Question

1.Budgeted units to be sold for each quarter: 1000, 1200, 1500 and 2000 for the year 2018 and 2019. Assume that company policy requires 20% of the next quarter’s sales in ending inventory and that beginning inventory of t-shirts for the first quarter of the year was 180. The unit selling price of t-shirt is $10.

2. Budgeted units to be produced for each quarter: 1060, 1260, 1600, and 1800. Plain t- shirts cost $3 each, and ink costs $0.20 per ounce. On a per-unit basis, the factory needs one plane t-shirt and five ounces of ink for each logoed t-shirt that the company produces. Lion Inc. is to have 10% of the following quarter’s production needs in ending inventory. The factory has 58 plain t-shirts and 390 ounces of ink on hand on January 1. At the end of the year, the desired ending inventory is 106 plain t- shirts and 530 ounces of ink.

3. Budgeted units to be produced for each quarter are: 1060, 1260, 1600, and 1800. It takes 0.12 hour to produce one t-shirt. The average wage cost per hour is $10.

4. Refer to the direct labor budget. The predetermined overhead rate for variable overhead is $ 5 per direct labor hour. Fixed overhead is budgeted at $1,645 per quarter (this amount include $540 per quarter for depreciation among others). There is no noncash expense items other than depreciation expense.

5. For SG&A expenses: Variable SG&A costs are $0.10 per unit sold. As for fixed SG&A costs, salaries average $1420 per quarter; utilities, $50 per quarter; and depreciation, $150 per quarter. Advertising for quarters 1 through 4 is $100, 200, 800 and 500, respectively. There is no noncash expense items other than depreciation expense. Prepare SG&A Expense Budget.

6. Lion Inc. has provided the following information for preparing a cash budget:

Expected cash balance on 1/1/2018 = $40,000

Information on cash receipts:
(1) From past experience, Lion Inc. expects that, on average, 25% of total sales are cash and 75% of total sales are on credit. Of the credit sales, the company expects that 90% will be paid in cash during the quarter of sale, and the remaining 10% will be paid in the following quarter. Budgeted units to be sold for each quarter: 1000, 1200, 1500 and 2000.
The balance in A/R as of the last quarter of 2017 was $1350. This will be collected in cash during the first quarter of 2018.

a. Calculate cash sales expected in each quarter

b. Prepare a schedule showing cash receipts from sales expected in each quarter of 2018.

(2) In the 1st quarter of 2018, Lion Inc. expects to sell marketable securities that are valued at $5,000.

Information on cash disbursements:
(3) Direct materials are all purchased on credit. Lion Inc. usually pays 80% of its purchases in the same quarter as the purchase and the rest is paid in the following quarter. The company expects to have an accounts payable balance of $1,000 on December 31, 2017; and all outstanding payables are expected to be paid in the first quarter of 2018. Prepare cash disbursement on A/P budget.
(4) All employees – direct laborers, supervisors, S&A staff – are all paid in the quarter in which their services are used.
(5) Overhead costs and S&A expenses are paid in the quarter in which they are incurred.
(6) On April 1, 2018, the company plans to spend $30,000 to buy a high-end knitting machine, which has a 10-year useful life.

Information on financing:
(7) The company plans to borrow $30,000 from the local bank at an annual interest rate of 12%

to fund the purchase of the high-end kitting machine at the beginning of the second quarter. Principal will be due in 1 year and interest will be due every quarter. The company does not expect to issue stock or pay any dividends in 2018. Also, as of 12/31/2018, the company does not have any debt on its balance sheet. The company wants to maintain a minimum cash balance of $15,000.

7. Budgeted Income Statement: The Company calculates the predetermined overhead rate every year using direct labor hours as a cost driver (Round to the nearest cent). Also, when calculating the unit product cost, make sure to include two direct material components (t-shirt and ink).
Put together your master budget for 2018 in the following order:

1. Sales Budget
2. Schedule of Cash Collection
3. Production Budget
3. Direct materials purchase Budget

- one for T-shirt

- one for Ink
4. Schedule of Cash Disbursement

5. Direct Labor Budget
6. Manufacturing Overhead Budget

7. SG&A Budget
8. Cash Budget
9. Budgeted Income Statement.

Answer 1

Sales Budget:

Particular	Quarter1	Quarter2	Quarter3	Quarter4
Sales (in units)	1000	1200	1500	2000
Sales value ($10 per unit)	10000	12000	15000	20000

Production Budget:

Particular	Q1	Q2	Q3	Q4
No. of Units Produced	1060	1260	1600	1800
Cost of Plain T-shirt ($3 per t-shirt) (a)	3180	3780	4800	5400
Cost of Ink used (5 ounce per t-shirt @ $0.2 per ounce) (b)	1060	1260	1600	1800
Variable overhead ($5 per hour) (c) { refer direct labour budget}	636	756	960	1080
Total variable cost of production (a+b+c)	4876	5796	7360	8280

Direct Labour Budget:

Particular	Q1	Q2	Q3	Q4
Units to be Produced	1060	1260	1600	1800
No. of hours required (0.12 hrs.per unit)	127.2	151.2	192	216
Cost of direct labor ($10 per hour)	1272	1512	1920	2160

SG&A Budget:

Particular	Q1	Q2	Q3	Q4
No. of units sold	1000	1200	1500	2000
Variable cost ($0.1 per unit sold)	100	120	150	200
Salaries	1420	1420	1420	1420
Utilities	50	50	50	50
Depreciation	150	150	150	150
Advertising	100	200	800	500
Total Cost	1820	1940	2570	2320

Cash Budget:

Particular	Q1	Q2	Q3	Q4
Opening Cash	40000	46323.4	47071.2	48322
Cash Sales (25% of sales)	2500	3000	3750	5000
Credit Sale (recepit 90% of current quarter)	6750	8100	10125	13500
Credit Sale (receipt 10% of prior quarter)	1350	750	900	1125
Sale of marketable securities	5000
Less: cash outflow
Direct Material (80% of Current quarter purchase)	3593.6	4140.8	5184	5523.2
Direct Material (20% of previous quarter)	1000	898.4	1035.2	1296
Direct labour	1272	1512	1920	2160
SG&A salary	1420	1420	1420	1420
Utilities	50	50	50	50
Advertisement	100	200	800	500
Fixed overhead	1105	1105	1105	1105
Variable cost SG&A	100	120	150	200
Variable overhead	636	756	960	1080
Interest	0	900	900	900
Closing Cash	46323.4	47071.2	48322	53712.8

Direct Material Purchase Budget:

T-Shirt:

Particular	Q1	Q2	Q3	Q4
Unit required for production (a)	1060	1260	1600	1800
opening Stock (b)	58	126	160	180
Closing Stock (c)	126	160	180	106
Total units to be purchased (a+c-b)	1128	1294	1620	1726
Cost of Purchase ($3 per unit)	3384	3882	4860	5178

Ink:

Particular	Q1	Q2	Q3	Q4
Unit required for production {5 ounce per unit}(a)	5300	6300	8000	9000
opening Stock (b)	390	630	800	900
Closing Stock (c)	630	800	900	530
Total units to be purchased (a+c-b)	5540	6470	8100	8630
Cost of Purchase ($0.2 per ounce)	1108	1294	1620	1726