Question

 

On January 1, 20Y6, the controller of Omicron Inc. is planning capital expenditures for the years 20Y6–20Y9. The following interviews helped the controller collect the necessary information for the capital expenditures budget:

Director of Facilities: A construction contract was signed in late 20Y5 for the construction of a new factory building at a contract cost of $10,000,000. The construction is scheduled to begin in 20Y6 and be completed in 20Y9.

Vice President of Manufacturing: Once the new factory building is finished, we plan to purchase $1.5 million in equipment in late 20Y7. I expect that an additional $200,000 will be needed early in the following year (20Y8) to test and install the equipment before we can begin production. If sales continue to grow, I expect we'll need to invest another $1,000,000 in equipment in 20Y9.

Chief Operating Officer: We have really been growing lately. I wouldn't be surprised if we need to expand the size of our new factory building in 20Y9 by at least 35%. Fortunately, we expect inflation to have minimal impact on construction costs over the next four years. Additionally, I would expect the cost of the expansion to be proportional to the size of the expansion.

Director of Information Systems: We need to upgrade our information systems to wireless network technology. It doesn't make sense to do this until after the new factory building is completed and producing product. During 20Y8, once the factory is up and running, we should equip the whole facility with wireless technology. I think it would cost us $800,000 today to install the technology. However, prices have been dropping by 25% per year, so it should be less expensive at a later date.

Chief Financial Officer: I am excited about our long-term prospects. My only short-term concern is managing our cash flow while we expend the $4,000,000 of construction costs in 20Y6 and $6,000,000 in 20Y7 on the portion of the new factory building scheduled to be completed in 20Y9.

Use this interview information to prepare a capital expenditures budget for Omicron Inc. for the years 20Y6–20Y9.

Omicron Inc.
Capital Expenditures Budget
For the Four Years Ending December 31, 20Y6-20Y9
Item	20Y6	20Y7	20Y8	20Y9
	$	$		$
			$
Total	$	$	$	$

Horizon Financial Inc. was organized on February 28. Projected selling and administrative expenses for each of the first three months of operations are as follows:

March	$122,300
April	112,500
May	102,400

Depreciation, insurance, and property taxes represent $26,000 of the estimated monthly expenses. The annual insurance premium was paid on February 28, and property taxes for the year will be paid in June. 66% of the remainder of the expenses are expected to be paid in the month in which they are incurred, with the balance to be paid in the following month.

Prepare a schedule of cash payments for selling and administrative expenses for March, April, and May.

Excel Learning Systems Inc.
Schedule of Cash Payments for Selling and Administrative Expenses
For the Three Months Ending May 31
	March	April	May
March expenses:
Paid in March	$
Paid in April		$
April expenses:
Paid in April
Paid in May			$
May expenses:
Paid in May
Total cash payments	$	$	$

Answer 1

1.

Omricon inc.
Capital expenditure budget
For the four years ending december 31 , 20y6 - 20y9
Item	20Y6	20Y7	20Y8	20Y9
	$	$	$	$
Building	4,000,000	6,000,000		3500000 (1000000 X 35 %)
Equipment		1,500,000	200,000	1,000,000
Information system			450000 (800000 X.75X.75)
2.
Excel learning system Inc.
Schedule of cash payments for selling and administrative expenses
For the three months ending May 31
	March	April	May
March expenses
Paid in march (66% x 122300)	80718
Paid in april (34% x 122300)		41582
April expenses
Paid in april ( 66 % x 112500)		74250
Paid in may (34% X 112500)			38250
May expenses
Paid in may (66%X 102400)			67584
Total cash payments	80718	115832	105834