Question

At Beaver Baseball Company, we make the wo
rld’s best baseballs. We use world-class
leather, cork and string to
create unmatched quality and
durability. To support our
world-class baseballs, we create a master
operational budget each year to plan and
coordinate our efforts and to allow us to
evaluate our performance. To help us
complete this year’s master operating budget, you will need the following information.
Sales Budget
We sell our baseballs for $14 per baseball.
During the first quarter we plan on selling
40,000 balls in January, 145,000 balls in Febr
uary, and 130,000 balls in March. After
selling our baseballs, we plan on
collecting 40% of those sales in the month of sale and
60% in the month following the sale. The
beginning balance in accounts receivable will
be $75,000.
Production Budget
We always start each year with 10,000 finish
ed baseballs in inventory on January 1
st
.
Each month during the year we want 25% of
the following month’s
unit sales in ending
inventory. We expect 225,000 un
its to be sold in April.
Direct Material Budget – Leather Only
We have already prepared the direct materi
al budget for string and cork so you need to
help with the direct material budget for the
leather. We use 9 squar
e inches of leather
to make one baseball. Each month we want
35% of the following month’s production
requirements of leather in ending inventory.
We buy premium leather for $0.25 per
square inch. The beginning balance in a
ccounts payable balance this year will be
$85,000 and we plan to pay for 55% of the
purchases in the month of purchase and
45% in the month following the purchase.
We expect total production needed in April to
be 1,650,000 square inches.
Direct Labor Budget
Our employees spend 0.05 of an hour maki
ng each baseball and we pay our employees
$18 per hour.
Manufacturing Overhead Budget
Our variable manufacturing overhead rate
is $3.00 per budgeted direct labor hour.
Each month our fixed manufacturing overhe
ad is $12,500. Each month we record
$6,500 of depreciation for the
factory and production equipment.
SG&A Budget
Our variable SG&A expenses are $1.10 per baseba
ll. Our fixed SG&A expenses are as
follows:
Advertising
$ 7,500
Salaries $22,500
Rent $18,000
Insurance
$ 2,500
Property Taxes
$ 4,000
Depreciation
$ 8,000
Cash Budget
We start each year with $25,000 in our bank
account and require at least $25,000 in the
bank at the end of every month. We have a
$1,000,000 revolving line of credit at our
bank and we are not restricted to any spec
ific increment when borrowing or repaying
funds, but when we borrow we must borrow at
the beginning of a m
onth and must repay
at the end of a month. The bank charges us
a 12% annual interest rate and interest is
only paid when a principle payment is made.
We purchase $80,000 of equipment in
January and another $65,000 of equipment in
March. The owners are paid $75
0,000 of dividends in February.

Required unit production

FG Ending Inventory Requirements

25%

following month's budgeted unit sales

Beaver Baseball Company

Beaver Baseball Company

Direct Material Budget

Jan

Feb

Mar

Qtr

Required unit production

Required material per unit - square inches

Total Production Need

Ending Inventory Required -- RM

Total raw materials needed

Beginning Inventory -- RM

Raw material to be purchased

Cost of raw material per square inch

Budgeted Cost of Material to be Purchased

RM Ending Inventory Requirements

35%

following month's production requirements

Schedule of Cash Payments

Jan

Feb

Mar

Qtr

A/P Beginning

Jan Purchases

Feb Purchases

Mar Purchases

Budgeted Cash Payments

Payment - month of purchase

55%

Payment - month following purchase

45%

Direct Labor Budget

Jan

Feb

Mar

Qtr

Required unit production

Direct labor hours per unit

Total direct labor hours

Direct labor cost per hour

Total direct labor cost

Beaver Baseball Company

Manufacturing Overhead Budget

Jan

Feb

Mar

Qtr

Budgeted direct labor hours

VOH Rate

VOH

FOH

Total MFG-OH

Depreciation

Cash Paid for MFG-OH

Total MFG-OH

Budgeted DLH

POR

SG&A Budget

Jan

Feb

Mar

Qtr

Budgeted unit sales

-

-

-

-

Variable SG&A per unit

Variable SG&A

Fixed SG&A:

Advertising

Salaries

Rent

Insurance

Property Taxes

Depreciation

Total Fixed SG&A

Total SG&A

Depreciation

Cash Paid for SG&A

Cash Budget

Jan

Feb

Mar

Qtr

Beginning Balance

Budgeted Cash Collection

Budgeted Cash Available

Budgeted Cash Payments:

Materials

Labor

MFG-OH

SG&A

Dividends

Equipment

Total Budgeted Cash Payments

Cash Over/

(Short)

Financing:

Borrowing

Repayment

Interest Paid

Total Financing

Ending Balance

Minimum Ending Balance

$25,000.00

Interest Rate

12%

Borrowing:

At beginning of the month

Repayment:

At end of the month

Answer 1