OPQ Co\'s management asks you to prepare its master budget using the following i
ID: 2729355 • Letter: O
Question
OPQ Co's management asks you to prepare its master budget using the following information. The budget is to cover the months of July, August, and September of 2016. Assets Liabilities and Equity Cash $50,000 Accounts Payable $63,818 Accounts Receivable 175,000 Short-Term Notes Payable 12,000 Raw Materials Inventory 30,798 * Total Current Liabilities $75,818 Finished Goods Inventory 96,600 ** Long-Term Notes Payable 200,000 Total Current Assets $352,398 Total Liabilities 275,818 Equipment 480,000 Common Stock 435,000 Less: Accumulated Depreciation 90,000 Retained Earnings 31,580 Equipment, Net 390,000 Total Stockholder's Equity 466,580 Total Assets $742,398 Total Liabilities and Equity $742,398
*2,425 pounds @$12.70, rounded to nearest whole dollar. **8,400 units @ $11.50 per unit.
Additional Information: a. Sales for June total 10,000 units, Expected sales (in units) are: 10,500 in July, 9,500 in August, 10,000 in September, and 10,500 in October. The product's selling price is $25 per unit. b. Company policy calls for a given month's ending Finished Goods Inventory to equal 80% of the next month's expected unit sales. The June 30's Finished Goods Inventory is 8,400 units, which complies with the policy. The product's manufacturing cost is $11.50 per unit, including per unit cost of $6.35 for materials (0.5lbs @ $12.70 per lb.), $3.75 for Direct Labor (1/4 hr. * $15per Direct Labor rate per hour), $0.90 per Variable Overhead, and $0.50 for Fixed Overhead. Fixed Overhead consists entirely of $5,000 of monthly Depreciation Expense. OPQ policy also calls for a given month's ending Raw Materials Inventory to equal 50% of next month's expected materials needed for production. The June 30 inventory is 2,425 units of materials, which complies with the policy. The company expects to have 2,100 units of materials inventory on September 30. c. Sales representatives' commissions are 12% of sales and are paid in the month of the sales. The sales manager's monthly salary will be $3,500 in July and $4,000 per month thereafter. d. Monthly General and Administrative Expenses include $8,000 Administrative Salaries and 0.9% monthly interest on the Long-Term Notes Payable. e. The company expects 30% of sales to be for cash and the remaining 70% on credit. Receivables are collected in full in the month following the sale (none is collected in the month of the sale). f. All Direct Materials purchases are on credit, and no payables arise from any other transactions. One month's purchases are fully paid in the next month. Materials cost $12.70 per pound. g. The minimum ending Cash balance for all months is $50,000. If necessary, the company borrows enough cash using Short-Term Note to reach the minimum. Short-Term Notes require an interest payment of 1% at each month-end (before any repayment). If the ending Cash balance exceeds the minimum, the excess will be applied to repaying the Short-Term Notes Payable balance. h. Dividends of $100,000 are to be declared and paid in August. OPQ Company Balance Sheet June 30, 2016 i. No Cash payments for Income Taxes are to be made during July - September. Income Taxes will be assessed at 35% in the said quarter. j. Equipment purchases of $55,000 are scheduled for September Required: Prepare the following budgets and other financial information as required: 1. Sales budget,, including budgeted sales for October. 2. Production budget. 3. Direct Materials Budget. Round costs of materials purchases to the nearest dollar. 4. Direct Labor Budget. 5. Factory Overhead Budget. 6. Selling Expense Budget. 7. General and Administrative Expense Budget. 8. Expected Cash Receipts from customers and the expected September 30 balance of Accounts Receivable. 9. Expected Cash Payments for purchases and the expected September 30 balance of Accounts Payable. 10. Cash Budget. 11. Budgeted Income Statement, Budgeted Statement of Retained Earnings, and Budgeted Balance Sheet.
Explanation / Answer
Sales Budget July August Sept Total Oct Sales - Unit 10500 9500 10000 30000 10500 SalePrice @ 25/PU 262500 237500 250000 750000 262500 Production Budget in Units July August Sept Total Closing Stock 7600 8000 8400 8400 Sales - Unit 10500 9500 10000 30000 Total Requirement 18100 17500 18400 38400 Op Stock 8400 7600 8000 8400 Production 9700 9900 10400 30000 Raw Material inventory July August Sept Total Opening stock 2425 2475 2600 2425 Add Purchases 4900 5075 4700 14675 Less Issue to prodn 4850 4950 5200 15000 Closing stock 2475 2600 2100 2100 Raw material purchase Budget July August Sept Total Purchases for the month In lbs. 4900 5075 4700 14675 Total value of Purchases @ 12.70/lb 62230 64453 59690 186373 Direct Labour Cost Budget July August Sept Total Production for the month 9700 9900 10400 30000 Labour hrs. reqd.@1/4hr./unit 2425 2475 2600 7500 Direct Labour cost@15 /hr 9094 9281 9750 28125 Factory OH Budget July August Sept Total Production for the month 9700 9900 10400 30000 Variable OH @ 0.90/unit 8730 8910 9360 27000 Fixed OH 5000 5000 5000 15000 Total Factory OH 13730 13910 14360 42000 6. Selling Expense Budget July August Sept Total Sales Rep. Commn.@ 12% of sales 31500 28500 30000 90000 sales manager's salary 3500 4000 4000 11500 Totalselling expense for the mth 35000 32500 34000 101500 7. General and Administrative Expense Budget. Administrative salaries 8000 8000 8000 24000 Int. on LT Loans 200000*0.9%/12 150 150 150 450 Total Gen. adm. Exp 8150 8150 8150 24450 8. Expected Cash Receipts from customers and the expected September 30 balance of Accounts Receivable July August Sept Total Oct. Total budg.Sales for the month 262500 237500 250000 750000 Cash Sales 30% 78750 71250 75000 225000 Credit Sales 183750 166250 175000 525000 Collections for the month 175000 183750 166250 525000 175000 (A/c Rec.) 9. Expected Cash Payments for purchases and the expected September 30 balance of Accounts Payable. July August Sept Total Oct. TotalvalueofPurch @ 12.70/lb 62230 64453 59690 186373 Payment for credit purchases 63818 62230 64453 190501 59690 (A/c. Pay.) 10. Cash Budget July August Sept Total Opening Balance 50000 139667 145752 50000 Cash Sales 30% 78750 71250 75000 225000 Collections for the month 175000 183750 166250 525000 Total Cash Available 303750 394667 387002 800000 Payments: Payment for credit purchases 63818 62230 64453 190501 Direct Labour cost@15 /hr 36375 37125 39000 112500 Variable OH @ 0.90/unit 8730 8910 9360 27000 Totalselling expense for the mth 35000 32500 34000 101500 Total Gen. adm. Exp 8150 8150 8150 24450 Dividends paid 100000 100000 Equipment purchase 55000 55000 Total payments 152073 248915 209963 610951 Surplus/Deficit 151677 145752 177040 189050 Borrowing 0 0 0 0 Interest on balance 10 0 0 10 Repayment 12000 0 0 12000 Closing balance 139667 145752 177040 177040 11. Budgeted Income Statement Sales Revenue 750000 Less: COGS 30000*11.5 345000 Gross Profit 405000 Less: Operating Expenses: Sell.& Admn.exp. 101500 Gen.& admn. Exp 24450 Int. on ST Loan 10 125960 Net Income before Tax 279040 Tax @ 35% 97664 Income after tax 181376 Budgeted Statement of Retained Earnings Opening balance 31580 Current Year Income 181376 212956 Dividends Paid 100000 Closing Balance 112956 Budgeted Balance Sheet Assets Current Assets Cash 177040 Accounts Receivables 175000 Raw Materials 2100*12.7 26670 Finished Goods 8400*11.5 96600 Total Current assets 475310 Fixed Assets Equipment 535000 Less: Acc.Depn 105000 430000 Total Assets 905310 Liabilities& Equity Liabilities Current Liabilities Accounts payables 59690 Tax payable 97664 Total Current Liabilities 157354 Long-Term Notes Payable 200000 Total liabilities 357354 Equity Common Stock 435000 Retained Earnings 112956 Total Equity 547956 Total Liabilities& Equity 905310
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