Question

Case study

Production of wheels and casters in the furniture industry

1. Prepare master budget for 6 months:
2. Prepare flexible budget for operating income, if the quantity sold will 1,500units (wheels and 1,800 units (casters)
3. Calculate GP and CM ratio (data on the final page)

Basic Information:

Forecast for sales: for first months (January to June): 15%, 10%, 15%, 25%, 15%,20%

of total budgeted sales revenues.

Desired ending inventory (Plan: 10% of unit sales for the time period)  

	Quantity	Budgeted Prices in $
Wheels	1,000 planned to sell	$30
Beg. Balance	85 units (old cost :$16)
New Costs
DM		10
DL		5
FOH		3
Casters	2,000 planned to sell	35
Beg. Balance	185 units (old cost: $20)
New Costs
DM		12
DL		6
FOH		4
Period Costs: Operating	Budget: for 6 months	$12,000
Interest Expense		1,500
Dividends paid twice a year	3000 per a year (June, December)	1,500
Income tax expense	20% of Earnings before tax
Investment into technology: Purchase of the machinery	March: June:	$8,000 $10,000

Customers’ collection: Cash inflows

Collections of Cash policy: 20% of current sales and 80% of previous month’s sales

Company’s payments: Cash outflows

Monthly material purchase: Payment for material always prior month’s purchase.

Monthly labor cost   - paid at the end of the month

Monthly overhead    - paid at the end of the month

We assume the Goldman Corporation has a beginning cash balance of $5,000 on

January 1, 2019, and it desires a minimum monthly ending cash balance of $5,000.

1. Projected Sales  

Beginning Inventory in units and $value

2. Production requirements for six months

Unit costs

3. Total production costs

Answer 1

Master budget and Flexible Budget are as below: