Question

Works Accessories assembles a computer networking device from kits of imported components. You have been asked to develop a quarterly and annual operating budget and pro- forma income statements for 2016. You have obtained the following information:

Beginning-of-year balances

Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	$40,000.00
Accounts receivable (previous quarter’s sales) . . . . . . . . . . .	$15,000.00
Raw materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	300 kits
Finished goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	400 units
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	$40,000.00
Borrowed funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	$10,000.00
Desired end-of-year inventory balances
Raw materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	500 kits
Finished goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	200 units

Desired end-of-quarter balances

Standard cost per unit      Raw materials. . . . . . . . . . . . . . . . . . . . . . . . . .	Units 1 kit	Unit price     $40.00	Total $40.00
Direct labor hours at rate. . . . . . . . . . . . . . . . . . . . . . . . . . .	0.8 hour	$20.00	16.00
Variable overhead/labor hour . . . . . . . . . . . . . . . . . . . . . . .	0.8 hour	$10.00	8.00
Total standard variable cost . . . . . . . . . . . . . . . . . . . . . . .			$64.00

Fixed cost per quarter

Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .             $40,000.00

Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .              10,000.00

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .            $50,000.00

Selling and administrative costs

Variable cost per unit. . . . . . . . . . . . . . . . . . . . . . .. . . . . . .

Fixed costs per quarter:

$6.00

Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $20,000.00

Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   5,000.00

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $25,000.00

Interest rate per quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	0.04
Portion of sales collected
Quarter of sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	0.75
Subsequent quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	0.24
Bad debts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	0.01
Portion of purchases paid
Quarter of purchase. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	0.7
Subsequent quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	0.3
Unit selling price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	$115.00

Sales Forecast

Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     First      Second       Third        Fourth

Unit sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .         2,400      1,500             2,000         3,100

Additional information

All cash payments except purchases are made quarterly as incurred.

All borrowings occur at the start of the quarter.

All repayments on borrowings occur at the end of the quarter.

All interest on borrowed funds is paid at the end of each quarter.

Borrowings and repayments may be made in any amount.

(a) A sales budget for each quarter and the year.

(b) A production budget for each quarter and the year.

c.   A purchases budget for each quarter and the year.

d.   A manufacturing cost budget for each quarter and the year.

e.   A selling and administrative expense budget for each quarter and the year.

f.    A cash budget for each quarter and the year.

g.   A pro-forma contribution income statement for each quarter and the year.

Answer 1

	Budget #1
	Work Accessories
	Sales Budget
	For the year ending December 31, 2016
		First	Second	Third	Fourth	Total
		Quarter	Quarter	Quarter	Quarter
	Units	2400	1500	2000	3100	9000
	Sales price($)	115	115	115	115	115
	Sales Budget	276000	172500	230000	356500	1035000
	Budget #2:
	Work Accessories
	Production Budget
	For the year ending December 31, 2016
		First	Second	Third	Fourth	Total
		Quarter	Quarter	Quarter	Quarter
	Sales units	2400	1500	2000	3100	9000
	Ending inventory of units	200	200	200	200	200
	Units required	2600	1700	2200	3300	9200
	Less: Beginning inventory	400	200	200	200	400
	Budgeted production in units	2200	1500	2000	3100	8800
	Budget #3:
	Work Accessories
	Purchase Budget
	For the year ending December 31, 2016
		First	Second	Third	Fourth	Total
		Quarter	Quarter	Quarter	Quarter
	Budgeted production in units	2200	1500	2000	3100	8800
	Desired ending inventory of kits	500	500	500	500	500
	Kits required	2700	3208	3916	4255	13260
	Less: Beginning inventory	300	515	633	751	653
	Budgeted production in units	2400	2693	3283	3504	12607
	Cost per kit	40	40	40	40	40
	Total purchase of kits in dollars	96000	107720	131320	140160	504280
	Budget #4:
	Work Accessories
	Manufacturing cost Budget
	For the year ending December 31, 2016
		First	Second	Third	Fourth	Total
		Quarter	Quarter	Quarter	Quarter
	Direct materials:
	Budgeted production units	2200	1500	2000	3100	8800
	Cost per kit	40	40	40	40	40
	Direct material cost	88000	60000	80000	124000	352000
	Direct labor:
	Budgeted production units	2200	1500	2000	3100	8800
	Budgeted labor cost per unit	16	16	16	16	16
	Direct labor cost	35200	24000	32000	49600	140800
	Variable manufacturing cost:
	Budgeted production units	2200	1500	2000	3100	8800
	Variable overhead cost per unit	8	8	8	8	8
	Total variable overhead cost	17600	12000	16000	24800	70400
	Fixed manufacturing overhead
	Cash	40000	40000	40000	40000	160000
	Depreciation	10000	10000	10000	10000	40000
	Total fixed manufacturing overhead	50000	50000	50000	50000	200000
	Total manufacturing overhead	67600	62000	66000	74800	270400
	Total manufacturing cost	190800	146000	178000	248400	763200
	Budget #5:
	Work Accessories
	Selling and administrative expenses budget
	For the year ending December 31, 2016
		First	Second	Third	Fourth	Total
		Quarter	Quarter	Quarter	Quarter
	Budgeted sales units from budget#1	2400	1500	2000	3100	9000
	Budgeted sales dollars from budget#1	276000	172500	230000	356500	1035000
	Variable selling and administration expenses:
	Bad debts (1% of sales dollars)	2760	1725	2300	3565	10350
	Variable cost (@$6 per unit of sales)	14400	9000	12000	18600	54000
	Total variable selling and administrative exp.	17160	10725	14300	22165	64350
	Fixed selling and administration expenses:
	Cash expenses	20000	20000	20000	20000	80000
	Depreciation	5000	5000	5000	5000	20000
	Total fixed selling and administrative exp.	25000	25000	25000	25000	100000
	Total selling and administrative expenses	42160	35725	39300	47165	164350