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

BUS M02C – Managerial Accounting

SLO Assessment project

Randy’s Kayaks, Inc. manufactures and sells one-person fiberglass kayaks. Randy’s balance sheet at the end

of 2011 was as follows:

RANDY’S KAYAKS, INC.

Balance Sheet

December 31, 2011

ASSETS LIABILITIES

Cash $ 52,000 Accounts payable $ 131,000

Accounts receivable 1,200,000

Raw materials inventory* 120,000 STOCKHOLDERS’EQUITY

Finished goods inventory** 287,500 Common Stock 1,600,000

Plant assets, net of accumulated Retained Earnings 2,063,500

Depreciation 2,135,000

Total Assets $ 3,794,500 Total Liabilities & SE $ 3,794,500

*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:

1 st quarter 2012 10,000 kayaks

2 nd

quarter 2012 15,000 kayaks

3 rd

quarter 2012 16,000 kayaks

4 th

quarter 2012 14,000 kayaks

1 st quarter 2013 10,000 kayaks

2 nd

quarter 2013 12,000 kayaks

Anticipated equipment purchases:

1 st quarter 2012 $30,000

2 nd

quarter 2012 $0

3 rd

quarter 2012 $0

4 th

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:

1 st quarter $0

2 nd

quarter $50,000

3 rd

quarter $400,000

4 th

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

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

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

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.