Susquehanna Corp. is a manufacturer of earrings. You have been hired as a new ma
ID: 2584543 • Letter: S
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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. 0 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 ? ? ? ? ? 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. 0 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 ? ? ? ? ?Explanation / Answer
Sales Budget Quarter1 Quarter2 Quarter3 Quarter4 Total Budgeted unit sales 105000 50000 60000 100000 315000 Unit selling price 23.50 23.50 23.50 23.50 23.50 Budgeted Sales 2467500 1175000 1410000 2350000 7402500 Schedule of collections from customers Quarter1 Quarter2 Quarter3 Quarter4 Total Budgeted sales 2467500 1175000 1410000 2350000 7402500 Collections: Beginning accounts 224000 224000 receivable 0 First quarter sales 1480500 987000 2467500 Second quarter sales 705000 470000 1175000 Third quarter sales 846000 564000 1410000 Fourth quarter sales 1410000 1410000 Total collections 1704500 1692000 1316000 1974000 6686500 Accounts receivable 987000 470000 564000 940000 Producion budget Quarter1 Quarter2 Quarter3 Quarter4 Total Budgeted unit sales 105000 50000 60000 100000 315000 Add: desired ending inventory 20000 24000 40000 54000 54000 (40% of next quarter's sales) Total units required 125000 74000 100000 154000 369000 Less: Beginning inventory 48000 20000 24000 40000 48000 Budgeted production units 77000 54000 76000 114000 321000 Raw material purchase budget Quarter1 Quarter2 Quarter3 Quarter4 Total Budgeted production units 77000 54000 76000 114000 321000 Raw material per unit (grams) 10 10 10 10 10 Raw material required for production(grams) 770000 540000 760000 1140000 3210000 Add: Desried ending inventory (grams) 108000 152000 228000 214000 214000 (20% of next quarter's production) Total raw material required 878000 692000 988000 1354000 3424000 Less: Beginning inventory 240000 108000 152000 228000 240000 Budgeted raw material purchases 638000 584000 836000 1126000 3184000 Cost per gram of raw material $0.50 $0.50 $0.50 $0.50 $0.50 Raw material purchase budget 319000 292000 418000 563000 1592000 Schedule of payments for raw material purchases Quarter1 Quarter2 Quarter3 Quarter4 Total Raw material purchases 319000 292000 418000 563000 1592000 Payments: Beginning accounts payable 93000 93000 Quarter 1 purchases 175450 143550 319000 Quarter 2 purchases 160600 131400 292000 Quarter 3 purchases 229900 188100 418000 Quarter 4 purchases 309650 309650 Total payment for raw material purchases 268450 304150 361300 497750 1431650 Accounts payable 143550 131400 188100 253350 Direct labor budget Quarter1 Quarter2 Quarter3 Quarter4 Total Budgeted production units 77000 54000 76000 114000 321000 Direct labor hours per unit 0.20 0.20 0.20 0.20 0.20 Total direct labor hours for production 15400 10800 15200 22800 64200 Direct labor cost per hour $12.00 $12.00 $12.00 $12.00 $12.00 Direct labor cost budget 184800 129600 182400 273600 770400 Manufacturing overhead budget Quarter1 Quarter2 Quarter3 Quarter4 Total Budgeted production units 77000 54000 76000 114000 321000 Variable manufacturing overhead per unit $1.50 $1.50 $1.50 $1.50 $1.50 Variable manufacturing overhead for production 115500 81000 114000 171000 481500 Fixed manufacturing overhead (less depreciation) 145950 145950 145950 145950 583800 Depreciation expense 25000 30000 32000 33000 120000 Total manufacturing overhead 286450 256950 291950 349950 1185300 Cash payment for manufacturing overhead 261450 226950 259950 316950 1065300 Total direct labor hours 64200 Manufacturing cost per labor hour 18.46 Cost per unit of production Raw material (10.00 x 0.50) $5.00 Direct labor (0.20 hrs x $12.00 ) $6.00 Manufacturing overhead (0.20 x $18.46) $3.69 Total per unit cost of production $14.69 Ending inventory of finished goods units 54000 Value of ending inventory of finished goods 793368 Selling and administrative expenses budget Quarter1 Quarter2 Quarter3 Quarter4 Total Budgeted unit sales 105000 50000 60000 100000 315000 Variable selling and administrative expenses per unit $2.80 $2.80 $2.80 $2.80 $2.80 Total variable selling and administrative expenses 294000 140000 168000 280000 882000 Fixed selling and administrative expenses Advertising expense 270000 270000 270000 270000 1080000 Executive salaries 105000 105000 105000 105000 420000 Insurance expense 48000 48000 48000 48000 192000 Rent expense 240000 240000 240000 240000 960000 Depreciation expense 14000 16000 17000 18000 65000 Total fixed selling and administrative expenses 677000 679000 680000 681000 2717000 Total selling and administrative expenses 971000 819000 848000 961000 3599000 Cash payment for selling and administrative expenses * 1101000 803000 831000 943000 3678000 *Total insurance premium of $192,000 for the year is paid in January , i.e., First quarter. SUSQUEHANNA CORP. Cash budget for the year ending December 31, 2017 Quarter1 Quarter2 Quarter3 Quarter4 Total Beginning cash balance 48000 48800 69100 43850 48000 Add: Collectios from sales 1704500 1692000 1316000 1974000 6686500 Total cash available 1752500 1740800 1385100 2017850 6734500 Cash disbursements: For raw material 268450 304150 361300 497750 1431650 For direct labor 184800 129600 182400 273600 770400 For manufacturing overhead 261450 226950 259950 316950 1065300 For selling and administrative expenses 1101000 803000 831000 943000 3678000 For equipment purchases 20000 40000 15000 10000 85000 For dividends 15000 15000 15000 15000 60000 For interest 3000 3000 6600 8400 21000 Total Disbursements 1853700 1521700 1671250 2064700 7111350 Cash surplus / (deficit) -101200 219100 -286150 -46850 -376850 Financing: Borrowings 150000 330000 90000 570000 Repayments -150000 -150000 Total financing 150000 -150000 330000 90000 420000 Ending cash balance 48800 69100 43850 43150 43150
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