Question

Integration Exercise 9 Master Budgeting. LO 8-2, LO 8-3, LO 8-4, LO 8-5, LO 8-6, LO 8-7, LO8-9, LO 8-10

Endless Mountain Company manufactures a single product that is popular with recreation enthusiasts. The company sells its product to retailers throughout the quadrant of the United States. It is in the process of creating a master budget for reports a balance sheet as December 31, 2016 as follows:

	Endless Mountain Company
	Balance Sheet
	December 31, 2016
	Assets
Current Assets:
Cash	$46,200
Accounts receivable	260,000
Raw material inventory (4,500 yds)	11,250
Finished goods inventory (1,500 units)	32,250
Total current assets		$349,700
Plant and equipment:
Buildings and equipment	900,000
Accumulated deprectiation	(292,000)
Plant and equipment, net		608,000
Total assets		957,700
	Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable		$158,000
Stockholders' equity
Common stock	$419,800
Retained earnings	379,900
Total stockholders' equity		799,700
Total liabilities and stockholders equity		957,700

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:

1. 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 in 13,000 units.

2. 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.

3. Each quarter's ending finished goods inventory should equal 15% of the next quarter's unit sales.

4. 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 Decmeber 31, 2017, is 5,000 yards.

5. 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.

6. Direct laboreres 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.

7. The budgeted variable manufacturing overhead per direct labor-hour is $3.00. The quarterly fixed manufacturing overhad 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.

8. 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 depreciaition expense ($8,000). All selling and administrative expenses (excluding depreciation) are paid in the quarter incurred.

9. 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.

10. Dividends of $15,000 will be declared and paid in each quarter.

11. The company uses a last-in, first-out (LIFO) inventry flow assumption. This means that the most recenly purchased raw materials are the "first-out" to production and the most recently completed finished goods are "first-out" to customers.

Required:

7. Quarterly selling and administrative expense budget.

8. Quarterly cash budget.

9. Income statement for the year ended December 31, 2017.

10. Balance sheet at December 31, 2017.

Answer 1

Sales Budget
	Qtr 1	Qtr 2	Qtr3	Qtr 4	Year	Qtr 1
Sales in units A	12000	37000	15000.0	25000.0	89000	13000
Sale Price	32	32	32	32	32	32
Sales in value	384000	1184000	480000	800000	2848000	416000
Cash Receipts from Customer	Qtr 1	Qtr 2	Qtr3	Qtr 4	Year
Accounts Receivable	260000				260000
Qtr 1 sales	288000	96000			384000
Qtr 2 sales		888000	296000		1184000
Qtr 3 sales			360000	120000	480000
Qtr 4 sales				600000	600000
Total A	548000	984000	656000	720000	2908000
Accounts Receivable	200000
	Qtr 1	Qtr 2	Qtr3	Qtr 4	Year	Qtr 1
Finished Goods
Next month budgeted sales	37000	15000	25000	13000	89000	13000
Percentage of inventory to future sales	15%	15%	15%	15%	15%
BudgetdEnding Inventory (15% of next month sales)	5550	2250	3750	1950	1950
Add budgeted sales	12000	37000	15000	25000	89000
Required units to be produced	17550	39250	18750	26950	90950
Deduct beginning inventory (Previous month ending inventory)	1500	5550	2250	3750	1500
Units to be produced	16050	33700	16500	23200	89450
	Qtr 1	Qtr 2	Qtr3	Qtr 4	Year
Direct material Purchases Budget
Budgeted Production	16050	33700	16500	23200	89450
Material per components	3.5	3.5	3.5	3.5	3.5
Materai needed for production M	56175	117950	57750	81200	313075
Add: Desired ending Direct Material Inventory (10% of next month needs M)	11795	5775	8120	5000	5000
Totl Material requirement	67970	123725	65870	86200	318075
Less; beginning Raw material Inventory	4500	11795	5775	8120	4500
Material to be purchased	63470	111930	60095	78080	313575
Cost per pound	3	3	3	3	3
Total cost of diret Material Purchses A	190410	335790	180285	234240	940725
Budgeted cash payment for purchases	Qtr 1	Qtr 2	Qtr3	Qtr 4	Year
Cash Disbursement
Accounts Payable	158000				158000
Qtr 1 Purchases (70%, 30%)	133287	57123			190410
Qtr 3 Purchases		235053	100737		335790
Qtr 3 Purchases			126200	54086	180285
Qtr 4 Purchases				163968	163968
Total	291287	292176	226937	218054	1028453
Accounts payable	70272
Direct labor Budget	Qtr 1	Qtr 2	Qtr3	Qtr 4	Qtr
Units to be produced	16050	33700	16500	23200	89450
No. of hours	0.25	0.25	0.25	0.25	0.25
Total no. of hours	4013	8425	4125	5800	22362.5
Wage rate	$18	$18	$18	$18	$18
Total Direct labor cost	$72,225	$151,650	$74,250	$104,400	$402,525
Manufacturing overhead Budget
Direct Labor Hours	4013	8425	4125	5800	22362.5
Variable overhead rate	3.00	3.00	3.00	3.00	3.00
Total variable cost   `F	12038	25275	12375		67088
Fixed overhead
Fixed overhead excluding depreciation	$130,000	$130,000	$130,000	$130,000	$390,000
Total manufacturing overhead F+Z	$142,038	$155,275	$142,375	$130,000	$457,088
Selling and administrative Budget
No. of units sold	12000	37000	15000	25000	89000
Variable selling & adm exp per unit	$1.25	$1.25	$1.25	$1.25	$1.25
Variable selling & adm exp per A	$15,000	$46,250	$18,750	$31,250	$111,250
Fixed selling & adm exp
Advertsing	$25,000	$25,000	$25,000	$25,000	$100,000
Salaries	$64,000	$64,000	$64,000	$64,000	$256,000
Insurance	$12,000	$12,000	$12,000	$12,000	$48,000
Property Taxes	$8,000	$8,000	$8,000	$8,000	$32,000
Depreciation	$8,000	$8,000	$8,000	$8,000	$32,000
Fixed selling & adm exp	$117,000	$117,000	$117,000	$117,000	$468,000
Fixed selling & adm exp (exc dep) B	$109,000	$109,000	$109,000	$109,000	$436,000
Cash Selling and adm expenses (A+B)	$124,000	$155,250	$127,750	$140,250	$547,250
Cash Budget	Qtr 1	Qtr 2	Qtr3	Qtr 4	Total
Beginning Cash balance	46200	$30,000	$244,649	$314,338	46200
Cash receipt	548000	984000	656000	720000	2908000
Total cash available	594200	1014000	900649	1034338	2954200
Less: Cash Disbursements
Payment to Raw material	291287	292176	226937	218054	1028453
Payment of direct labor	$72,225	$151,650	$74,250	$104,400	402525
Payment of Factory overhead	$142,038	$155,275	$142,375	$130,000	569688
Payment of Selling & Adm exp	$124,000	$155,250	$127,750	$140,250	547250
Payment of Dividend	15000	15000	15000	15000	60000
Total cash Disbursements	$644,550	$769,351	$586,312	$607,704	$2,607,916
Excess of cash surplus over cash disbursement	($50,350)	$244,649	$314,338	$426,634	$346,285
Minimum Cash balance (working)	30000	30000	30000	30000	30000
Cash balnce Available (working)	($80,350)	$214,649	$284,338	$396,634	$316,285
Financing
Borrowings	80350				$80,350
Repayment				-80350	($80,350)
Interest paid on laon				-9642	($9,642)
Ending Cash balance	$30,000	$244,649	$314,338	$336,642	$336,642