Question

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 master budget for 2019 and reports a balance sheet at December 31, 2018 as follows:

Endless Mountain Company
Balance Sheet
December 31, 2018
Assets
Current assets:
Cash	$	46,200
Accounts receivable (net)		260,000
Raw materials inventory (4,500 yards)		11,250
Finished goods inventory (1,500 units)		32,250
Total current assets				$	349,700
Plant and equipment:
Buildings and equipment		900,000
Accumulated depreciation		(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 2019 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 2020 is 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 December 31, 2019 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 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.
7. 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.
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 depreciation 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) 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 prepare the 2019 master budget. To fulfill this request, prepare the following budget schedules and financial statements.

1. Quarterly sales budget including a schedule of expected cash collections.

2. Quarterly production budget.

3. Quarterly direct materials budget including a schedule of expected cash disbursements for purchases of materials.

4. Quarterly direct labor budget.

5. Quarterly manufacturing overhead budget.

6. Ending finished goods inventory budget at December 31, 2019.

7. Quarterly selling and administrative expense budget.

8. Quarterly cash budget.

9. Income statement for the year ended December 31, 2019.

10. Balance sheet at December 31, 2019.

Required:

1. Calculate the following budgeted figures for 2019:

a. The total fixed cost.

b. The variable cost per unit sold.

c. The contribution margin per unit sold.

d. The break-even point in unit sales and dollar sales.

e. The margin of safety.

f. The degree of operating leverage

2. Prepare a budgeted variable costing income statement for 2019. Stop your computations at net operating income.

Answer 1

Req 1	Sales Budget
		Q1	Q2	Q3	Q4	Year
	Sales (Units)	12,000	37,000	15,000	25,000	89,000
	Selling price per Unit	32.00	32.00	32.00	32.00	32.00
	Total Budgeted sales	384,000	1,184,000	480,000	800,000	2,848,000
	Schedule of cash receipt
		Q1	Q2	Q3	Q4	Year
	Beginning Accounts Receivable	260,000				260,000
	First Quarter Sales	288,000	96,000			384,000
	Second Quarter Sales		888,000	296,000		1,184,000
	Third Quarter Sales			360,000	120,000	480,000
	Fourth Quarter Sales				600,000	600,000
	Total Cash Collecetion	548,000	984,000	656,000	720,000	2,908,000
Req 2	Production Budget
		Q1	Q2	Q3	Q4	Year
	Budgdted Unit sales	12,000	37,000	15,000	25,000	89,000
	Add Desired units of ending finished goods inventory	5,550	2,250	3,750	1,950	1,950
	Total Needs	17,550	39,250	18,750	26,950	90,950
	Less: Beginning Inventory	1,500	5,550	2,250	3,750	1,500
	Required production(Units)	16,050	33,700	16,500	23,200	89,450
Req 3	Direct material Budget
		Q1	Q2	Q3	Q4	Year
	Required production	16,050	33,700	16,500	23,200	89,450
	Raw mat needed per unit	3.5	3.5	3.5	3.5	3.5
	Qty of RM needed for production	56,175	117,950	57,750	81,200	313,075
	Add:Desired ending Inventory	11,795	5,775	8,120	5,000	5,000
	Total Raw material needed	67,970	123,725	65,870	86,200	318,075
	Less: Beginning Inventory	4,500	11,795	5,775	8,120	4,500
	Raw material purchased	63,470	111,930	60,095	78,080	313,575
	Cost of Raw material per yard	3	3	3	3	3
	Raw material cost to be purchased	190,410	335,790	180,285	234,240	940,725
	Schedule of expected cash disbursement
		Q1	Q2	Q3	Q4	Year
	Beginning Accounts Papable	158,000				158,000
	First Quarter purchases	133,287	57,123			190,410
	Second Quarter purchases		235,053	100,737		335,790
	Third Quarter purchases			126,200	54,086	180,285
	Fourth Quarter purchases				163,968	163,968
	Total Cash Disbursement	291,287	292,176	226,937	218,054	1,028,453
Req 4	Direct Labor Budget
		Q1	Q2	Q3	Q4	Year
	Required production	16,050	33,700	16,500	23,200	89,450
	Labor Req per unit	0.25	0.25	0.25	0.25	0.25
	Total hours needed	4,012.50	8,425.00	ekkarill92 Next > < Previous Related Solutions Endless Mountain Company manufactures a single product that is popular with outdoor recreation enthusiasts. The company... 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 master budget for 2022 and reports a balance sheet at December 31, 2021 as follows: Endless Mountain Company Balance Sheet December 31, 2021 Assets Current assets: Cash $ 46,200 Accounts receivable (net) 260,000 Raw materials inventory (4,500 yards) 11,250 Finished goods inventory (1,500... Endless Mountain Company manufactures a single product that is popular with outdoor recreation enthusiasts. The company... Endless Mountain Company manufactures a single product that is popular with outdoor recreation enthusiasts. 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Endless Mountain Company manufactures a single product that is popular with outdoor recreation enthusiasts. The company... 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 master budget for 2017 and reports a balance sheet at December 31, 2016 as follows: Endless Mountain Company Balance Sheet December 31, 2016 Assets Current assets: Cash $ 46,200 Accounts receivable (net) 260,000 Raw materials inventory (4,500 yards) 11,250 Finished goods inventory (1,500... Endless Mountain Company manufactures a single product that is popular with outdoor recreation enthusiasts. The company... 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 master budget for 2017 and reports a balance sheet at December 31, 2016, as follows: Endless Mountain Company Balance Sheet December 31, 2016 Assets Current assets: Cash $ 46,200 Accounts receivable 260,000 Raw materials inventory (4,500 yards) 11,250 Finished goods inventory (1,500 units)... Endless Mountain Company manufactures a single product that is popular with outdoor recreation enthusiasts. The company... 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 master budget for 2017 and reports a balance sheet at December 31, 2016 as follows: Endless Mountain Company Balance Sheet December 31, 2016 Assets Current assets: Cash $ 46,200 Accounts receivable (net) 260,000 Raw materials inventory (4,500 yards) 11,250 Finished goods inventory (1,500... Endless Mountain Company manufactures a single product that is popular with outdoor recreation enthusiasts. The company... 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 master budget for 2017 and reports a balance sheet at December 31, 2016 as follows: Endless Mountain Company Balance Sheet December 31, 2016 Assets Current assets: Cash $ 46,200 Accounts receivable (net) 260,000 Raw materials inventory (4,500 yards) 11,250 Finished goods inventory (1,500... Endless Mountain Company manufactures a single product that is popular with outdoor recreation enthusiasts. The company... 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 master budget for 2017 and reports a balance sheet at December 31, 2016 as follows: Endless Mountain Company Balance Sheet December 31, 2016 Assets Current assets: Cash $ 46,200 Accounts receivable (net) 260,000 Raw materials inventory (4,500 yards) 11,250 Finished goods inventory (1,500... Endless Mountain Company manufactures a single product that is popular with outdoor recreation enthusiasts. The company... 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 master budget for 2017 and reports a balance sheet at December 31, 2016 as follows: Endless Mountain Company Balance Sheet December 31, 2016 Assets Current assets: Cash $ 46,200 Accounts receivable (net) 260,000 Raw materials inventory (4,500 yards) 11,250 Finished goods inventory (1,500... 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