Budget Project - Master Budget for a Garneau ManufacturerGarneau Manufacturing Ltd. produces and distributes a special typeof chemical compound called Compound WX. The information belowabout Garneau's operations has been assembled to assist budgetpreparation. The company is preparing its master budget for thefirst quarter of 2016. The budget will detail each monthâs activityand the activity for the quarter in total. The master budget willbe based on the following information:
1. Selling price is $60 per unit in 2015 and will not change forthe first two quarters of 2016. Actual and estimated sales are asfollows:
Actual 2015 Estimated 2016
November: 10 000 units January: 11 000 units
December: 12 000 units February: 10 000 units
March: 13 000 units
April: 11 000 units
May: 10 000 units
2. The company produces enough units each month to meet thatmonthâs sales plus a desired inventory level equal to 20% of nextmonthâs estimated sales. Finished Goods inventory at the end of2015 consisted of 2,200 units at a variable cost of $33 each.
3. The company purchases enough raw materials each month for thecurrent monthâs production requirement and 25% of next month'sproduction requirements. Each unit of product requires 5 kilogramsof raw material at $0.60 per kilogram. There were 13,500 kilogramsof raw materials in inventory at the end of 2015. Garneau pays 40%of raw material purchases in the month of purchase and theremaining 60% in the following month.
4. Each unit of finished product requires 1.25 labour-hours. Theaverage wage rate is $16 per hour.
5. Variable manufacturing overhead is 50% of the direct labourcost.
6. Credit sales are 60% of total sales. The company collects 50%of the credit sales during the first month following the month ofsale and 50% during the second month.
7. Fixed overhead costs (per month) are as follows:
Factory Supervisor's Salary: $75 000
Factory Insurance: $1 400
Factory Rent: $8 000
Deprciation of Factory Equipment: $1 200
8. Total fixed selling and administrative expenses are asfollows:
Advertising: $300
Depreciation: $9 000
Insurance: $250
Salaries: $4 000
Other: $14 550
9. Variable selling and administrative expenses consist of $4for shipping and 10% of sales for commissions.
10.The company will acquire assets for use in the sales officeat a cost of $300,000, which will be paid at the end of January2016. The monthly depreciation expense on the additional capitalassets will be $6,000.
11.The balance sheet as of December 31, 2015, is as follows:
Assets
Cash $80 000
Accounts Recieveable 612 000
Inventory: Raw Matrerials $8 100
add
Finished Goods 72 600 = 80 700
Plant and Equipment 1 000 000
Less: Accumulation Depreciation (100 000) 900 000
Total Assets 1 672 700
Liabilities and Equity
Accounts Payable $24 000
6% Long Term Notes Payable 900 000
Common Shares 735 000
Retained Earnings 13 700
Total Liabilites and Shareholders' Equity 1 672 700
Additional information is as follows:
⢠All cash payments except purchases of raw materials are mademonthly as incurred.
⢠All borrowings occur at the beginning of each month, and allrepayments occur at the end of the month. Borrowings and repaymentsmay occur in any amount.
⢠All interest on borrowed funds is paid at the end of eachmonth at a rate of 0.5% per month.
⢠A minimum cash balance of $30,000 is required at the end ofeach month.
Required: Prepare the following budgets for each of the firstthree months of 2016:
1. Manufacturing overhead budget.
2. Selling and administrative budget.
3. Cash budget.
Budget Project - Master Budget for a Garneau ManufacturerGarneau Manufacturing Ltd. produces and distributes a special typeof chemical compound called Compound WX. The information belowabout Garneau's operations has been assembled to assist budgetpreparation. The company is preparing its master budget for thefirst quarter of 2016. The budget will detail each monthâs activityand the activity for the quarter in total. The master budget willbe based on the following information:
1. Selling price is $60 per unit in 2015 and will not change forthe first two quarters of 2016. Actual and estimated sales are asfollows:
Actual 2015 Estimated 2016
November: 10 000 units January: 11 000 units
December: 12 000 units February: 10 000 units
March: 13 000 units
April: 11 000 units
May: 10 000 units
2. The company produces enough units each month to meet thatmonthâs sales plus a desired inventory level equal to 20% of nextmonthâs estimated sales. Finished Goods inventory at the end of2015 consisted of 2,200 units at a variable cost of $33 each.
3. The company purchases enough raw materials each month for thecurrent monthâs production requirement and 25% of next month'sproduction requirements. Each unit of product requires 5 kilogramsof raw material at $0.60 per kilogram. There were 13,500 kilogramsof raw materials in inventory at the end of 2015. Garneau pays 40%of raw material purchases in the month of purchase and theremaining 60% in the following month.
4. Each unit of finished product requires 1.25 labour-hours. Theaverage wage rate is $16 per hour.
5. Variable manufacturing overhead is 50% of the direct labourcost.
6. Credit sales are 60% of total sales. The company collects 50%of the credit sales during the first month following the month ofsale and 50% during the second month.
7. Fixed overhead costs (per month) are as follows:
Factory Supervisor's Salary: $75 000
Factory Insurance: $1 400
Factory Rent: $8 000
Deprciation of Factory Equipment: $1 200
8. Total fixed selling and administrative expenses are asfollows:
Advertising: $300
Depreciation: $9 000
Insurance: $250
Salaries: $4 000
Other: $14 550
9. Variable selling and administrative expenses consist of $4for shipping and 10% of sales for commissions.
10.The company will acquire assets for use in the sales officeat a cost of $300,000, which will be paid at the end of January2016. The monthly depreciation expense on the additional capitalassets will be $6,000.
11.The balance sheet as of December 31, 2015, is as follows:
Assets
Cash $80 000
Accounts Recieveable 612 000
Inventory: Raw Matrerials $8 100
add
Finished Goods 72 600 = 80 700
Plant and Equipment 1 000 000
Less: Accumulation Depreciation (100 000) 900 000
Total Assets 1 672 700
Liabilities and Equity
Accounts Payable $24 000
6% Long Term Notes Payable 900 000
Common Shares 735 000
Retained Earnings 13 700
Total Liabilites and Shareholders' Equity 1 672 700
Additional information is as follows:
⢠All cash payments except purchases of raw materials are mademonthly as incurred.
⢠All borrowings occur at the beginning of each month, and allrepayments occur at the end of the month. Borrowings and repaymentsmay occur in any amount.
⢠All interest on borrowed funds is paid at the end of eachmonth at a rate of 0.5% per month.
⢠A minimum cash balance of $30,000 is required at the end ofeach month.
Required: Prepare the following budgets for each of the firstthree months of 2016:
1. Manufacturing overhead budget.
2. Selling and administrative budget.
3. Cash budget.