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Comprehensive Budgeting Problem To be completed using Excel. The Highlander Corporation Balance Sheet December 31, 2019...
Comprehensive Budgeting Problem
To be completed using Excel.
The Highlander Corporation
Balance Sheet
December 31, 2019
Assets
|
Cash |
$ 6,595 |
|
|
Accounts Receivable |
10,000 |
|
|
Finished Goods (575 units x $7.00 per unit |
4,025 |
|
|
Raw Materials (2,760 square inches @ $0.50 per square inch) |
1,380 |
|
|
Plant and Equipment |
$ 60,000 |
|
|
Less: Accumulated Depreciation |
15,000 |
45,000 |
|
Total Assets |
67,000 |
Liabilities
|
Trade Accounts Payable |
9,000 |
|
|
9,000 |
Stockholders’ Equity
|
Common Stock |
33,000 |
|
|
Retained Earnings |
25,000 |
|
|
Total Stockholders’ Equity |
58,000 |
|
|
Total liabilities & Stockholders’ equity |
$ 67,000 |
In preparation for developing the master budget for the first three months of 2020, the following has been extracted from the company’s accounting records
- All sales are made on account at $25 per unit. Sixty Percent of the sales are collected in the month of sale, the remaining 40% are collected in the following month. Forecast sales for the first five months of 2020 are: January, 1,800 units; February, 2,000 units; March, 2,100 units; April, 2,000 units; May 2,200 units.
- Management wants to maintain the finished goods inventory at 30% of the following month’s sales.
- Watson uses four square inches of direct materials in each finished unit. The direct material prices
have been stable and are expected to remain so over the next six months. Management wants to maintain the ending direct materials inventory at 60% of the following month’s production needs.
- 70% of all purchases are paid in the month of purchase; the remaining 30% are paid in the subsequent month.
- Watson’s product requires 30 minutes of direct labor time. Each hour of direct labor costs $8. Additionally factory overhead is charged to products at a rate of $4 per labor hour.
- Equipment depreciation for 2020(already included in the factory overhead) will be $6,000 ($500 per month).
- No new equipment will be purchased and no new common stock will be issued during 2020.
- Operating expenses, all paid in cash, are expected to be $2,500 in January and grow by 1% each month after that.
- Beginning and ending Work-In-Process inventories are insignificant and can be ignored.
Prepare the following for January, February and March of 2020:
- a budgeted income statement
- a budgeted balance sheet
Each schedule should show budgets for January, February, and March (e.g. don’t put each month on a separate sheet, but each schedule, A to I, should be on a separate worksheet). You may omit a Quarter Total column or sheet. To the degree possible, each sheet should be linked to all related sheets. For example, the sales figures on your production budget should come from (be linked to) your sales budget. You may create any additional worksheets (to be linked as well) if you need.
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Expert Solution
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| I have already solved this before so I am not preparing answer a to g. I will give reference in my solution if I will use any answer from a to g. |
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| Cost of goods sold | |||||||
| Material cost | January | February | March | Total | Note | ||
| Budgeted Sales units | 1,800.00 | 2,000.00 | 2,100.00 | A | |||
| Material required per unit | 4.00 | 4.00 |
|
B | |||
| Material required | 7,200.00 | 8,000.00 | 8,400.00 | C=A*B | |||
| Cost per inch | 0.50 | 0.50 | 0.50 | D | |||
| Direct Material cost | 3,600.00 | 4,000.00 | 4,200.00 | 11,800.00 |
|
||
| Direct Labor Budget | January | February | March | Total | |||
| Budgeted Sales units | 1,800.00 | 2,000.00 | 2,100.00 | See A | |||
| Labor Hour required per unit | 0.50 | 0.50 | 0.50 | F | |||
| Labor Hour required | 900.00 | 1,000.00 | 1,050.00 | G=A*F | |||
| Cost per Hour | 8.00 | 8.00 | 8.00 | H | |||
| Direct Labor Budget | 7,200.00 | 8,000.00 | 8,400.00 | 23,600.00 | I=G*H | ||
| Manufacturing overhead Budget | January | February | March | Total | |||
| Labor Hour required | 900.00 | 1,000.00 | 1,050.00 | See F | |||
| Variable manufacturing overhead per hour | 4.00 | 4.00 | 4.00 | J | |||
| Manufacturing overhead Budget | 3,600.00 | 4,000.00 | 4,200.00 | 11,800.00 | K=F*J | ||
| Budgeted Cost of goods sold | 14,400.00 | 16,000.00 | 16,800.00 | 47,200.00 | L=E+I+K | ||
|
|
|||||||
| Income Statement | January | February | March | Total | |||
| Budgeted Sales Revenue | 45,000.00 | 50,000.00 | 52,500.00 | 147,500.00 | See answer a. Sales Budget. | ||
| Less: Budgeted Cost of goods sold | 14,400.00 | 16,000.00 | 16,800.00 | 47,200.00 | See L | ||
| Budgeted Gross Margin | 30,600.00 | 34,000.00 | 35,700.00 | 100,300.00 | |||
|
2,500.00 | 2,525.00 | 2,550.25 | 7,575.25 | See answer f. Operating expenses Budget. | ||
| Budgeted Net Operating Income | 28,100.00 | 31,475.00 | 33,149.75 | 92,724.75 | M |
| Balance Sheet | Amount $ | Amount $ | Note |
| Assets | |||
| Current Assets | |||
| Cash | 80,766.15 | See answer g. Cash Budget. | |
| Accounts Receivable | 21,000.00 | This is 40% of March Sales. | |
| Finished goods Inventory | 4,225.00 | This is a balancing figure. | |
| Raw Material Inventory | 2,472.00 | See answer d and e. This is closing inventory* cost per inch i.e. 4,944 units * 0.50= $ 2,472. | |
| Total Current Assets | 108,463.15 | ||
| Plant Property & Equipment | |||
| Plant Property & Equipment | 60,000.00 | ||
| Accumulated Depreciation | (16,500.00) | This is $ 15,000 (given in question, Dec 31 balance) + 1,500 (current period depreciation). | |
| Total Plant Property & Equipment | 43,500.00 | ||
| Total Assets | 151,963.15 | ||
| Liabilities & Stockholder's equity | Amount $ | Amount $ | |
| Liabilities | |||
| Current Liabilities | |||
| Accounts Payable | 1,238.40 | This is 30% of March purchases. | |
| Total Current Liabilities | 1,238.40 | ||
| Non Current Liabilities | |||
| Total Liabilities | 1,238.40 | ||
| Stockholder's Equity | |||
| Common Stock |
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