Question

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

Answer 1

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