Just need help with tying out summary cash budget to $107,750 for 3rd quarter (check figure)

Cost Accounting Master Budget Project

Walter Bond, president of Denmark Company, was just concluding a budget meeting with his senior staff. It was November of 20×0, and the group was discussing preparation of the firm’s master budget for 20×1. “I’ve decided to go ahead and purchase the industrial robot we’ve been talking about. We’ll make the acquisition on January 2 of next year, and I expect it will take most of the year to train the personnel and reorganize the production process to take full advantage of the new equipment.”

In response to a question about financing the acquisition, Bond replied as follows: “The robot will cost $1,000,000. We’ll finance it with a one-year $1,000,000 loan from Shark Bank and Trust Company. I’ve negotiated a repayment schedule of four equal installments on the last day of each quarter. The interest rate will be 10 percent, and interest payments will be quarterly as well.” With that the meeting broke up, and the budget process was on.

Denmark Company is a manufacturer of metal picture frames. The firm’s two product lines are designated as S (small frames: 5×7 inches) and L(large frames; 8×10 inches). The primary raw materials are flexible metal strips and 9-inch by 24 inch glass sheets. Each S frame requires 2-foot metal strip; an L frame requires a 3-foot strip. Consider the following data in preparing the master budget.

Sales in the fourth quarter of 20×0 are expected to be 50,000 S frames and 40,000 L frames. The sales manager predicts that over the next two years, sales in each product line will grow by 5,000 units each quarter over the previous quarter. For example, S frame sales in the first quarter of 20×1 are expected to be 55,000 units.

Denmark’s sales history indicates that 60 percent of all sales are on credit, with the remainder of the sales in cash. The company’s collection experience shows that 80 percent of the credit sales are collected during the quarter in which the sale is made, while the remaining 20 percent is collected in the following quarter. (For simplicity, assume the company is able to collect 100 percent of its accounts receivable.)

The S frame sells for $10, and the L frame sells for $15. These prices are expected to hold constant throughout 20×1.

Denmark’s production manager attempts to end each quarter with enough finished-goods inventory in each product line to cover 20 percent of the following quarter’s sales. Moreover, an attempt is made to end each quarter with 20 percent of the glass sheets needed for the following quarter’s production. Since metal strips are purchased locally, Denmark buys them on a just-in-time basis; inventory is negligible.

All of Denmark’s direct-material purchases are made on account, and 80 percent of each quarter’s purchases are paid in cash during the same quarter as the purchase. The other 20 percent is paid in the next quarter.

Indirect materials are purchased as needed and paid for in cash. Work-in-process inventory is negligible.

Project manufacturing costs in 20×1 are as follows:

S Frame L Frame

Direct material:

     Metal strips:

S: 2 ft. @ $1 per foot…………………………… $2       

L: 3 ft. @ $1 per foot……………………………… $3

     Glass sheets:

S: ¼ sheet @ $8 per sheet…………………………. $2       

L: ½ sheet @ $8 per sheet.………………………… $4

Direct labor:

0.1 hour @ $20..…………………………………… $2      $2

Manufacturing overhead:

0.1direct-labor hour @ $10………………………… $1 $1

Total manufacturing cost per unit………………………….       $7     $10

The predetermined overhead rate is $10 per direct-labor hour. The following manufacturing overhead costs are budgeted for 20×1.  

   1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Entire Year

Indirect material  $ 10,200$ 11,200$ 12,200$ 13,200$ 46,800

Indirect labor      40,800    44,800    48,800    52,800 187,200

Other overhead      31,000    36,000    41,000    46,000 154,000

Depreciation      20,000    20,000    20,000    20,000    80,000

Total overhead  $102,000$112,000$122,000$132,000$468,000

       All of these costs will be paid in cash during the quarter incurred except for the depreciation charges.

Denmark’s quarterly selling and administrative expenses are $100,000, paid in cash.

Jackson anticipates that dividends of $50,000 will be declared and paid in cash each quarter.

Denmark’s projected balance sheet as of December 31, 20×0, follows:

Cash$     95,000

Accounts receivable 132,000

Inventory:

   Raw material 59,200

   Finished goods 167,000

Plant and equipment (net of accumulated depreciation) 8,000,000

Total assets$8,453,200

Accounts payable$    99,400

Common stock 5,000,000

Retained earnings 3,353,800

Total liabilities and stockholders’ equity $8,453,200

Page BreakRequired:

Prepare Denmark Company’s master budget for 20×1 by completing the following schedules and statements.

Sales budget:

20×0                                       20×1

4th1st 2nd 3rd4thEntire

QuarterQuarterQuarterQuarterQuarterYear

S frame Unit Sales

x S sales price

S frame sales revenue

L frame unit sales

x L sales price

L frame sales revenue

Total sales revenue

Cash sales*

Sales on account[Symbol]

*40% of total sales.

[Symbol]60% of total sales.

Cash receipts budget:

                                          20×1

    1st 2nd 3rd4thEntire

    QuarterQuarterQuarterQuarterYear

Cash sales

Cash collections from credit sales made during current quarter*

Cash collections from credit sales made during previous quarter[Symbol]

Total cash receipts

*80% of current quarter’s credit sales.

[Symbol]20% of previous quarter’s credit sales.

Page Break

Production budget:

20×0                                       20×1

4th1st 2nd 3rd4thEntire

QuarterQuarterQuarterQuarterQuarterYear

S frames:

   Sales (in units)

   Add: desired ending inventory

   Total units needed

   Less: Expected beginning inventory

   Units to be produced

L frames:

   Sales (in units)

   Add: desired ending inventory

   Total units needed

   Less: Expected beginning inventory

   Units to be produced

4.Direct-material budget:20×0                                       20×1

4th1st 2nd 3rd4thEntire

QuarterQuarterQuarterQuarterQuarterYear

Metal strips:

   S frames to be produced

x metal quantity per unit (ft.)

Needed for S Frame production

   L frames to be produced

x metal quantity per unit (ft.)

Needed for L Frame production

Total metal needed for production;

      to be purchased (ft.)

   x Price per foot

   Cost of metal strips to be purchased

Glass sheets:

   S frames to be produced

x glass quantity per unit (sheets)

Needed for S Frame production

   L frames to be produced

x glass quantity per unit (sheets.)

Needed for L Frame production

Total glass needed for production:

Add: Desired ending inventory10,40010,400

Total glass needs

Less: Expected beginning inventory

Glass to be purchased

X Price per glass sheets

Cost of glass to be purchased

      Total raw-material purchases

          (metal and glass)

5.Cash disbursements budget:

                                       20×1

1st 2nd 3rd4thEntire

QuarterQuarterQuarterQuarterYear

Raw-material purchases:

   Cash payments for purchases during the current quarter

   Cash payments for purchases during the preceding quarter

   Total cash payments for raw-material purchases

Direct-labor:

   Frames produced (Sand L)

   X direct-labor hours per frame

   Direct-labor hours to be used

   X Rate per direct-labor hour

   Total cash payments for direct labor

Manufacturing overhead:

   Indirect material

   Indirect labor

   Other

   Total cash payments for manufacturing overhead

Cash payments for selling and administrative expenses

Total cash disbursements

6.Summary cash budget:  

                                       20×1

1st 2nd 3rd4thEntire

QuarterQuarterQuarterQuarterYear

Cash receipts (from schedule 2)……………………

Less: Cash disbursements (from schedule 5)

Change in cash balance due to operations

Payment of dividends

Proceeds from bank loan (1/2/x1)

Purchase of equipment

Quarterly installment on loan principal

Quarterly interest payment

Change in cash balance during the period

Cash balance, beginning of period

Cash balance, end of period

      7.   Prepare a budgeted schedule of cost of good manufactured and sold for the year  

20×1. Note: Budgeted and actual MOH will be equal.

Prepare Denmark’s budgeted income statement for 20×1. (Ignore income taxes.)

Prepare Denmark’s budgeted statement of retained earnings for 20×1.

Prepare Denmark’s budgeted balance sheet as of December 31, 20×1.

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