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Susquehanna Corp. is a manufacturer of earrings. You have been hired as a new management trainee of the company. In the past, the company has done very little in budgeting and at certain times of the year has experienced a shortage of cash. Since you are well trained in budgeting, you have decided to prepare a master budget for the upcoming year. You have gathered the beginning balance sheet and the necessary assumptions for you to create the budget. The company has an agreement with a bank that allows the company to borrow in increments of $10,000 at the beginning of each quarter. The interest is 2% per quarter and for simplicity we will assume that interest is not compounded. At the end of the quarter, the company will pay the bank all of the accumulated interest for the quarter on the loan and as much of the loan as possible (in increments of $10,000), while still retaining at least $40,000 in cash. Insurance for the whole year will be paid in January. Prepare the master budget for the year 2017.
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Earrings Corp. Earrings Corp.
Balance Sheet Budgeting Assumptions
December 31, 2016
2017 2018
Assets Sales Budget Assumptions Same for all quarters Quarter 1 Quarter 2 Quarter 3 Quarter 4 Quarter 1 Quarter 2
Current assets: Budgeted sales in pairs of earrings 105,000 50,000 60,000 100,000 135,000 65,000
Cash $ 48,000 Selling price per pair $ 23.50
Accounts receivable 224,000 Percentage of sales collected in the quarter of sale 60%
Raw materials inventory (240,000 grams of silver) 120,000 Percentage of sales collected in the quarter after sale 40%
Finished goods inventory (48,000 pairs of earrings) 480,000
Total current assets $ 872,000 Production Budget Assumptions
Plant and equipment: Percentage of next quarter's sales needed in ending finished goods inventory 40%
Land 50,000
Buildings and equipment 650,000 Direct Materials Budget Assumptions
Accumulated depreciation (330,000) Grams of silver per pair of earring 10
Total Plant and equipment, net 370,000 Cost per gram of silver $ 0.50
Total assets $ 1,242,000 Percentage of next quarter's production needs in ending inventory 20%
Percentage of purchases paid in the quarter of purchase 55%
Liabilities and Stockholders' Equity Percentage of purchases paid in the quarter after purchase 45%
Current liabilities:
Accounts payable $ 93,000 Direct Labor Budget Assumptions
Stockholders' equity: Direct labor-hours required per pair 0.20
Common stock $ 700,000 Direct labor cost per hour $ 12.00
Retained earnings 449,000
Total stockholders' equity 1,149,000 Manufacturing Overhead Budget Assumptions
Total liabilities and stockholders' equity $ 1,242,000 Variable manufacturing overhead per direct labor-hour $ 1.50
Fixed manufacturing overhead excluding depreciation per quarter $ 145,950
Depreciation on factory assets per quarter $ 25,000 $ 30,000 $ 32,000 $ 33,000
Selling and Administrative Expense Budget Assumptions
Variable selling and administrative expense per pair $ 2.80
Fixed selling and administrative expense:
Advertising expense per quarter $ 270,000
Executive salaries per quarter $ 105,000
Insurance expense per quarter $ 48,000 (the whole year's insurance will be paid in January)
Rent expense per quarter $ 240,000
Depreciation on non-factory assets per quarter $ 14,000 $ 16,000 $ 17,000 $ 18,000
Cash Budget Assumptions
Minimum cash balance $ 40,000
Equipment purchases $ 20,000 $ 40,000 $ 15,000 $ 10,000
Dividends per quarter $ 15,000
Interest rate per quarter 2%
Loans can be made and repaid in increments of $10,000
Earrings Corp.
Master Budget
For the Year Ended December 31, 2017
Sales Budget Quarter
1 2 3 4 Year
Budgeted unit sales (in pairs) ? ? ? ? ?
Selling price per unit ? ? ? ? ?
Total sales ? ? ? ? ?
Schedule of Expected Cash Collections
Beginning accounts receivable ? ?
First quarter sales ? ? ?
Second quarter sales ? ? ?
Third quarter sales ? ? ?
Fourth quarter sales ? ?
Total cash collections ? ? ? ? ?
Production Budget Quarter
1 2 3 4 Year
Budgeted unit sales ? ? ? ? ?
Add: Desired units of ending finished goods inventory ? ? ? ? ?
Total needs ? ? ? ? ?
Less: Units of beginning finshed goods inventory ? ? ? ? ?
Required production in units ? ? ? ? ?
Direct Materials Budget Quarter
1 2 3 4 Year
Required production in pairs ? ? ? ? ?
Units of raw materials needed per pair ? ? ? ? ?
Units of raw materials needed to meet production ? ? ? ? ?
Add desired units of ending raw materials inventory ? ? ? 214,000 ?
Total units of raw materials needed ? ? ? ? ?
Less units of beginning raw materials inventory ? ? ? ? ?
Units of raw materias to be purchased ? ? ? ? ?
Cost of raw materials per pound ? ? ? ? ?
Cost of raw materials to be purchased ? ? ? ? ?
Schedule of Expected Cash Disbursements for Purchases of Materials
Beginning accounts payable ? ?
First quarter purchases ? ? ?
Second quarter purchases ? ? ?
Third quarter purchases ? ? ?
Forth quarter purchases ? ?
Total cash disbursements for materials ? ? ? ? ?
Direct Labor Budget Quarter
1 2 3 4 Year
Required production in pairs ? ? ? ? ?
Direct labor-hours per pair ? ? ? ? ?
Total direct labor-hours needed ? ? ? ? ?
Direct labor cost per hour ? ? ? ? ?
Total direct labor cost ? ? ? ? ?
Manufacturing Overhead Budget Quarter
1 2 3 4 Year
Budgeted direct labor-hours ? ? ? ? ?
Variable manufacturing overhead rate ? ? ? ? ?
Variable manufacturing overhead ? ? ? ? ?
Fixed manufacturing overhead ? ? ? ? ?
Total manufacturing overhead ? ? ? ? ?
Less depreciation on factory assets ? ? ? ? ?
Cash disbursements for manufacturing overhead ? ? ? ? ?
Total manufacturing overhead ?
Budgeted direct labor-hours ?
Predetermined overhead rate for the year 2017 ?
Ending Finished Goods Inventory Budget (absorption costing basis)
Item Quantity Cost Total
Production cost per case:
Direct materials ? grams ? per gram ?
Direct labor ? hours ? per hour ?
Manufacturing overhead ? hours ? per hour ?
Unit product cost ?
Budgeted finished goods inventory:
Ending finished goods inventory in cases ?
Unit product cost ?
Ending finished goods inventory in dollars ?
Selling and Administrative Expense Budget Quarter
1 2 3 4 Year
Budgeted unit sales ? ? ? ? ?
Variable selling and administrative expense per pair ? ? ? ? ?
Total variable selling and administrative expense ? ? ? ? ?
Fixed selling and administrative expense per quarter:
Advertising ? ? ? ? ?
Executive salaries ? ? ? ? ?
Insurance ? ? ? ? ?
Rent ? ? ? ? ?
Depreciation on non-factory assets ? ? ? ? ?
Total fixed selling and administrative expense ? ? ? ? ?
Total selling and administrative expense ? ? ? ? ?
Adjustment for prepaid insurance #VALUE! #VALUE! #VALUE! #VALUE! #VALUE!
Less depreciation on non-factory assets ? ? ? ? ?
Cash disbursements for selling and administrative expense ? ? ? ? ?
Cash Budget Quarter
1 2 3 4 Year
Beginning cash balance ? ? ? ? ?
Add cash receipts:
Collections from customers ? ? ? ? ?
Total cash available ? ? ? ? ?
Less cash disbursements:
Direct materials ? ? ? ? ?
Direct labor ? ? ? ? ?
Manufacturing overhead ? ? ? ? ?
Selling and administrative ? ? ? ? ?
Equipment purchases ? ? ? ? ?
Dividends ? ? ? ? ?
Total cash disbursements ? ? ? ? ?
Excess (deficiency) of cash available over disbursements ? ? ? ? ?
Financing:
Borrowings (at the beginnings of quarters) $ 50,000.00 $ - ?
Repayments (at end of the year) $ - ? ?
Interest $ (1,000.00) ? ?
Total financing $ 49,000.00 ? ? ? ?
Ending cash balance ? ? ? ? ?

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Casey Durgan
Casey DurganLv2
28 Sep 2019

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