Cam’s Bookcases manufactures spirit-oriented bookcases for sale at college books

Question

Cam’s Bookcases manufactures spirit-oriented bookcases for sale at college bookstores.The company is completing its fifth year of operations and is preparing its master budgetfor the coming year (2016) based upon the following information:a. Fourth-quarter sales for 2015 are 55,000 units. Third quarter sales were 50,000

units.b. Unit sales by quarter are projected as follows:First quarter 2016  60,000Second quarter 2016  65,000Third quarter 2016  75,000Fourth quarter 2016  90,000First quarter 2017           100,000Second quarter 2017           100,000

Each unit sells for $100. Cam’s estimates that 60% of sales will be collected inthe quarter of sale. The company also estimates that 25% will be collected in thequarter following the sale and that 15% of each quarter’s sale will be collected in
the second quarter following the sale. c. Cam’s tries to maintain at least 20% of next quarter sales forecast in inventory.Beginning inventory in the first quarter of 2016 is 6,500 units. d. Each bookshelf uses one and a half hours of direct labor, five pieces of wood, andtwo cement moldings. Laborers are paid $10 per hour, one piece of wood costs$8, and cement moldings are $2.50 each.e. At the end of each quarter, Cam’s plans to have 30 percent of the wood needs and20 percent of the molding needs for the next quarter’s projected production needs. f. Cam’s buys wood frames and cement moldings on account. Half of the purchasesare paid for in the quarter of acquisition, and the remaining half are paid for in thefollowing quarter. Wages and salaries are paid on the 30th of each month.g. Fixed overhead totals $900,000 each quarter. Of this total, $150,000 representsdepreciation. All other fixed expenses are paid for in cash in the quarter incurred. h. Variable overhead is budgeted at $2 per direct labor hour. All variable overheadexpenses are paid for in the quarter incurred.i. Fixed selling and administrative expenses total $250,000 per quarter, including$50,000 depreciation.j. Variable selling and administrative expenses are budgeted at $5 per unit sold. Allselling and administrative expenses are paid for in the quarter incurred.k. Cam will pay quarterly dividends of $300,000 in the first and second quarters.l. At the end of the third quarter, a $250,000 long-term debt payment will be made.m. At the end of the fourth quarter, $2.5 million of equipment will be purchased.n. Cam’s beginning cash balance is $500,000.

Explanation / Answer

Cam's BookCases Sales Budget for the Year 2016 Particulars I Qtr II Qtr III Qtr IV Qtr Expected Sales In Units 60000 65000 75000 90000 Selling price per Unit $100 $100 $100 $100 Total Budgeted Sales $6,000,000 $6,500,000 $7,500,000 $9,000,000 Schedule of Expected Sales Collection for the Year 2016 Particulars I Qtr II Qtr III Qtr IV Qtr Current QTR sales 60% $3,600,000 $3,900,000 $4,500,000 $5,400,000 Prior qtr's sales 25% $1,375,000 $1,500,000 $1,625,000 $1,875,000 Two qtrs prior sales 15% $750,000 $825,000 $900,000 $975,000 Total cash collections $5,725,000 $6,225,000 $7,025,000 $8,250,000 Production Budget for the year 2016 Particulars I Qtr II Qtr III Qtr IV Qtr Budgeted Sales in Units 60000 65000 75000 90000 Add: Desired Ending Inventory at the end of Qtr 13000 15000 18000 20000 Total Needs 73000 80000 93000 110000 Less: Opening Inventory of Finished Goods 6500 13000 15000 18000 Required Production 66500 67000 78000 92000 Manufacturing Overhead Budget for the Year 2016 Particulars I Qtr II Qtr III Qtr IV Qtr Production in Units 66500 67000 78000 92000 Variable Overhead per unit $3 $3 $3 $3 Variable manufacturing Overhead $199,500 $201,000 $234,000 $276,000 Fixed Manufacturing Overhead 900000 900000 900000 900000 Less Depreaciation 150000 150000 150000 150000 Cash Disbursement of Fixed Overhead 750000 750000 750000 750000 Direct Material Budget for the year 2016 Particulars I Qtr II Qtr III Qtr IV Qtr Production in Units 66500 67000 78000 92000 Wood pieces required per unit 5 5 5 5 Total pieces of woods required 332500 335000 390000 460000 Add: Desired Ending Inventory 99750 100500 117000 138000 Total Needs 432250 435500 507000 598000 Less: opening Inventory 82500 99750 100500 117000 Wood pieces to be Purchased 349750 335750 406500 481000 Woods cost per piece $8 $8 $8 $8 Total Cost of Purchases of Wood $2,798,000 $2,686,000 $3,252,000 $3,848,000 No. Cement Moulding required per unit 2 2 2 2 Total pieces of cement mouldings required 133000 134000 156000 184000 Add: Desired Ending Inventory 26600 26800 31200 36800 Total Needs 159600 160800 187200 220800 Less: Opening Inventory 22000 26600 26800 31200 Cements Mouldings to be Purchased 137600 134200 160400 189600 Cement Moulding per piece $2.50 $2.50 $2.50 $2.50 Total Cost of Purchases of Cement Mouldings $344,000 $335,500 $401,000 $474,000 Total Cost of Purchases $3,142,000 $3,021,500 $3,653,000 $4,322,000 Schedule of Cash Disbursement for purchases of Raw Material Particulars I Qtr II Qtr III Qtr IV Qtr Current Qtr Purchases 50% 1571000 1510750 1826500 2161000 Prior Qtr Purchases - 50% 1270000 1571000 1510750 1826500 Total Cash Disbursement for purchases of raw Material 2841000 3081750 3337250 3987500 Direct Labour Budget Particulars I Qtr II Qtr III Qtr IV Qtr Production in Units 66500 67000 78000 92000 Direct Labour Time per Unit in Hrs 1.5 1.5 1.5 1.5 Total Hrs Needed 99750 100500 117000 138000 Direct Labour Cost Per Hr $10 $10 $10 $10 Total Direct Labour Costs $997,500 $1,005,000 $1,170,000 $1,380,000 Selling & Administrative Expenses Budget Particulars I Qtr II Qtr III Qtr IV Qtr Expected Sales In Units 60000 65000 75000 90000 Variable Selling & Adm. Exp Per Unit $5 $5 $5 $5 Total variable Selling & Adm. Exp $300,000 $325,000 $375,000 $450,000 Fixed Selling & Adm. Exp $250,000 $250,000 $250,000 $250,000 Depreciation $50,000 $50,000 $50,000 $50,000 Cash Fixed Selling & Adm. Exp. $200,000 $200,000 $200,000 $200,000 Cash Budget Particulars I Qtr II Qtr III Qtr IV Qtr Opening cash Balance $500,000 $637,000 $999,250 $1,708,000 Add: receipts Collection from Customers $5,725,000 $6,225,000 $7,025,000 $8,250,000 Total Cash available before finacing $6,225,000 $6,862,000 $8,024,250 $9,958,000 Less: Disbursements Direct Material 2841000 3081750 3337250 3987500 Direct Labour $997,500 $1,005,000 $1,170,000 $1,380,000 Manufacturing Overhead $949,500 $951,000 $984,000 $1,026,000 Selling & adm. Exp. $500,000 $525,000 $575,000 $650,000 Dividends Paid $300,000 $300,000 0 0 Payment of Long Term Debt 0 0 $250,000 0 Purchase of Equipment $2,500,000 Total Disbursement 5588000 5862750 6316250 9543500 Cash Balance Closing $637,000 $999,250 $1,708,000 $414,500

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