In: Accounting
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.
qtr 1 | qtr2 | qtr 3 | qtr 4 | total | |||
production | 78 | 72 | 80 | 80 | 310 | ||
|
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".
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)
qtr 1 | qtr 2 | qtr 3 | qtr 4 | total | ||||||||||||||
Beginning cash bal. | 250 | 250 | ||||||||||||||||
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prior quarter | ||||||||||||||||||
cash available | ||||||||||||||||||
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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 |
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 |