Integration Exercise 9 Master Budgeting. LO 8-2, LO 8-3, LO 8-4, LO 8-5, LO 8-6,

Question

Integration Exercise 9 Master Budgeting. LO 8-2, LO 8-3, LO 8-4, LO 8-5, LO 8-6, LO 8-7, LO8-9, LO 8-10

Endless Mountain Company manufactures a single product that is popular with recreation enthusiasts. The company sells its product to retailers throughout the quadrant of the United States. It is in the process of creating a master budget for reports a balance sheet as December 31, 2016 as follows:

Endless Mountain Company

The company's chief financial officer (CFO), in consultation with various managers across the organization has developed the following set of assumptions to help create the 2017 budget:

1. The budgeted unit sales are 12,000 units, 37,000 units, 15,000 units and 25,000 units for quarters 1-4, respectively. Notice that the company experiences peak sales in the second and fourth quarters. The budgeted selling price for the year is $32 per unit. The budgeted unit sales for the first quarter of 2018 in 13,000 units.

2. All sales are on credit. Uncollectible accounts are negligible and can be ignored. Seventy-five percent of all credit sales are collected in the quarter of the sale and 25% are collected in the subsequent quarter.

3. Each quarter's ending finished goods inventory should equal 15% of the next quarter's unit sales.

4. Each unit of finished goods requires 3.5 yards of raw material that costs $3.00 per yard. Each quarter's ending raw materials inventory should equal 10% of the next quarter's production needs. The estimated ending raw materials inventory on Decmeber 31, 2017, is 5,000 yards.

5. Seventy percent of each quarter's purchases are paid for in the quarter of purchase. The remaining 30% of each quarter's purchases are paid in the following quarter.

6. Direct laboreres are paid $18 an hour and each unit of finished goods requires 0.25 direct labor-hours to complete. All direct labor costs are paid in the quarter incurred.

7. The budgeted variable manufacturing overhead per direct labor-hour is $3.00. The quarterly fixed manufacturing overhad is $150,000 including $20,000 of depreciation on equipment. The number of direct labor-hours is used as the allocation base for the budgeted plantwide overhead rate. All overhead costs (excluding depreciation) are paid in the quarter incurred.

8. The budgeted variable selling and administrative expense is $1.25 per unit sold. The fixed selling and administrative expenses per quarter include advertising ($25,000), executive salaries ($64,000), insurance ($12,000), property tax ($8,000), and depreciaition expense ($8,000). All selling and administrative expenses (excluding depreciation) are paid in the quarter incurred.

9. The company plans to maintain a minimum cash balance at the end of each quarter of $30,000. Assume that any borrowings take place on the first day of the quarter. To the extent possible, the company will repay principal and interest on any borrowings on the last day of the fourth quarter. The company's lender imposes a simple interest rate of 3% per quarter on any borrowings.

10. Dividends of $15,000 will be declared and paid in each quarter.

11. The company uses a last-in, first-out (LIFO) inventry flow assumption. This means that the most recenly purchased raw materials are the "first-out" to production and the most recently completed finished goods are "first-out" to customers.

Required:

5. Quarterly manufacturing overhead budget.

6. Ending finished goods inventory budget at December 31, 2017.

7. Quarterly selling and administrative expense budget.

8. Quarterly cash budget.

9. Income statement for the year ended December 31, 2017.

10. Balance sheet at December 31, 2017.

Endless Mountain Company

Balance Sheet December 31, 2016 Assets Current Assets: Cash $46,200 Accounts receivable 260,000 Raw material inventory (4,500 yds) 11,250 Finished goods inventory (1,500 units) 32,250 Total current assets $349,700 Plant and equipment: Buildings and equipment 900,000 Accumulated deprectiation (292,000) Plant and equipment, net 608,000 Total assets 957,700 Liabilities and Stockholders' Equity Current liabilities: Accounts payable $158,000 Stockholders' equity Common stock $419,800 Retained earnings 379,900 Total stockholders' equity 799,700 Total liabilities and stockholders equity 957,700 Book Home nsert Page Layout Formulas Dta Renew View 2 AutoSum Copy Format Painter ?-a : Conditional aFor ble-styles. B 1 u ??4 Merge & Center $-% , Insert Delete Format Sort & Find & Formatting as Table Styles 2ClearFilter Select H10 1 Sales bud IV sales units SP Sale value next year l 37,000.00 15,000.00 25,000.0013,000.00 32.00 384,000.00 1,184,000.00 480,000.00 800,000.00 416,000.00 12,000.00 32.00 32.00 32.00 32.00 sale of quarter: 88,000.0096 96,000.00 888,000.00 296,000.00 360,000.00 120,000.00 600,000.00 12 opening A/R payment tota 260,000.00 14 15 16 17 548,000.00 984,000.00 656,000.00 720,000.00 3 Production budget IV next year I 37,000.00 15,000.00 25,000.0013,000.00 12,000.00 5,550.00 19 sale add: closing FG 2,250.00 3,750.00 1,950.00 21 (15% of next sale) less: |opening FG 500.00 5,550.00) (2,250.00 3,750.00 HH Sheetl sheet2 sheet3 1041 PM 12/2018

Explanation / Answer

Sales Budget Qtr 1 Qtr 2 Qtr3 Qtr 4 Year Qtr 1 Sales in units A 12000 37000 15000.0 25000.0 89000 13000 Sale Price 32 32 32 32 32 32 Sales in value 384000 1184000 480000 800000 2848000 416000 Cash Receipts from Customer Qtr 1 Qtr 2 Qtr3 Qtr 4 Year Accounts Receivable 260000 260000 Qtr 1 sales 288000 96000 384000 Qtr 2 sales 888000 296000 1184000 Qtr 3 sales 360000 120000 480000 Qtr 4 sales 600000 600000 Total A 548000 984000 656000 720000 2908000 Accounts Receivable 200000 Qtr 1 Qtr 2 Qtr3 Qtr 4 Year Qtr 1 Finished Goods Next month budgeted sales 37000 15000 25000 13000 89000 13000 Percentage of inventory to future sales 15% 15% 15% 15% 15% BudgetdEnding Inventory (15% of next month sales) 5550 2250 3750 1950 1950 Add budgeted sales 12000 37000 15000 25000 89000 Required units to be produced 17550 39250 18750 26950 90950 Deduct beginning inventory (Previous month ending inventory) 1500 5550 2250 3750 1500 Units to be produced 16050 33700 16500 23200 89450 Qtr 1 Qtr 2 Qtr3 Qtr 4 Year Direct material Purchases Budget Budgeted Production 16050 33700 16500 23200 89450 Material per components 3.5 3.5 3.5 3.5 3.5 Materai needed for production M 56175 117950 57750 81200 313075 Add: Desired ending Direct Material Inventory (10% of next month needs M) 11795 5775 8120 5000 5000 Totl Material requirement 67970 123725 65870 86200 318075 Less; beginning Raw material Inventory 4500 11795 5775 8120 4500 Material to be purchased 63470 111930 60095 78080 313575 Cost per pound 3 3 3 3 3 Total cost of diret Material Purchses A 190410 335790 180285 234240 940725 Budgeted cash payment for purchases Qtr 1 Qtr 2 Qtr3 Qtr 4 Year Cash Disbursement Accounts Payable 158000 158000 Qtr 1 Purchases (70%, 30%) 133287 57123 190410 Qtr 3 Purchases 235053 100737 335790 Qtr 3 Purchases 126200 54086 180285 Qtr 4 Purchases 163968 163968 Total 291287 292176 226937 218054 1028453 Accounts payable 70272 Direct labor Budget Qtr 1 Qtr 2 Qtr3 Qtr 4 Qtr Units to be produced 16050 33700 16500 23200 89450 No. of hours 0.25 0.25 0.25 0.25 0.25 Total no. of hours 4013 8425 4125 5800 22362.5 Wage rate $18 $18 $18 $18 $18 Total Direct labor cost $72,225 $151,650 $74,250 $104,400 $402,525 Manufacturing overhead Budget Direct Labor Hours 4013 8425 4125 5800 22362.5 Variable overhead rate 3.00 3.00 3.00 3.00 3.00 Total variable cost   `F 12038 25275 12375 67088 Fixed overhead Fixed overhead excluding depreciation $130,000 $130,000 $130,000 $130,000 $390,000 Total manufacturing overhead F+Z $142,038 $155,275 $142,375 $130,000 $457,088 Selling and administrative Budget No. of units sold 12000 37000 15000 25000 89000 Variable selling & adm exp per unit $1.25 $1.25 $1.25 $1.25 $1.25 Variable selling & adm exp per A $15,000 $46,250 $18,750 $31,250 $111,250 Fixed selling & adm exp Advertsing $25,000 $25,000 $25,000 $25,000 $100,000 Salaries $64,000 $64,000 $64,000 $64,000 $256,000 Insurance $12,000 $12,000 $12,000 $12,000 $48,000 Property Taxes $8,000 $8,000 $8,000 $8,000 $32,000 Depreciation $8,000 $8,000 $8,000 $8,000 $32,000 Fixed selling & adm exp $117,000 $117,000 $117,000 $117,000 $468,000 Fixed selling & adm exp (exc dep) B $109,000 $109,000 $109,000 $109,000 $436,000 Cash Selling and adm expenses (A+B) $124,000 $155,250 $127,750 $140,250 $547,250 Cash Budget Qtr 1 Qtr 2 Qtr3 Qtr 4 Total Beginning Cash balance 46200 $30,000 $244,649 $314,338 46200 Cash receipt 548000 984000 656000 720000 2908000 Total cash available 594200 1014000 900649 1034338 2954200 Less: Cash Disbursements Payment to Raw material 291287 292176 226937 218054 1028453 Payment of direct labor $72,225 $151,650 $74,250 $104,400 402525 Payment of Factory overhead $142,038 $155,275 $142,375 $130,000 569688 Payment of Selling & Adm exp $124,000 $155,250 $127,750 $140,250 547250 Payment of Dividend 15000 15000 15000 15000 60000 Total cash Disbursements $644,550 $769,351 $586,312 $607,704 $2,607,916 Excess of cash surplus over cash disbursement ($50,350) $244,649 $314,338 $426,634 $346,285 Minimum Cash balance (working) 30000 30000 30000 30000 30000 Cash balnce Available (working) ($80,350) $214,649 $284,338 $396,634 $316,285 Financing Borrowings 80350 $80,350 Repayment -80350 ($80,350) Interest paid on laon -9642 ($9,642) Ending Cash balance $30,000 $244,649 $314,338 $336,642 $336,642

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