1. Prepare a budgeted schedule of cost of goods manufactured and sold for the year 20x1 Hint: In the budget, actual and applied overhead will be equal.), a budgeted income statement for 20x1 (Ignore income taxes), budgeted statement of retained earnings for 20x1 and budgeted balance sheet as of December 31, 20x1.

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Jeffrey Vaughn, president of Frame-It Company, was just concluding a budget meeting with his senior staff. It was November of 200, and the group was discussing preparation of the firms master budget for 201. Ive decided to go ahead and purchase the industrial robot weve been talking about. Well 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, Vaughn replied as follows: The robot will cost $1,000,000. Well finance it with a one-year $1,000,000 loan from Shark Bank and Trust Company. Ive 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. Frame-It Company is a manufacturer of metal picture frames. The firms 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 a 2-foot metal strip; an L frame requires a 3-foot strip. Allowing for normal breakage and scrap glass, Frame-It can get either four S frames or two L frames out of a glass sheet. Other raw materials, such as cardboard backing, are insignificant in cost and are treated as indirect materials. Emily Jackson, Frame-Its controller, is in charge of preparing the master budget for 201. She has gathered the following information:

Sales in the fourth quarter of 200 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 201 are expected to be 55,000 units.

Frame-Its sales history indicates that 60 percent of all sales are on credit, with the remainder of the sales in cash. The companys 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 201.

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

All of Frame-Its direct-material purchases are made on account, and 80 percent of each quarters 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.

Projected production costs in 201 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: sheet @ $8 per sheet		2
L: sheet @ $8 per sheet						4
Direct labor:
0.1 hour @ $20		2				2
Production overhead:
0.1 direct-labor hour $10 per hour		1				1
Total production cost per unit	$	7			$	10

The predetermined overhead rate is $10 per direct-labor hour. The following production overhead costs are budgeted for 20x1.

	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.

Frame-Its 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.

Frame-Its projected balance sheet as of December 31, 200, 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

FRAME-IT COMPANY Budgeted Schedule of Cost of Goods Manufactured and Sold For the Year Ended December 31, 20x1 $ Direct material: Raw material inventory, 1/1/X1 Add: Purchase of raw material Raw material available for use Deduct: Raw-material inventory, 12/31/x1 Raw material used Direct labor Manufacturing overhead: Indirect material Indirect labor Other overhead Depreciation Total manufacturing overhead Budgeting over/underapplied overhead Overhead applied to work-in-progress* Cost of goods manufactured Add: Finished-goods inventory, 1/1/x1 Cost of goods available for sale Deduct: Finished-goods inventory, 12/31/x1** Cost of Goods Sold $ * The applied manufacturing overhead may be verified independently as follows: Total number of frames produced Direct-labor hours per frame Total direct-labor hours Predetermined overhead rate per hour Total manufacturing overhead applied $ S Frames L Frames "The cost of goods manufactured may be verified independently as follows: Frames produced Manufacturing cost per unit Total manufacturing cost Grand total $ ** The finished-goods inventory on 12/31/x1 may be verified independently as follows: S Frames L Frames Projected inventory on 12/31/X1 Manufacturing cost per unit Cost of ending inventory Total cost of ending inventory (s and L) $ The cost of goods sold may be verified independently as follows: S Frames L Frames Frames sold Manufacturing cost per unit Cost of goods sold Total cost of goods sold (S and L) $ FRAME-IT COMPANY Budgeted Income Statement For the Year Ended December 31, 20x1 Sales revenue Less: Cost of goods sold Gross margin Selling and administrative expenses Interest expense Net income FRAME-IT COMPANY Budgeted Statement of Retained Earnings For the Year Ended December 31, 20x1 Retained earnings, 12/31/0 Add: Net income Deduct: Dividends Retained earnings, 12/31/x1 $ FRAME-IT COMPANY Budgeted Balance Sheet December 31, 20x1 Cash Accounts receivable Inventory: Raw material Finished goods Plant and equipment (net of accumulated depreciation) Total assets $ Accounts payable Common stock Retained earnings Total liabilities and stockholders' equity $ FRAME-IT COMPANY Master Budget Sales Budget: 20x0 4th Quarter $ $ S frame unit sales x S sales price S frame sales revenue L frame unit sales XL sales price L frame sales revenue Total sales revenue 20x1 1st 2nd 3rd 4th Entire Quarter Quarter Quarter Quarter Year 50,000 55,000 60,000 65,000 70,000 250,000 10 $ 10 $ 10 $ 10 $ 10 $ 10 500,000 $ 550,000 $ 600,000 $ 650,000 $ 700,000 $ 2,500,000 40,000 45,000 50,000 55,000 60,000 210,000 15$ 15 $ 15 $ 15 $ 15 $ 15 600,000 $ 675,000 $ 750,000 $ 825,000 $ 900,000 $ 3,150,000 1,100,000 $1,225,000 $ 1,350,000 $ 1,475,000 $ 1,600,000 $ 5,650,000 $ $ $ $ Cash sales* Sales on account 440,000 $ 660,000 $ 490.000 $ 735,000 $ 540,000 $ 810,000 $ 590,000 $ 885,000 $ 640,000 $ 2.260,000 960,000 3.390,000 $ *40% of total sales. 760% of total sales. Cash receipts budget: 1st Quarter 20x1 2nd 3rd Quarter Quarter 490,000 $ 540,000 $ 590,000 $ 4th Entire Quarter Year 640,000 $ 2,260,000 $ 588,000 648,000 708,000 768,000 $ 2,712,000 Cash sales Cash collections from credit sales made during current quarter* Cash collections from credit sales made during previous quartert Total cash receipts 132,000 147,000 162,000 177,000 $ 618.000 1,210,000 $ 1,335,000 $ 1,460,000 $1,585,000 $ 5,590,000 $ *80% of current quarter's credit sales 120% of previous quarter's credit sales Production budget: 20x0 4th 20x1 3rd 1st 2nd 4th Entire Quarter Quarter Quarter Quarter Quarter Year 60.000 S frames: Sales (in units) Add: Desired ending inventory Total units needed Less: Expected beginning inventory Units to be produced 50,000 11,000 61,000 10,000 51,000 55,000 12,000 67,000 11,000 56,000 13.000 73,000 12,000 61,000 65,000 14.000 79,000 13,000 66.000 70,000 15,000 85,000 14,000 71,000 250,000 15,000 265,000 11,000 254,000 L frames: Sales (in units) Add: Desired ending inventory Total units needed Less: Expected beginning inventory Units to be produced 40,000 9,000 49,000 8,000 41,000 45,000 10,000 55,000 9,000 46,000 50.000 11,000 61,000 10.000 51,000 55,000 12,000 67.000 11.000 56.000 60,000 13,000 73,000 12,000 61,000 210.000 13,000 223,000 9,000 214,000 Summary cash budget: 1st Quarter $ $ 200,000 Cash receipts Less: Cash disbursements (from Sch. 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 20x1 2nd 3rd 4th Entire Quarter Quarter Quarter Year 1,210,000 $ 1,335,000 $ 1,460,000 $ 1,585,000 S 5,590,000 927,000 1,012.000 1,097,000 1,182.000 4,218,000 283,000 $ 323,000 $ 363,000 $ 403,000 $ 1,372,000 50,000 50,000 50.000 50.000 1,000,000 0 0 0 1,000,000 1,000,000 0 0 0 1,000,000 250,000 250,000 250,000 250,000 1,000,000 25,000 18,750 12.500 6.250 62,500 (42,000) $ 4,250 $ 50,500 $ 96,750 $ 109,500 95,000 53,000 57,250 107,750 95,000 53,000 $ 57.250 $ 107.750 $ 204,500 $ 204,500 $ Raw-material budget: 20x0 4th 20x1 3rd Entire 1st Quarter 2nd Quarter 4th Quarter Quarter Quarter Year 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 51,000 2 102,000 41,000 3 123,000 56,000 2 112,000 46,000 3 138,000 61,000 2 122.000 51.000 3 153.000 66.000 2 132,000 56.000 3 168,000 71,000 2 142,000 61,000 3 183,000 254.000 2 508.000 214.000 3 642.000 225,000 1 $ 225,000 $ 250,000 1 S 250,000 S $ $ 275,000 1 $ 275,000 $ 300,000 1 S 325,000 1,150.000 1 $ 1 325,000 $ 1,150,000 300,000 $ 0.25 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 (sheets) Add: Desired ending inventory Total glass needs Less: Expected beginning inventory Glass to be purchased X Price per glass sheet Cost of glass to be purchased 51,000 0.25 12,750 41,000 0.50 20,500 33,250 7,400 40,650 6,650 34.000 56,000 0.25 14,000 46.000 0.50 23,000 37.000 8,150 45,150 7,400 37.750 8 S 302,000 $ 61,000 0.25 15,250 51,000 0.50 25,500 40,750 8,900 49,650 8,150 41,500 8 $ 332,000 $ 66,000 0.25 16,500 56,000 0.50 28,000 44,500 9.650 54.150 8.900 45.250 71,000 254.000 0.25 17,750 63,500 61,000 214.000 0.50 0.50 30,500 107.000 48.250 170,500 10,400 10,400 58,650 180,900 9.650 7.400 49.000 173,500 8 $ 8 392,000 $ 1,388,000 8 $ 8 S $ 272,000 $ 362.000 $ Total raw material purchases (metal and glass) $ 497,000 $ 552,000 S 607,000 $ 662,000 S 717,000 $ 2,538,000 Cash disbursements budget: 20x1 2nd 1st 3rd 4th Entire Quarter Quarter Quarter Quarter Year $ 441,600 S 485,600 $ 529,600 $ 573,600 $ 2,030,400 Raw-material purchases: Cash payments for purchases during the current quarter* Cash payments for purchases during the preceding quarter Total cash pmts. for raw-material purchases 99,400 541,000 $ 110,400 596,000 $ 121,400 651,000 $ 132,400 463,600 706,000 $ 2,494,000 Direct labor: Frames produced (S and L) Direct-labor hours per frame Direct-labor hours to be used x Rate per direct-labor hour Total cash payments for direct labor 102,000 0.1 10,200 20 $ 112,000 0.1 11,200 20 $ 224,000 $ 122.000 0.1 12,200 20 $ 244,000 $ 132,000 0.1 13,200 20 $ 264,000 $ 468,000 0.1 46,800 20 936,000 $ $ 204,000 $ Manufacturing overhead: Indirect material Indirect labor Other 10,200 $ 40,800 31.000 82,000 s 11,200 $ 44,800 36,000 92.000 $ 12,200 $ 48,800 41,000 102,000 $ 13,200 $ 52,800 $ 46,000 $ 112,000 $ 46,800 187,200 154,000 388,000 Total cash payments for manufacturing OH $ $ Cash pmts, for selling and admin. expenses Total cash disbursements 100,000 $ 100,000 $ 100,000 $ 100,000 $ 400.000 927,000 S 1.012,000 $ 1,097,000 $ 1,182,000 $ 4,218,000 $ *80% of current quarter's purchases +20% of previous quarter's purchases FRAME-IT COMPANY Budgeted Schedule of Cost of Goods Manufactured and Sold For the Year Ended December 31, 20x1 $ Direct material: Raw material inventory, 1/1/X1 Add: Purchase of raw material Raw material available for use Deduct: Raw-material inventory, 12/31/x1 Raw material used Direct labor Manufacturing overhead: Indirect material Indirect labor Other overhead Depreciation Total manufacturing overhead Budgeting over/underapplied overhead Overhead applied to work-in-progress* Cost of goods manufactured Add: Finished-goods inventory, 1/1/x1 Cost of goods available for sale Deduct: Finished-goods inventory, 12/31/x1** Cost of Goods Sold $ * The applied manufacturing overhead may be verified independently as follows: Total number of frames produced Direct-labor hours per frame Total direct-labor hours Predetermined overhead rate per hour Total manufacturing overhead applied $ S Frames L Frames "The cost of goods manufactured may be verified independently as follows: Frames produced Manufacturing cost per unit Total manufacturing cost Grand total $ ** The finished-goods inventory on 12/31/x1 may be verified independently as follows: S Frames L Frames Projected inventory on 12/31/X1 Manufacturing cost per unit Cost of ending inventory Total cost of ending inventory (s and L) $ The cost of goods sold may be verified independently as follows: S Frames L Frames Frames sold Manufacturing cost per unit Cost of goods sold Total cost of goods sold (S and L) $ FRAME-IT COMPANY Budgeted Income Statement For the Year Ended December 31, 20x1 Sales revenue Less: Cost of goods sold Gross margin Selling and administrative expenses Interest expense Net income FRAME-IT COMPANY Budgeted Statement of Retained Earnings For the Year Ended December 31, 20x1 Retained earnings, 12/31/0 Add: Net income Deduct: Dividends Retained earnings, 12/31/x1 $ FRAME-IT COMPANY Budgeted Balance Sheet December 31, 20x1 Cash Accounts receivable Inventory: Raw material Finished goods Plant and equipment (net of accumulated depreciation) Total assets $ Accounts payable Common stock Retained earnings Total liabilities and stockholders' equity $ FRAME-IT COMPANY Master Budget Sales Budget: 20x0 4th Quarter $ $ S frame unit sales x S sales price S frame sales revenue L frame unit sales XL sales price L frame sales revenue Total sales revenue 20x1 1st 2nd 3rd 4th Entire Quarter Quarter Quarter Quarter Year 50,000 55,000 60,000 65,000 70,000 250,000 10 $ 10 $ 10 $ 10 $ 10 $ 10 500,000 $ 550,000 $ 600,000 $ 650,000 $ 700,000 $ 2,500,000 40,000 45,000 50,000 55,000 60,000 210,000 15$ 15 $ 15 $ 15 $ 15 $ 15 600,000 $ 675,000 $ 750,000 $ 825,000 $ 900,000 $ 3,150,000 1,100,000 $1,225,000 $ 1,350,000 $ 1,475,000 $ 1,600,000 $ 5,650,000 $ $ $ $ Cash sales* Sales on account 440,000 $ 660,000 $ 490.000 $ 735,000 $ 540,000 $ 810,000 $ 590,000 $ 885,000 $ 640,000 $ 2.260,000 960,000 3.390,000 $ *40% of total sales. 760% of total sales. Cash receipts budget: 1st Quarter 20x1 2nd 3rd Quarter Quarter 490,000 $ 540,000 $ 590,000 $ 4th Entire Quarter Year 640,000 $ 2,260,000 $ 588,000 648,000 708,000 768,000 $ 2,712,000 Cash sales Cash collections from credit sales made during current quarter* Cash collections from credit sales made during previous quartert Total cash receipts 132,000 147,000 162,000 177,000 $ 618.000 1,210,000 $ 1,335,000 $ 1,460,000 $1,585,000 $ 5,590,000 $ *80% of current quarter's credit sales 120% of previous quarter's credit sales Production budget: 20x0 4th 20x1 3rd 1st 2nd 4th Entire Quarter Quarter Quarter Quarter Quarter Year 60.000 S frames: Sales (in units) Add: Desired ending inventory Total units needed Less: Expected beginning inventory Units to be produced 50,000 11,000 61,000 10,000 51,000 55,000 12,000 67,000 11,000 56,000 13.000 73,000 12,000 61,000 65,000 14.000 79,000 13,000 66.000 70,000 15,000 85,000 14,000 71,000 250,000 15,000 265,000 11,000 254,000 L frames: Sales (in units) Add: Desired ending inventory Total units needed Less: Expected beginning inventory Units to be produced 40,000 9,000 49,000 8,000 41,000 45,000 10,000 55,000 9,000 46,000 50.000 11,000 61,000 10.000 51,000 55,000 12,000 67.000 11.000 56.000 60,000 13,000 73,000 12,000 61,000 210.000 13,000 223,000 9,000 214,000 Summary cash budget: 1st Quarter $ $ 200,000 Cash receipts Less: Cash disbursements (from Sch. 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 20x1 2nd 3rd 4th Entire Quarter Quarter Quarter Year 1,210,000 $ 1,335,000 $ 1,460,000 $ 1,585,000 S 5,590,000 927,000 1,012.000 1,097,000 1,182.000 4,218,000 283,000 $ 323,000 $ 363,000 $ 403,000 $ 1,372,000 50,000 50,000 50.000 50.000 1,000,000 0 0 0 1,000,000 1,000,000 0 0 0 1,000,000 250,000 250,000 250,000 250,000 1,000,000 25,000 18,750 12.500 6.250 62,500 (42,000) $ 4,250 $ 50,500 $ 96,750 $ 109,500 95,000 53,000 57,250 107,750 95,000 53,000 $ 57.250 $ 107.750 $ 204,500 $ 204,500 $ Raw-material budget: 20x0 4th 20x1 3rd Entire 1st Quarter 2nd Quarter 4th Quarter Quarter Quarter Year 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 51,000 2 102,000 41,000 3 123,000 56,000 2 112,000 46,000 3 138,000 61,000 2 122.000 51.000 3 153.000 66.000 2 132,000 56.000 3 168,000 71,000 2 142,000 61,000 3 183,000 254.000 2 508.000 214.000 3 642.000 225,000 1 $ 225,000 $ 250,000 1 S 250,000 S $ $ 275,000 1 $ 275,000 $ 300,000 1 S 325,000 1,150.000 1 $ 1 325,000 $ 1,150,000 300,000 $ 0.25 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 (sheets) Add: Desired ending inventory Total glass needs Less: Expected beginning inventory Glass to be purchased X Price per glass sheet Cost of glass to be purchased 51,000 0.25 12,750 41,000 0.50 20,500 33,250 7,400 40,650 6,650 34.000 56,000 0.25 14,000 46.000 0.50 23,000 37.000 8,150 45,150 7,400 37.750 8 S 302,000 $ 61,000 0.25 15,250 51,000 0.50 25,500 40,750 8,900 49,650 8,150 41,500 8 $ 332,000 $ 66,000 0.25 16,500 56,000 0.50 28,000 44,500 9.650 54.150 8.900 45.250 71,000 254.000 0.25 17,750 63,500 61,000 214.000 0.50 0.50 30,500 107.000 48.250 170,500 10,400 10,400 58,650 180,900 9.650 7.400 49.000 173,500 8 $ 8 392,000 $ 1,388,000 8 $ 8 S $ 272,000 $ 362.000 $ Total raw material purchases (metal and glass) $ 497,000 $ 552,000 S 607,000 $ 662,000 S 717,000 $ 2,538,000 Cash disbursements budget: 20x1 2nd 1st 3rd 4th Entire Quarter Quarter Quarter Quarter Year $ 441,600 S 485,600 $ 529,600 $ 573,600 $ 2,030,400 Raw-material purchases: Cash payments for purchases during the current quarter* Cash payments for purchases during the preceding quarter Total cash pmts. for raw-material purchases 99,400 541,000 $ 110,400 596,000 $ 121,400 651,000 $ 132,400 463,600 706,000 $ 2,494,000 Direct labor: Frames produced (S and L) Direct-labor hours per frame Direct-labor hours to be used x Rate per direct-labor hour Total cash payments for direct labor 102,000 0.1 10,200 20 $ 112,000 0.1 11,200 20 $ 224,000 $ 122.000 0.1 12,200 20 $ 244,000 $ 132,000 0.1 13,200 20 $ 264,000 $ 468,000 0.1 46,800 20 936,000 $ $ 204,000 $ Manufacturing overhead: Indirect material Indirect labor Other 10,200 $ 40,800 31.000 82,000 s 11,200 $ 44,800 36,000 92.000 $ 12,200 $ 48,800 41,000 102,000 $ 13,200 $ 52,800 $ 46,000 $ 112,000 $ 46,800 187,200 154,000 388,000 Total cash payments for manufacturing OH $ $ Cash pmts, for selling and admin. expenses Total cash disbursements 100,000 $ 100,000 $ 100,000 $ 100,000 $ 400.000 927,000 S 1.012,000 $ 1,097,000 $ 1,182,000 $ 4,218,000 $ *80% of current quarter's purchases +20% of previous quarter's purchases