Randy’s Kayaks, Inc. manufactures and sells one-person fiberglass kayaks. Randy’s balance sheet at the end of 2011was as follows: RANDY’S KAYAKS,...

Randy’s Kayaks, Inc. manufactures and sells one-person fiberglass kayaks. Randy’s balance sheet at the end of 2011was as follows: RANDY’S KAYAKS, INC. Balance Sheet December 31, 2011 ASSETS Cash-------$ 52,000 Accounts receivable----1,200,000 Raw materials inventory* ---120,000 Finished goods inventory** -----287,500 Plant assets, net of accumulated Depreciation -----------2,135,000 Total Assets -----$ 3,794,500 LIABILITIES Accounts payable ----$ 131,000 STOCKHOLDERS’EQUITY Common Stock---1,600,000 Retained Earnings ------2,063,500 Total Liabilities & SE -----$ 3,794,500 use in preparing the budget for 2012: *40,000 pounds **1,000 kayaks The following additional data is available for use in preparing the budget for 2012: Cash collections (all sales are on account): Collected in the quarter of sale------------40% Collected in the quarter after sale---------60% (Bad debts are negligible and can be ignored) Cash disbursements for raw materials (all purchases are on account): Cash paid in the quarter of purchase----70% Cash paid in the quarter after purchase -----30% Desired quarterly ending Raw materials inventory----40% of next quarter’s production needs. Desired quarterly ending Finished goods inventory------ 10% of next quarter’s sales Budgeted sales: 1st quarter 2012 ------------------------------------10,000 kayaks 2nd quarter 2012 ------------------------------------15,000 kayaks 3rd quarter 2012 ------------------------------------16,000 kayaks 4th quarter 2012 ------------------------------------14,000 kayaks 1st quarter 2013------------------------------------10,000 kayaks 2nd quarter 2013 ------------------------------------12,000 kayaks Anticipated equipment purchases: 1st quarter 2012 ------------------------------------$30,000 2nd quarter 2012 ------------------------------------$0 3rd quarter 2012 ------------------------------------$0 4th quarter 2012 ------------------------------------$150,000 Quarterly dividends to be paid each quarter in 2012 ----$4,000 Expected sales price per unit ---------$400 Standard cost data: Direct materials ----------10 pounds per kayak @ $3 per pound Direct labor----------10 hours per kayak @ $20 per hour Variable manufacturing overhead-----$5 per direct labor hour Fixed manufacturing overhead (includes $9,000 depreciation)--- $103,125 per quarter Variable selling expenses------------$25 per kayak Fixed selling and administrative expenses: Insurance -----------------------------------$45,000 per quarter Sales salaries -------------------------------$30,000 per quarter Depreciation --------------------------------$6,000 per quarter Income tax rate -----------------------------30% Estimated income tax payments planned in 2012: 1st quarter ------------------------------------$0 2nd quarter------------------------------------$50,000 3rd quarter------------------------------------$400,000 4th quarter ------------------------------------$500,000 Randy’s desires to have a minimum cash balance at the end of each quarter of $50,000. In order to maintain this minimum balance, Randy’s may borrow from its bank in $10,000 increments with an interest rate of 6%. Money is borrowed at the beginning of the quarter in which a shortage is expected. Repayments of all or a portion of the principle (plus accrued interest on the amount being repaid) are made at the end of any quarter in which the cash balance exceeds the required minimum. Requirements: 1.Use the above information to prepare the following components of the master budget: a. Sales budget with a schedule of expected cash collections for each quarter and the year as a whole b. Production budget for each quarter and the year as a whole c. Direct materials purchases budget with a schedule of expected cash disbursements for materials for i. each quarter and the year as a whole d. Direct labor budget for each quarter and the year as a whole e. Manufacturing overhead budget with expected cash disbursements for each quarter and the year as i. a whole f. Ending finished goods inventory budget for the year g. Selling and administrative expense budget with expected cash disbursements for each quarter and i. the year as a whole h. Cash budget for each quarter and the year as a whole i. Budgeted income statement for the year j. Budgeted balance sheet for the end of the year 2.Prepare a brief memo to management with specific comments and/or recommendations relating to the budget.