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Understanding Relationships, Master Budget, Comprehensive Review Optima Company is a high-technology organization that produces a mass-storage...

Understanding Relationships, Master Budget, Comprehensive Review

Optima Company is a high-technology organization that produces a mass-storage system. The design of Optima's system is unique and represents a breakthrough in the industry. The units Optima produces combine positive features of both compact and hard disks. The company is completing its fifth year of operations and is preparing to build its master budget for the coming year (20X1). The budget will detail each quarter's activity and the activity for the year in total. The master budget will be based on the following information:

Fourth-quarter sales for 20X0 are 55,000 units.

Unit sales by quarter (for 20X1) are projected as follows:

First quarter 65,000
Second quarter 70,000
Third quarter 75,000
Fourth quarter 90,000

The selling price is $400 per unit. All sales are credit sales. Optima collects 85% of all sales within the quarter in which they are realized; the other 15% is collected in the following quarter. There are no bad debts.There is no beginning inventory of finished goods. Optima is planning the following ending finished goods inventories for each quarter:

First quarter 13,000 units
Second quarter 15,000 units
Third quarter 20,000 units
Fourth quarter 10,000 units

Each mass-storage unit uses 5 hours of direct labor and three units of direct materials. Laborers are paid $10 per hour, and one unit of direct materials costs $80.

There are 65,700 units of direct materials in beginning inventory as of January 1, 20X1. At the end of each quarter, Optima plans to have 30% of the direct materials needed for next quarter's unit sales. Optima will end the year with the same amount of direct materials found in this year's beginning inventory.

Optima buys direct materials on account. Half of the purchases are paid for in the quarter of acquisition, and the remaining half are paid for in the following quarter. Wages and salaries are paid on the 15th and 30th of each month.

Fixed overhead totals $1 million each quarter. Of this total, $350,000 represents depreciation. All other fixed expenses are paid for in cash in the quarter incurred. The fixed overhead rate is computed by dividing the year's total fixed overhead by the year's budgeted production in units.

Variable overhead is budgeted at $6 per direct labor hour. All variable overhead expenses are paid for in the quarter incurred.

Fixed selling and administrative expenses total $250,000 per quarter, including $50,000 depreciation.

Variable selling and administrative expenses are budgeted at $10 per unit sold. All selling and administrative expenses are paid for in the quarter incurred.

The balance sheet as of December 31, 20X0, is as follows:

Assets
Cash $ 250,000
Direct materials inventory 5,256,000
Accounts receivable 3,300,000
Plant and equipment, net 33,500,000
     Total assets $42,306,000
Liabilities and Stockholders’ Equity
Accounts payable $ 7,248,000*
Capital stock 27,000,000
Retained earnings 8,058,000
     Total liabilities and stockholders’ equity $42,306,000
* For purchase of direct materials only.

Optima will pay quarterly dividends of $300,000. At the end of the fourth quarter, $2 million of equipment will be purchased.

REQUIRED

1) Direct Materials Purchases Budget (in thousands, except for per unit/hour data) If required, round answers to one decimal place.

Optima Company Direct Materials Purchases Budget For the Year Ending December 31, 20X1
qtr 1 qtr2 qtr 3 qtr 4 total
production 78 72 80 80 310
Materials/unit
3 3 3 3 3
Production needs 234 216 240 240 930
Desired ending inventory
Total needs
Less: Beginning inventory
Purchases
Cost per unit 80 80 80 80 80
Purchase cost 74,400

2) Cost of goods sold budget (Note: Assume that there is no change in work-in-process inventories.) Enter amounts in full, not in thousands. If an amount is zero, enter "0".

Optima Company Cost of Goods Sold Budget For the Year Ending December 31, 20X1
direct materials used
direct labor ussed 15,500,000
overhead 13,300,000
Budgeted manufacturing costs
Add: Beginning finished goods inventory 0
Cost of goods available for sale
Less: Ending finished goods inventory 3,329,000
Budgeted cost of goods sold


3)Cash Budget (in thousands)

Optima Company Cash Budget For the Year Ending December 31, 20X1
qtr 1 qtr 2 qtr 3 qtr 4 total
Beginning cash bal. 250 250
Credit sales:
Currentquarter
prior quarter
cash available
Less disbursements:
Direct materials:
Current quarter
prior quarter
direct labor
overhead
selling and admin.
dividends
euipment
total cash needs 0 0 0
ending cash

4) Pro forma income statement (using absorption costing). Enter amounts in full, not in thousands.(Note: Ignore income taxes.)

sales 120,000,000
less: cost of goods sold
gross margin
less: selling and adm expenses 4,000,000
income before taxes

5). Pro forma balance sheet. Enter amounts in full, not in thousands. List all assets and liabilities in order of liquidity. (Note: Ignore income taxes.)

cash
accounts receivable 5,400,000
DIRECT MATERIALS INVENTORY 5,256,000
finished goods inventory
plant equipment 33,900,000
total assest

Liabilities and stockholders' equity

Accounts payble

capital stock 27,000,000
retained earnings
Total liabilities and stockholders' equity

Solutions

Expert Solution

Please find below answer of your question. Let me know if any explanation needed apart from below explaned. If this helped, please hit LIKE button.

1 Direct Material Budget
Q1 Q2 Q3 Q4 Total
Production 78 72 80 80 310
Material Per Unit 3 3 3 3 3
Production Needs Direct Material 234 216 240 240 930
Desired Ending Inventory (30% of next quarter Unit sale) For Last Q, Same as Opening of Q1 64.8 72 72 65.7 274.5
Total Needs 298.8 288 312 305.7 1204.5
Less Beginning Inventory (Ending of Last Q) 65.7 64.8 72 72 274.5
Purchases 233.1 223.2 240 233.7 930
Cost Per Unit 80 80 80 80 80
Purchase Cost 18648 17856 19200 18696 74400
2 Cot of Goods Sold Budget
Direct Material Used (930*80) 74400000
Direct Labor Used (310*5*10) 15500000
Overhead (310*5*6)+1000000*4 13300000
Budgeted Manufacturing Costs 103200000
Add: Beginning Finished Goods Inventory 0
Cost of Goods Available for sales 103200000
Less: Ending Finished Goods Inventory 3329000
Budgeted Cost of Goods Sold 99871000
3 Cash Budget
Q1 Q2 Q3 Q4 Total
Beginning Cash Balance 250 1038 2876 5748 250
Credit Sale
-Current Quarter 22100 23800 25500 30600 102000
-Prior Quarter 3300 3900 4200 4500 15900
Cash Available 25650 28738 32576 40848 118150
Less Disbursment Direct Material
-Current Quarter 9324 8928 9600 9348 37200
-Prior Quarter 7248 9324 8928 9600 35100
Direct Labor (Prod Units*5*10) 3900 3600 4000 4000 15500
Overhead (Prod Units*5*6)+1000 each quarter-350 of Dep 2990 2810 3050 3050 11900
Selling and Admin (Unit Sold*10)+250-50 Dep 850 900 950 1100 3800
Dividends 300 300 300 300 1200
Equipment 2000
Total Cash Needs 24612 25862 26828 29398 106700
Ending Cash 1038 2876 5748 11450 11450
4 Income Statement
Sales 120000000
Less: Cost of Goods Sold 99871000
Gross Margin 20129000
Less: Selling and Admin (300000*10)+250000*4 4000000
Income Before Taxes 16129000
5 Proforma Balance Sheet
Cash 11450000
Accounts Receivable (36000000 Last Q sale*15%) 5400000
Direct Material Inventory (65700*80) 5256000
Finished Goods Inventory (99871000*300000 sale/10000 closing) 3329000
Plant Equipment 33900000
Total Asset 59335000
Capital Stock 27000000
Accounts Payable (18696000*50%) 9348000
Retained Earning (8058000+16129000-1200000 Dividend) 22987000
Total Liabilitys and equity 59335000 0
Working
Q4 of last year Q1 Q2 Q3 Q4 Total
Unit 55 65 70 75 90 355
Credit Sale (Unit*400) 22000 26000 28000 30000 36000 142000
-Current Quarter 85% 22100 23800 25500 30600
-Prior Quarter 15% of prior 3300 3900 4200 4500
Direct Material 14496 18648 17856 19200 18696 74400
-Direct Material 50% 9324 8928 9600 9348
-Current Quarter 50% 7248 9324 8928 9600
last year account payable was 7248 which is 50%, balance will be paid in Q1

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