Question

HCJ Corporation is completing their cash budget for the following year. They are going to buy an industrial robot. They will make the acquisition on January 2 of next year, and it will take most of the year to train the personnel and reorganize the production process to take full advantage of the new equipment.”

The robot will cost $1,000,000 financed with a a one-year $1,000,000 loan from My Bank and Trust Company. I’ve negotiated a repayment schedule of four equal installments on the last day of each quarter.

The interest rate will be 10 percent, and interest payments will be quarterly as well

HCJ Corporation is a manufacturer of metal picture frames. The firm’s two product lines are designated as S (small frames; 5 x 7 inches) and L (large frames; 8 x10 inches). The primary raw materials are flexible metal strips and 9-inch by 24-inch glass sheets.   Other raw materials, such as cardboard backing, are insignificant in cost and are treated as indirect materials.

Here is the provided budget information

     1. Sales in the fourth quarter of 20x0 are expected to be 50,000 S frames and 40,000 L frames. Over the next two years, sales in each product line will grow by 5,000 units each quarter over the previous quarter. For example, S frame sales in the first quarter of 20x1 are expected to be 55,000 units.

    2. HCJ's sales history indicates that 60 percent of all sales are on credit, with the remainder of the sales in cash. The company’s collection experience shows that 80 percent of the credit sales are collected during the quarter in which the sale is made, while the remaining 20 percent is collected in the following quarter. (For simplicity, assume the company is able to collect 100 percent of its accounts receivable.)

    3. The S frame sells for $10, and the L frame sells for $15. These prices are expected to hold constant

throughout 20x1.

    4. HCJ's production team attempts to end each quarter with enough finished-goods inventory in each product line to cover 20 percent of the following quarter’s sales. Moreover, an attempt is made to end each quarter with 20 percent of the glass sheets needed for the following quarter’s production. Since metal strips are purchased locally, HCJ buys on a just-in-time basis; inventory is negligible.   The purchase and production quantities are shown.

5. All direct-material purchases are made on account, and 80 percent of each quarter’s purchases are paid in cash during the same quarter as the purchase. The other 20 percent is paid in the next quarter.

6. Indirect materials are purchased as needed and paid for in cash. Work-in-process inventory is negligible.

7. Projected manufacturing costs in 20x1 are as follows:

Direct material:

Metal strips. @ $1 per foot

Glass sheets: $8 per sheet  

Direct labor for both products .1 hour @ $20 per hour

Manufacturing overhead: .1 direct-labor hour @ $10 per hour

Total manufacturing cost per unit . S: $7 L: $10

1. Sales budget:

2. Cash receipts budget:

3. Cash disbursements budget: (including purchases of direct materials and payments for same)

4. Summary cash budget:

Sales figures 20X0 20X1 Q4 Q1 S frame unit sales                               50,000               55,000 S sales price $                                  10 $                  10 L frame unit sales                               40,000               45,000 x L sales price $                                  15 $                  15 40% Percent of sales made for cash in the quarter of sale 60% Percent of sales made on credit Collections 80% of current quarter's credit sales 20% of previous quarter's credit sales Purchases 20X0 20X1 Q4 Q1 Q2 Q3 Q4 Year Direct Material purchases Metal (pounds) 225,000 250,000 275000 300,000 325000 1,150,000 Metal price/pound $1 $1 $1 $1 $1 $1 Glass sheets Total glass needed for production                               33,250               37,000               40,750               44,500               48,250              170,500 Plus desired ending inventory                                 7,400                 8,150                 8,900                 9,650               10,400    10,400 Total glass needed for production                               40,650               45,150               49,650               54,150               58,650              207,600 Less beginning                                 6,650                 7,400                 8,150                 8,900                 9,650                  7,400 Glass purchases(sheets)                               34,000               37,750               41,500               45,250               49,000              173,500 Cost/sheet $8 $8 $8 $8 $8 $8 80% of current quarter's purchases paid in the current quarter 20% of previous quarter's purchases paid in the current quarter Other expenses Direct labor: Direct-labor hours per frame 0.1 Rate per direct-labor hour $                  20 Manufacturing overhead: $               0.10 DLH at $                  10 per hour Indirect material $           10,200 $           11,200 $           12,200 $           13,200 $            46,800 Indirect labor $           40,800 $           44,800 $           48,800 $           52,800 $          187,200 Other $           31,000 $           36,000 $           41,000 $           46,000 $          154,000 Depreciation $           20,000 $           20,000 $           20,000 $           20,000 $            20,000 Predetermined overhead rate $                             10.00 per DLH Selling and admin. expenses $         100,000 per quarter Payment of dividends $           50,000 per quarter Balance Sheet as of Dec 21, 20X0 Cash $                           95,000 Accounts Receivable $                         132,000 Inventory Raw Material $                           59,200 Finished Goods $                         167,000 Plant and Equipment, net $                      8,000,000 Total Assets $                      8,453,200 Accounts payable $                           99,400 Common stock $                      5,000,000 Retained earnings $                      3,353,800 Total Liabilities and equity $                      8,453,200 Prepare the following 1 Sales budget 2 Cash receipts budget 3 Cash disbursements budget 4 Summary cash budget

Answer 1

1.Sales Budget	20X0	20X1
	Q4	Q1	Q2	Q3	Q4	Total(Q1-Q4)
S Frames	50000	55000	60000	65000	70000	250000
Sale value at 10 each	500000	550000	600000	650000	700000	2500000
L Frames	40000	45000	50000	55000	60000	210000
Sale value at 15 each	600000	675000	750000	825000	900000	3150000
Total sale value	1100000	1225000	1350000	1475000	1600000	5650000
Cash sales (40%)	440000	490000	540000	590000	640000	2260000
Credit sales(60%)	660000	735000	810000	885000	960000	3390000
2. Cash receipts Budget
Cash sales (40%)	440000	490000	540000	590000	640000	2260000
Collection of:
Current Qtr. (80%)	528000	588000	648000	708000	768000	2712000
Previous Qtr(20%)		132000	147000	162000	177000	618000
Total cash receipts		1210000	1335000	1460000	1585000	5590000
Production Budget	20X0	20X1
	Q4	Q1	Q2	Q3	Q4	Total(Q1-Q4)
Sales S Frames	50000	55000	60000	65000	70000	250000
Desired Cl.Inv.	11000	12000	13000	14000	15000	15000
Total S frames needed		67000	73000	79000	85000	265000
Less: Beg.Inv.		11000	12000	13000	14000	11000
Production reqd.		56000	61000	66000	71000	254000
Sales L Frames	40000	45000	50000	55000	60000	210000
Desired Cl.Inv.	9000	10000	11000	12000	13000	13000
Total L frames needed		55000	61000	67000	73000	223000
Less: Beg.Inv.		9000	10000	11000	12000	9000
Production reqd.		46000	51000	56000	61000	214000
Total Prodn. ( L+S frames )		102000	112000	122000	132000	468000
Purchases	20X0	20X1
	Q4	Q1	Q2	Q3	Q4	Total(Q1-Q4)
Direct Material purchases
Metal (pounds)	225,000	250,000	275000	300,000	325000	1,150,000
Metal price/pound	1	1	1	1	1	1
Total value	225000	250000	275000	300000	325000	1150000
Glass sheets
Total glass needed for production	33250	37000	40750	44500	48250	170500
Plus desired ending inventory	7400	8150	8900	9650	10400	10400
Total glass needed for production	40650	45150	49650	54150	58650	180900
Less beginning	6650	7400	8150	8900	9650	7400
Glass purchases(sheets)	34000	37750	41500	45250	49000	173500
Cost/sheet	8	8	8	8	8	8
Total value	272000	302000	332000	362000	392000	1388000
Total Value of purchases( Metal + Glass)	497000	552000	607000	662000	717000	2538000
3...Cash disbursements
Payment for purchases (metal+glass)		Q1	Q2	Q3	Q4	Total(Q1-Q4)
Current Qtr.80%		441600	485600	529600	573600	2030400
Previous qtr. 20%		99400	110400	121400	132400	463600
Direct labor(total L+S Frames)*0.1 hrs.*$ 20		204000	224000	244000	264000	936000
Mfg. OH (total L+S Frames)*0.1 hrs.*$ 10		102000	112000	122000	132000	468000
Indirect material		10200	11200	12200	13200	46,800
Indirect labor		40,800	44,800	48,800	52,800	187,200
Other		31,000	36,000	41000	46,000	154,000
Sell.& admn. Exp.		100000	100000	100000	100000	400,000
Payment of dividends		50000	50000	50000	50000	200,000
Loan repayment		250000	250000	250000	250000	1,000,000
Interest exp. On principal remaining (3 months)		25000	18750	12500	6250	62,500
Total cash disbursements		1354000	1442750	1531500	1620250	5948500
4. Summary Cash budget
Beginning balance		95000	-49000	-156750	-228250	95000
Total cash receipts		1210000	1335000	1460000	1585000	5590000
Total cash available		1305000	1286000	1303250	1356750	5685000
Total cash disbursements		1354000	1442750	1531500	1620250	5948500
Surplus/Deficit		-49000	-156750	-228250	-263500	-263500
(Need short-term loan details to complete the cash budget)