ACCOUNTING FOR MANAGERS2
Master Budget
| Step 1 | Sale Budget | |||||
| Expected sales volume: 3,000 units in the first quarter with 500-unit increases in each succeeding quarter. | ||||||
| Sales price: $60 per unit | ||||||
| Q1 | Q2 | Q3 | Q4 | |||
| Unit | 3000 | 3500 | 4000 | 4500 | ||
| Selling Price | $ 60 | $ 60 | $ 60 | $ 60 | ||
| Total Revenue | $ 180,000 | $ 210,000 | $ 240,000 | $ 270,000 | ||
| Step 2. | Production Budget | To meet future sales needs with an ending inventory of 20% of next quarter’s budgeted sales volume. | ||||
| Budgeted Sale Units | ||||||
| + | Desired Ending | 20% Next period | ||||
| - | Beginning Inventory | |||||
| = | Required Production Units | |||||
| 2019 | 2020 | 2021 | ||||
| Q4 | Q1 | Q2 | Q3 | Q4 | Q1 | |
| Budgeted Sale | 3000 | 3500 | 4000 | 4500 | 5000 | |
| Desired Ending | 700 | 800 | 900 | 1000 | ||
| Total Required Units | 3700 | 4300 | 4900 | 5500 | ||
| Beginning Inventory | 600 | 700 | 800 | 900 | ||
| Required production Unit | 3100 | 3600 | 4100 | 4600 | ||
| Step 3 | Direct Material Budget | Maintains an ending inventory of raw materials equal to 10% of the next quarter’s production requirements. | ||||
| Direct Material Production | Each Rightride requires 2 pounds and each pound costs at $4 | |||||
| + | Desired Ending DM | 1,020 pounds for the fourth quarter of 2017 | ||||
| - | Beginning DM Inventory | |||||
| = | Required DM purchase | |||||
| 2016 | Curret budget 2017 | 2018 | ||||
| Direct Materials Budget | Q1 | Q2 | Q3 | Q4 | Q1 | |
| Required production Unit | 3100 | 3600 | 4100 | 4600 | ||
| DM per unit | 2 | 2 | 2 | 2 | ||
| Total Pounds for Production | 6200 | 7200 | 8200 | 9200 | ||
| Desired Ending DM | 720 | 820 | 920 | 1020 | 10% | |
| Beginning DM | 620 | 720 | 820 | 920 | ||
| Required DM purchase | 6300 | 7300 | 8300 | 9300 | ||
| Cost per unit | $ 4.00 | $ 4.00 | $ 4.00 | $ 4.00 | ||
| Total Cost of Purchase | $ 25,200 | $ 29,200 | $ 33,200 | $ 37,200 | ||
| Step 4 | Direct Labour | Two hours of direct labor are required to produce each unit of finished goods | ||||
| Hourly wage rate is $10 | ||||||
| Q1 | Q2 | Q3 | Q4 | |||
| Required Production Unit | 3100 | 3600 | 4100 | 4600 | ||
| Direct Labour per Unit | 2 | 2 | 2 | 2 | ||
| Total Required DL | 6200 | 7200 | 8200 | 9200 | 30800 | |
| DL Cost per Hour | $ 10.00 | $ 10.00 | $ 10.00 | $ 10.00 | ||
| Total Direct Labor Cost | $ 62,000 | $ 72,000 | $ 82,000 | $ 92,000 | ||
| Step 5 | MOH | Q1 | Q2 | Q3 | Q4 | |
| Variable MOH | ||||||
| Indirect Material | $ 6,200 | $ 7,200 | $ 8,200 | $ 9,200 | $ 1.00 | Per Direct Labour |
| Indirect Labor | $ 8,680 | $ 10,080 | $ 11,480 | $ 12,880 | $ 1.40 | Per Direct Labour |
| Utilities | $ 2,480 | $ 2,880 | $ 3,280 | $ 3,680 | $ 0.40 | Per Direct Labour |
| Maintenance | $ 1,240 | $ 1,440 | $ 1,640 | $ 1,840 | $ 0.20 | Per Direct Labour |
| Total | $ 18,600 | $ 21,600 | $ 24,600 | $ 27,600 | ||
| Fixed MOH | ||||||
| Supervisory Salaries | $ 20,000 | $ 20,000 | $ 20,000 | $ 20,000 | ||
| Depreciation | $ 3,800 | $ 3,800 | $ 3,800 | $ 3,800 | ||
| Property Taxes and Insurance | $ 9,000 | $ 9,000 | $ 9,000 | $ 9,000 | ||
| Maintenance | $ 5,700 | $ 5,700 | $ 5,700 | $ 5,700 | ||
| Total Fixed Costs | $ 38,500 | $ 38,500 | $ 38,500 | $ 38,500 | ||
| Total MOH | $ 57,100 | $ 60,100 | $ 63,100 | $ 66,100 | $ 246,400 | |
| Total Direct Labor Hour | 30800 | |||||
| MOH per Direct Labor Hour | $ 8 | MOH/DL | ||||
| Step 6 | Operating Expense | |||||
| Q1 | Q2 | Q3 | Q4 | |||
| Sales in Units | 3000 | 3500 | 4000 | 4500 | ||
| Variable Expenese | ||||||
| Sales Commissions | $ 9,000 | $ 10,500 | $ 12,000 | $ 13,500 | $ 3.00 | Per Unit |
| Freight | $ 3,000 | $ 3,500 | $ 4,000 | $ 4,500 | $ 1.00 | Per Unit |
| Total Variable | $ 12,000 | $ 14,000 | $ 16,000 | $ 18,000 | ||
| Fixed Expenses | ||||||
| Adverising | $ 5,000 | $ 5,000 | $ 5,000 | $ 5,000 | ||
| Salary Sales | $ 15,000 | $ 15,000 | $ 15,000 | $ 15,000 | ||
| Salary Office | $ 7,500 | $ 7,500 | $ 7,500 | $ 7,500 | ||
| Depreciation | $ 1,000 | $ 1,000 | $ 1,000 | $ 1,000 | ||
| Property Taxes and Insurance | $ 1,500 | $ 1,500 | $ 1,500 | $ 1,500 | ||
| Total Fixed | $ 30,000 | $ 30,000 | $ 30,000 | $ 30,000 | ||
| Total S&GA | $ 42,000 | $ 44,000 | $ 46,000 | $ 48,000 |
Budgeted IS
| Cost of Goods Sold | |||||
| Cost per unit | |||||
| DM | 2 | pounds | $ 4.00 | $ 8.00 | |
| DL | 2 | hours | $ 10.00 | $ 20.00 | |
| MOH | 2 | hours | $ 8.00 | $ 16.00 | MOH allocated by DL |
| Total Cost per Unit | $ 44.00 | ||||
| Q1 | Q2 | Q3 | Q4 | ||
| Revenue | 180000 | 210000 | 240000 | 270000 | $ 900,000.00 |
| COGS | 132000 | 154000 | 176000 | 198000 | $ 660,000.00 |
| Gross Profit | 48000 | 56000 | 64000 | 72000 | $ 240,000.00 |
| S&GA | 42000 | 44000 | 46000 | 48000 | $ 180,000.00 |
| Operating Profit | 6000 | 12000 | 18000 | 24000 | $ 60,000.00 |
| Interest expense | 100 | ||||
| Income before Income taxes | 6000 | 12000 | 17900 | 24000 | |
| Income tax expense | 3000 | 3000 | 3000 | 3000 | |
| Net Income | 3000 | 9000 | 14900 | 21000 |
Cash Budget
| Beginning Cash Balance | Contains three sections: | ||||||
| Add: Cash Receipts (from Sales, Other Incomes, Assets disposals) | ►Cash Receipts | ||||||
| Total Avaiable Cash | ►Cash Disbursements | ||||||
| Less: Cash Disbursement (COGs, Opex) | ►Financing | ||||||
| Excess (Deficiency) of Available Cash over Cash Disbursement | |||||||
| Financing (borrowing or repayment) | |||||||
| Ending Cash Balance | |||||||
| $38,000 | Given from last year | $38,000 | |||||
| Cash Receipt | |||||||
| 60% are collected in the quarter | |||||||
| 40% are collected in the following quarter | |||||||
| 60,000 at December 31, 2016 be collected in full in the first quarter of 2017 | |||||||
| Short-term investments are expected to be sold for $2,000 cash in the first quarter | |||||||
| 15,000 | Given by Management | Cash Disbursment | |||||
| Sales | 50% are paid in the quarter purchased and 50% are paid in the following quarter | ||||||
| Schedule of Collection | 2019 | Q1 | Q2 | Q3 | Q4 | Q1 | Accounts payable of $10,600 at December 31, 2016, are expected to be paid in full in the first quarter of 2017 |
| Account Receivable | 60000 | 60000 | 100% is paid in the quarter incurred. | Direct Labour | |||
| First Quarter | 180000 | 108000 | 72000 | MOH and SGA are paid in the quarter except depreciation | |||
| Second Quarter | 210000 | 126000 | 84000 | Capital Expenditure | |||
| Third Quarter | 240000 | 144000 | 96000 | purchase a truck in the second quarter for $10,000 cash | |||
| Fourth Quarter | 270000 | 162000 | 108000 | AR | Hayes makes equal quarterly payments of its estimated $12,000 annual income taxes | ||
| Total Collections | 900000 | 168000 | 198000 | 228000 | 258000 | Loans are repaid in the earliest quarter in which there is sufficient cash (that is, when the cash on hand exceeds the $15,000 minimum required balance | |
| Purchase | |||||||
| Schedule of Payments | Q1 | Q2 | Q3 | Q4 | Q1 | ||
| Account Payable | 10600 | 10600 | |||||
| First Quarter | 25200 | 12600 | 12600 | ||||
| Second Quarter | 29200 | 14600 | 14600 | ||||
| Third Quarter | 33200 | 16600 | 16600 | ||||
| Fourth Quarter | 37200 | 18600 | 18600 | AP | |||
| Total Payment | 124800 | 23200 | 27200 | 31200 | 35200 | ||
| Q1 | Q2 | Q3 | Q4 | ||||
| Beginning Cash Balace | 38000 | 25500 | 15000 | 19400 | |||
| Add: Cash Receipts | |||||||
| Collections from Customers | 168000 | 198000 | 228000 | 258000 | |||
| Sale of Investment | Given | 2000 | |||||
| Total Receipts | 170000 | 198000 | 228000 | 258000 | |||
| Total Avaiable Cash | 208000 | 223500 | 243000 | 277400 | |||
| Less: Cash Disbursement | |||||||
| Direct Materials | 23200 | 27200 | 31200 | 35200 | |||
| Direct Labour | 62000 | 72000 | 82000 | 92000 | |||
| MOH | 53300 | 56300 | 59300 | 62300 | not including depreication | Total MOH - Depreciation | "= Total MOH + Depreciation" |
| S&GA | 41000 | 43000 | 45000 | 47000 | not including depreication | Total S&GA - Depreciation | |
| Purchase of Truck | Given | 10000 | |||||
| Income Tax Expense | Given | 3000 | 3000 | 3000 | 3000 | 12,000/4 | |
| Total Disbursements | 182500 | 211500 | 220500 | 239500 | |||
| Excess (Deficiency) of Available Cash over Cash Disbursement | 25500 | 12000 | 22500 | 37900 | 15,000 | minium requirement | |
| Financing (borrowing or repayment) | |||||||
| Borrowing | 3000 | 15000 - 12000 | |||||
| Repayment | 3100 | paid back the loan plus interest expense | |||||
| Ending Cash Balance | 25500 | 15000 | 19400 | 37900 | Cash | BS | |
| Interest Expense | |||||||
| (P*r%/12)*3 | |||||||
| 3000 | borrowing as loan | ||||||
| Interest 10% | |||||||
| 101.25 | Interest expense for 3 months |