In: Accounting
Mando Paints (MAPS) Mando
Paints (MAPS)) manufactures a paint additive that has been very
successful in the metallic paint line of automotive paints. The
company prides itself in making the paints that car owners buy
better. MAPS is in the process of preparing its 2019 fiscal year
master budget and has presented you with the following information.
The company has a December 31st fiscal year-end.
1. The budgeted December 31, 2018 balance sheet for the company is
shown below.
MAPS Limited Budgeted Balance Sheet December 31, 2018
Assets Liabilities &
Stockholders' Equity
Cash $ 5,080 Accounts
payable
$ 2,148 Accounts receivable (net)
26,500 Dividends payable 30,000 Raw
materials inventory
800 Notes payable (Due Feb. 28, 2017) 35,000 Finished
goods
inventory
2,104 Prepaid insurance
1,200 Total liabilities $
67,148 Factory Building & Equipment
$300,000 Common stock $100,000
Accumulated Retained
earnings 148,536
248,536
depreciation (20,000)
280,000
Total Liabilities & Total assets
$315,684 Stockholders'
Equity
$315,684
2. The Accounts Receivable balance at 12/31/18 represents the
remaining balances of November and December credit sales, net of
any allowance for doubtful accounts. Sales were (would be) $70,000
and $65,000, respectively, in those two months.
3. Estimated sales in units for January through May 2019 are shown
below. January 10,000 February
12,000 March 13,000 April
11,000 May 10,000
Currently, each unit sells for $12. The
company expects the selling price to increase to $13 per unit from
March 1, 2019.
MAPS ... continued
MAPS continued 4. The collection pattern
for accounts receivable is as follows: 68% in the month of sale;
20% in the first month after the month of sale; 10% in the second
month after the month of sale. The remaining 2% of credit sales are
never collected. The company expects to achieve a 70-20-8
collection pattern starting with the March 2019 sales.
5. Each unit of additive has the following standard quantities and
costs for direct materials and direct labor: 1.2 pounds
of direct materials at $.80 per pound
15 minutes of direct labour at $12 per hour
Direct material costs and direct labor costs are expected to
increase by 15% as from March 1, 2019. Variable overhead is applied
to the product on a machine hour basis. It takes 12 minutes of
machine time to process one unit of finished additive. The variable
overhead rate is $1.5 per machine hour. The rate will increase to
$2.25 per machine hour from March 1, 2019. Total annual fixed
overhead is budgeted at $120,000; it is applied to the production
of the month at $1.00 per unit based on an expected annual
production of 120,000 units. Budgeted fixed overhead per year is
made up of the following costs:
Salaries $ 72,000
Utilities
20,400 Insurance -
factory 2,400
Depreciation- factory building & equipment
25,200 Total
$120,000
Actual fixed overhead is incurred evenly throughout the year and
payments for fixed overhead are also made evenly throughout the
year, if necessary. For periodic financial statements, any
under-applied overhead is added to expenses and any over-applied
overhead is deducted from expenses.
6. There is no beginning inventory of Work in Process. All work in
process is completed in the period in which it is started. Direct
materials inventory at the beginning of 2019 will consist of 1,000
pounds at a standard cost of $.80 per pound. There will be 400
units of additive in finished goods inventory at the beginning of
2019 carried at a standard cost of $5.26 per unit: Direct
Materials, $.96; Direct Labor, $3.00; Variable Overhead, $.30; and
Fixed Overhead, $1.00.
7. Accounts Payable relates solely to direct materials purchases.
All direct material purchases are initially on account. Accounts
payable are paid 60% in the month of purchase and 40% in the month
after purchase. No discounts are received for prompt payment.
Starting with its March 2019 purchases, the company will be making
payments on accounts payable at 50% in the month of purchase and
50% in the month after purchase.
8. Any outstanding dividends payable will be paid at the end of
January 2019.
9. A new piece of equipment costing $50,000 will be purchased on
March 31, 2019. Payment for 80% of the cost will be made in March
and 20% in May. The equipment will have a ten-year useful life and
no residual value.
10. The note payable has an 8% interest rate; interest is paid at
the end of each month.
MAPS ... continued
3
MAPS continued
11. MAPS's management has set a minimum cash balance at $6,000.
Borrowing (repayments) can be made in even $1000 amounts from (to)
the Cedi Bank at an interest rate of 6% per year. Borrowing (if
necessary in the month) will be at the beginning of the month while
repayment (when the company is in a position to do so) will be at
the end of the month. Interest on any borrowing must be paid
monthly at the end of the month.
12. The ending inventory of finished goods should be 10% of the
next month's sales requirements. The ending inventory of raw
materials should be 10% of the raw materials required for the next
month's production. These requirements may not be met on January 1,
2019, but must be met during the budgeting period.
13. Fixed selling and administrative expenses per month are as
follows: salaries, $15,000; rent, $9,000; and utilities and office
expenses, $1,500. These costs are paid in cash in the month in
which they are incurred.
Required: Prepare an appropriate report to MAPS’s management
detailing the company’s budgeted activities for the first quarter
of 2019. Budgeted information should be provided for each month,
and the quarter as a whole, in columnar form. The following
component budgets must be included (and submitted): a. Sales budget
b. Production budget c. Direct materials purchases budget d. Direct
labor budget e. Manufacturing Overhead budget f. Cost of Goods
manufactured budget g. Finished goods budget h. Cost of goods sold
budget i. Selling and administrative expenses budget j. Budgeted
Income Statement k. Cash budget
Also to be provided is a Budgeted Balance Sheet. Unlike the other
requirements above, the Budgeted Balance Sheet submitted should be
ONLY the one at the end of the first quarter of the 2019 fiscal
year.
All hand-in materials must be computer generated (spreadsheets for
your budgets and word processors for other write-ups).
In a note presenting your work to management, please draw
management’s attention to any significant parts of your report
(this note to management should not be more than one
page).
Sales Budget | |||||
Mando Paints | |||||
Jan | Feb | Mar | Apr | ||
Sales (Units) | 10000 | 12000 | 13000 | 11000 | |
Unit Price | 12 | 12 | 13 | 13 | |
Sale Price | 120000 | 144000 | 169000 | 143000 | |
Production Budget | |||||
Mando Paints | |||||
Jan | Feb | Mar | Apr | ||
Opening Inventory | 400 | 1200 | 1300 | 1100 | |
Sales | 10000 | 12000 | 13000 | 11000 | |
Closing Inventory | 1200 | 1300 | 1100 | 1000 | |
Units to be produced | 10800 | 12100 | 12800 | 10900 | |
Direct Materials Budget | |||||
Mando Paints | |||||
Jan | Feb | Mar | Apr | ||
Production budget (units) | 10800 | 12100 | 12800 | ||
Materials requirements per unit | 1.2 | 1.2 | 1.2 | ||
Materials needed for production | 12960 | 14520 | 15360 | ||
Budgeted ending inventory | 1452 | 1536 | 1090 | 1002.8 | |
Total materials requirements (units) | 14412 | 16056 | 16450 | ||
Beginning inventory | -1000 | -1452 | -1536 | ||
Materials to be purchased | 13412 | 14604 | 14914 | ||
Material price per unit | 0.8 | 0.8 | 0.92 | ||
Total cost of direct materials purchases | 10,729.60 | 11,683.20 | 13,720.88 | ||
Direct Labour Budget | |||||
Mando Paints | |||||
Jan | Feb | Mar | |||
Budgeted production (units) | 10800 | 12100 | 12800 | ||
Labor requirements per unit (hours) | 0.25 | 0.25 | 0.25 | ||
Total Labor hours needed | 2700 | 3025 | 3200 | ||
Labor rate (per hour) | 12 | 12 | 13.8 | ||
Labor dollars | 32400 | 36300 | 44160 | ||
Manufacturing overhead Budget | |||||
Jan | Feb | Mar | |||
Budgeted production (units) | 10800 | 12100 | 12800 | ||
Machine Time | 0.2 | 0.2 | 0.2 | ||
Machine Time needed | 2160 | 2420 | 2560 | ||
Variable factory overhead rate | 1.5 | 1.5 | 2.25 | ||
Budgeted variable overhead | 3240 | 3630 | 5760 | ||
Budgeted fixed overhead | 120000 | 120000 | 120000 | ||
Budgeted total overhead | 123240 | 123630 | 125760 | ||
Cost of goods manufactured Budget | |||||
Jan | Feb | Mar | |||
Units produced | 10800 | 12100 | 12800 | ||
Raw Material Expense | 10729.6 | 11683.2 | 13720.88 | ||
Direct Labor | 32400 | 36300 | 44160 | ||
Budgeted total overhead | 123240 | 123630 | 125760 | ||
Total cost | 166369.6 | 171613.2 | 183640.88 | ||
Finished Goods Budget | |||||
Jan | Feb | Mar | |||
Closing Inventory | 1200 | 1300 | 1100 | ||
Raw Material | 0.8 | 0.8 | 0.92 | ||
3 | 3 | 3.45 | |||
1.5 | 1.5 | 2.25 | |||
1 | 1 | 1 | |||
6.3 | 6.3 | 7.62 | |||
Closing Inventory Dollars | 7560 | 8190 | 8382 | ||
Cost of Goods Sold | |||||
Jan | Feb | Mar | |||
Sale | 10000 | 12000 | 13000 | ||
Standard Price | 6.3 | 6.3 | 7.62 | ||
Cost of Goods Sold | 63000 | 75600 | 99060 | ||
Selling and Administrative Expense | |||||
Jan | Feb | Mar | |||
Salaries | 15000 | 15000 | 15000 | ||
Rent | 9000 | 9000 | 9000 | ||
Utilities and Office Expense | 1500 | 1500 | 1500 | ||
25500 | 25500 | 25500 | |||
Budgeted Income Statement | |||||
Jan | Feb | Mar | |||
Sales | 120000 | 144000 | 169000 | ||
Less : Cost of Goods Sold | -63000 | -75600 | -99060 | ||
Salaries | -15000 | -15000 | -15000 | ||
Rent | -9000 | -9000 | -9000 | ||
Utilities and Office Expense | -1500 | -1500 | -1500 | ||
Bad Debt | -2400 | -2880 | -3380 | ||
Net Income | 29100 | 40020 | 41060 | ||
Cash Receipts | Jan | Feb | Mar | ||
120000 | 144000 | 169000 | |||
Month of Sale - 68% | 81600 | 97920 | 118300 | ||
20% in second month | 13000 | 24000 | 28800 | ||
10% in third month | 7000 | 6500 | 12000 | ||
2% Bad Debt | 2400 | 2880 | 3380 | ||
Amount Collected | 101600 | 128420 | 159100 | ||
Cash Budget | |||||
Jan | Feb | Mar | |||
Opening Balance | 5080 | 6,225.91 | 6095.81 | ||
Cash Received from Customer | 101600 | 128420 | 159100 | ||
Total Cash Receipts | 106680 | 134645.9067 | 165195.81 | ||
Less : Disbursements | |||||
Payment for Raw material purchased | -8585.76 | -11301.76 | -11533.72 | ||
Labor Expense | -32400 | -36300 | -44160 | ||
Manufacturing overhead | |||||
Variable | -3240 | -3630 | -5760 | ||
Fixed | -94800 | -94800 | -94800 | ||
Purchase of Equipment | -50000 | ||||
Interest on note payable | (233.33) | (233.33) | (233.33) | ||
Total Payments | (139,259.09) | (146,265.09) | (206,487.05) | ||
Preliminary cash balance | (32,579.09) | (11,619.19) | (41,291.24) | ||
Loan | 39000 | 18000 | 48000 | ||
Interest on loan @ 6% | -195 | -285 | -525 | ||
Closing Balance | 6,225.91 | 6,095.81 | 6,183.76 |