Question

Endless Mountain Company manufactures a single product that is popular with outdoor recreation enthusiasts. The company sells its product to retailers throughout the northeastern quadrant of the United States. It is in the process of creating a master budget for 2017 and reports a balance sheet at December 31, 2016, as follows:

Endless Mountain Company
Balance Sheet
December 31, 2016
Assets
Current assets:
Cash	$	46,200
Accounts receivable		260,000
Raw materials inventory (4,500 yards)		11,250
Finished goods inventory (1,500 units)		32,250
Total current assets				$	349,700
Plant and equipment:
Buildings and equipment		900,000
Accumulated depreciation		(292,000	)
Plant and equipment, net					608,000
Total assets				$	957,700
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable				$	158,000
Stockholders’ equity:
Common stock	$	419,800
Retained earnings		379,900
Total stockholders’ equity					799,700
Total liabilities and stockholders’ equity				$	957,700

The company’s chief financial officer (CFO), in consultation with various managers across the organization has developed the following set of assumptions to help create the 2017 budget:

1. The budgeted unit sales are 12,000 units, 37,000 units, 15,000 units, and 25,000 units for quarters 1-4, respectively. Notice that the company experiences peak sales in the second and fourth quarters. The budgeted selling price for the year is $32 per unit. The budgeted unit sales for the first quarter of 2018 is 13,000 units.
2. All sales are on credit. Uncollectible accounts are negligible and can be ignored. Seventy-five percent of all credit sales are collected in the quarter of the sale and 25% are collected in the subsequent quarter.
3. Each quarter’s ending finished goods inventory should equal 15% of the next quarter’s unit sales.
4. Each unit of finished goods requires 3.5 yards of raw material that costs $3.00 per yard. Each quarter’s ending raw materials inventory should equal 10% of the next quarter’s production needs. The estimated ending raw materials inventory on December 31, 2017, is 5,000 yards.
5. Seventy percent of each quarter’s purchases are paid for in the quarter of purchase. The remaining 30% of each quarter’s purchases are paid in the following quarter.
6. Direct laborers are paid $18 an hour and each unit of finished goods requires 0.25 direct labor-hours to complete. All direct labor costs are paid in the quarter incurred.
7. The budgeted variable manufacturing overhead per direct labor-hour is $3.00. The quarterly fixed manufacturing overhead is $150,000 including $20,000 of depreciation on equipment. The number of direct labor-hours is used as the allocation base for the budgeted plantwide overhead rate. All overhead costs (excluding depreciation) are paid in the quarter incurred.
8. The budgeted variable selling and administrative expense is $1.25 per unit sold. The fixed selling and administrative expenses per quarter include advertising ($25,000), executive salaries ($64,000), insurance ($12,000), property tax ($8,000), and depreciation expense ($8,000). All selling and administrative expenses (excluding depreciation) are paid in the quarter incurred.
9. The company plans to maintain a minimum cash balance at the end of each quarter of $30,000. Assume that any borrowings take place on the first day of the quarter. To the extent possible, the company will repay principal and interest on any borrowings on the last day of the fourth quarter. The company’s lender imposes a simple interest rate of 3% per quarter on any borrowings.
10. Dividends of $15,000 will be declared and paid in each quarter.
11. The company uses a last-in, first-out (LIFO) inventory flow assumption. This means that the most recently purchased raw materials are the “first-out” to production and the most recently completed finished goods are the “first-out” to customers.

Required:

The company’s CFO has asked you to prepare the 2017 master budget. To fulfill this request, prepare the following budget schedules and financial statements.

1. Quarterly sales budget including a schedule of expected cash collections.

2. Quarterly production budget.

3. Quarterly direct materials budget including a schedule of expected cash disbursements for purchases of materials.

4. Quarterly direct labor budget.

5. Quarterly manufacturing overhead budget.

6. Ending finished goods inventory budget at December 31, 2017.

7. Quarterly selling and administrative expense budget.

8. Quarterly cash budget.

9. Income statement for the year ended December 31, 2017.

10. Balance sheet at December 31, 2017.

Answer 1

1)
Endless Mountain Factory
Schedule of Sales Budget
	Quarter 1	Quarter 2	Quarter 3	Quarter 4	Total	Quarter 1
Sales (Units)=(A)	12000	37000	15000	25000	89000	13000
Sale Price per (unit)=(B)	$                     32.00	$                     32.00	$                  32.00	$               32.00	32	32
Sales Price=(A)*(B)	$           3,84,000.00	$         11,84,000.00	$        4,80,000.00	$     8,00,000.00	$ 28,48,000.00	$4,16,000.00
Endless Mountain Factory
	Quarter 1	Quarter 2	Quarter 3	Quarter 4	Total	Quarter 1
Sales (Units)=(A)	12000	37000	15000	25000	89000	13000
Sale Price per (unit)=(B)	$                     32.00	$                     32.00	$                  32.00	$               32.00	32	32
Sales Price=(A)*(B)	$           3,84,000.00	$         11,84,000.00	$        4,80,000.00	$     8,00,000.00	$ 28,48,000.00	$4,16,000.00
Endless Mountain Factory
Schedule of Expected cash collection
	Quarter 1	Quarter 2	Quarter 3	Quarter 4	Total
Beginning Accounts Receivable	$           2,60,000.00				$    2,60,000.00
Quarter 1 Sales	$           2,88,000.00	$              96,000.00			$    3,84,000.00
Quarter 2 sales		$           8,88,000.00	$        2,96,000.00		$ 11,84,000.00
Quarter 3 Sales			$        3,60,000.00	$     1,20,000.00	$    4,80,000.00
Quarter 4 Sales				$     6,00,000.00	$    6,00,000.00
Total Cash collection	$           5,48,000.00	$           9,84,000.00	$        6,56,000.00	$     7,20,000.00	$ 29,08,000.00
Endless Mountain Factory
Schedule of Expected cash collection
	Quarter 1	Quarter 2	Quarter 3	Quarter 4
Beginning Accounts Receivable	$           2,60,000.00
Quarter 1 Sales	($384000*75%)	($384000*25%)
Quarter 2 sales		($1184000*75%)	($1184000*25%)
Quarter 3 Sales			($480000*75%)	($484000*25%)
Quarter 4 Sales				($800000*75%)
2)
Endless Mountain Factory
Schedule of Production Budget
	Quarter 1	Quarter 2	Quarter 3	Quarter 4	Total
Sales	12000	37000	15000	25000	89000
Add: Ending Inventory=(II)	5550	2250	3750	1950	1950
Total needs=(i)+(II)	17550	39250	18750	26950	90950
Beginning Inventory	1500	5550	2250	3750	1500
Required Production	16050	33700	16500	23200	89450
Ending Inventory	(37000*15%	(15000*15%)	(25000*15%)	(13000*15%)
Beginning Inventory	1500	(37000*15%	(15000*15%)	(25000*15%)
3)
Schedule of Raw Material Purchase Budget
	Quarter 1	Quarter 2	Quarter 3	Quarter 4	Total
Units to be produced=(A)	16050	33700	16500	23200	89450
Direct Material required per unit(per Yard)=(B)	3.5	3.5	3.5	3.5	3.5
Total Material required for production=(C )	56175	117950	57750	81200	313075
Ending Raw Material=(D)	11795	5775	8120	5000	5000
Total Raw Material Required=(E )=(C )*(D)	67970	123725	65870	86200	318075
Beginning Raw Material=(F )	4500	11795	5775	8120	4500
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It is in the process of creating a master budget for 2017 and reports a balance sheet at December 31, 2016 as follows: Endless Mountain Company Balance Sheet December 31, 2016 Assets Current assets: Cash $ 46,200 Accounts receivable (net) 260,000 Raw materials inventory (4,500 yards) 11,250 Finished goods inventory (1,500... Endless Mountain Company manufactures a single product that is popular with outdoor recreation enthusiasts. The company... Endless Mountain Company manufactures a single product that is popular with outdoor recreation enthusiasts. The company sells its product to retailers throughout the northeastern quadrant of the United States. It is in the process of creating a master budget for 2017 and reports a balance sheet at December 31, 2016 as follows: Endless Mountain Company Balance Sheet December 31, 2016 Assets Current assets: Cash $ 46,200 Accounts receivable (net) 260,000 Raw materials inventory (4,500 yards) 11,250 Finished goods inventory (1,500... Endless Mountain Company manufactures a single product that is popular with outdoor recreation enthusiasts. The company... Endless Mountain Company manufactures a single product that is popular with outdoor recreation enthusiasts. The company sells its product to retailers throughout the northeastern quadrant of the United States. It is in the process of creating a master budget for 2017 and reports a balance sheet at December 31, 2016 as follows: Endless Mountain Company Balance Sheet December 31, 2016 Assets Current assets: Cash $ 46,200 Accounts receivable (net) 260,000 Raw materials inventory (4,500 yards) 11,250 Finished goods inventory (1,500... Endless Mountain Company manufactures a single product that is popular with outdoor recreation enthusiasts. The company... Endless Mountain Company manufactures a single product that is popular with outdoor recreation enthusiasts. The company sells its product to retailers throughout the northeastern quadrant of the United States. It is in the process of creating a master budget for 2017 and reports a balance sheet at December 31, 2016 as follows: Endless Mountain Company Balance Sheet December 31, 2016 Assets Current assets: Cash $ 46,200 Accounts receivable (net) 260,000 Raw materials inventory (4,500 yards) 11,250 Finished goods inventory (1,500... Endless Mountain Company manufactures a single product that is popular with outdoor recreation enthusiasts. The company... Endless Mountain Company manufactures a single product that is popular with outdoor recreation enthusiasts. The company sells its product to retailers throughout the northeastern quadrant of the United States. It is in the process of creating a master budget for 2017 and reports a balance sheet at December 31, 2016 as follows: Endless Mountain Company Balance Sheet December 31, 2016 Assets Current assets: Cash $ 46,200 Accounts receivable (net) 260,000 Raw materials inventory (4,500 yards) 11,250 Finished goods inventory (1,500... 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