expenses budget for March. Prepare a budgeted income statement for March.arrow_forwardBudgeted income statement and supporting budgets The budget director of Birding Homes Feeders Inc., with the assistance of the controller, treasurer, production manager, and sales manager, has gathered the following data for use in developing the budgeted income statement for January: Estimated sales for January: Estimated inventories at January 1: Desired inventories at January 31: Direct materials used in production: Anticipated cost of purchases and beginning and ending inventory of direct materials: Direct labor requirements: Estimated factory overhead costs for January: Estimated operating expenses for January: Estimated other revenue and expense for January: Estimated tax rate: 25% Instructions Prepare a sales budget for January. Prepare a production budget for January. Prepare a direct materials purchases budget for January. Prepare a direct labor cost budget for January. Prepare a factory overhead cost budget for January. Prepare a cost of goods sold budget for January. Work in process at the beginning of January is estimated to be 9,000, and work in process at the end of January is estimated to be 10,500. Prepare a selling and administrative expenses budget for January. Prepare a budgeted income statement for January.arrow_forwardCompleting a comprehensive budgeting problem—merchandising Company Alliance Printing Supply of Baltimore has applied for a loan. Its bank has requested a budgeted income statement for April 2018 and a balance sheet at April 30, 2018. The March 31, 2018, balance sheet follows: As Alliance Printing Supply’s controller, you have assembled the following additional information: April dividends of $7,000 were declared and paid. April capital expenditures of $16,300 budgeted for cash purchase of equipment. April depreciation expense, $1,000. Cost of goods sold, 40% of sales. Desired ending inventory for April is $22,400. April selling and administrative expenses include salaries of $37,000, 30% of which will be paid in cash and the remainder paid next month. Additional April selling and administrative expenses also include miscellaneous expenses of 10% of sales, all paid in April. April budgeted sales, $89,000, 80% collected in April and 20°/0 in May. April cash payments of March 31…arrow_forward
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