Garden Beauty Inc. is a company that manufactures and sells
outdoor yard sculptures. The company president, Karlee Crosby, has
expressed a desire to improve the company’s planning for cash
needs. She has approached you, a management accounting student, for
help in preparing the budget for the upcoming third quarter. She
would like to see the sources and uses of cash by month, for the
next quarter ending Sept. 30. Your investigations of the company’s
records have revealed the following information:
- Sales forecast:
First
Quarter ended March 31 4,700 units
Second
Quarter ended June
30
4,500 units
Third
Quarter ended September 30 5,000 units
Fourth
Quarter ended December 31 3,000 units
- History has shown the sales pattern is consistent in each
quarter, where sales in the first month of the quarter are 35% of
the total for the quarter, 30% in the second month, and 35% in the
third month of the quarter.
- Sales are on a cash and credit basis, with 70% collected during
the month of the sale, and 30% the following month. The selling
price is $110 per unit throughout the year.
- From previous experience, management has determined that an
ending finished goods inventory equal to 20% of the next month’s
sales is required to meet customer demand. Opening finished goods
inventory consists of 350 sculptures.
- The primary raw material used is a concrete and resin mix that
is purchased by the kg and mixed with water, then molded into the
statue shape. Each statue requires 10 kg of mix, and the price of
mix is $3.00 per kg. Garden Beauty finds it necessary to maintain
an inventory balance equal to 15% of the following month’s
production needs of mix as a precaution against stock-outs. Opening
raw materials inventory consists of 2,550 kg of mix. Garden Beauty
pays for 75% of a month’s purchases in the month of purchase and
25% in the following month. The cost of water is included in
utilities cost, and the molding machines are considered long lived
assets.
- Beginning accounts payable will consist of $12,176 arising from
the estimated direct material purchases for June.
- While much of the molding process is automated, the finishing
process is labor intensive. Employees are paid an average of $28
per hour, including the employer’s portion of employee benefits.
All payroll costs are paid in the period in which they are
incurred.
Each sculpture spends a total of 45 minutes in production.
- Due to the company’s concentration on a single product,
manufacturing overhead is allocated based on volume (i.e. the units
produced). The variable overhead manufacturing rate is $10.25 per
unit.
- The fixed manufacturing overhead costs for the quarter are as
follows:
Property and business taxes 6,000
Supervisor’s
salary
24,000
Depreciation on equipment 36,000
$ 66,000
- The property and business taxes are paid on July 1 of each
year.
- Garden Beauty uses the straight line method of
depreciation.
- Selling and administrative expenses are known to be a mixed
cost, consisting of $2.00 per unit variable cost and $2,000 per
month fixed costs. These costs are paid as they are incurred.
- During the fiscal year ended December 31, 2020, Garden Beauty
will be required to make quarterly income tax installment payments
of $6,500 on the last day of each quarter.
- Garden Beauty is planning to acquire additional manufacturing
equipment for $56,000 cash. 40% of this amount is to be paid in
July, 2020, the rest in September, 2020. The manufacturing overhead
costs shown above already include the depreciation on this
equipment.
- The president tells you that the board of directors of Garden
Beauty is planning on continuing their policy of declaring
dividends of $10,000 per quarter.
- A listing of the relevant balances in the company’s ledger
accounts as of June 30, 2020 follows:
|
Cash
|
|
|
$ 63,365
|
|
Accounts receivable
|
|
51,975
|
|
Inventory-raw materials (2,550 kg)
|
7,650
|
|
Inventory-finished goods (350 units)
|
26,191
|
|
Accounts payable
|
|
12,176
|
|
|
|
|
|
|
Required:
Prepare a monthly master budget for
Garden Beauty for the quarter ended September 30, 2020, including
the following schedules:
Sales Budget & Schedule of Cash
Receipts
Production Budget
Direct Materials Budget & Schedule
of Cash Disbursements
Direct Labour Budget
Manufacturing Overhead Budget
Ending Finished Goods Inventory Budget
(including calculation of budgeted Cost of Goods Sold)
Selling and Administrative Expense
Budget
Cash Budget