AC 204: Introduction to Accounting II CHAPTER 8: MASTER BUDGETING EXTRA CREDIT The following information pertains to the budgeting process for Beach, Inc. SALES: o Beach, Inc. sells one type of designer all-purpose beach bag for $45 per bag. Based on various sales forecasting models, Beach expects to sell 4,000 units in quarter 1, 6,000 in quarter 2, 7,500 in quarter 3 and 5,000 in quarter 4. o The beginning accounts receivable balance was $40,000. Assuming all sales are made on credit, about 70% of the quarterly sales are collected in that quarter; the remaining 30% are collected in the following quarter. PRODUCTION (UNITS): o Beach would like for ending inventory for each quarter to be 10% of the following quarters sales. o Beginning of year inventory included 400 units. o Assume desired inventory at the end of the year is 700 units. DIRECT MATERIALS: o Beach needs 2 pounds of material for each bag produced. Each pound of material costs $4.00. o Ending raw materials inventory should equal 10% of the following quarters production. o Beginning raw materials inventory is 500 pounds. Desired end-of-year inventory is 650 pounds. o Beginning accounts payable is $24,000. For purchases, assume 50% are paid for in the same quarter as purchased; 50% are paid for in the following quarter. DIRECT LABOR: o Direct labor hours per unit = 1 o Direct labor cost per hour = $13. MANUFACTURING OVERHEAD: o Based on estimates and research, the variable overhead rate is $2 per hour. o Total fixed manufacturing overhead is $100,000. Assume this is spread evenly over the four quarters. o Depreciation on all factory assets = $36,000. ENDING FINISHED GOODS INVENTORY BUDGET: o See Beachs previous budget schedules for information needed to prepare this schedule. SELLING AND ADMINISTRATIVE EXPENSE BUDGET: o Beach estimates that the variable selling and administrative expenses will be $1.50 per unit. o The following fixed expenses were provided by Beachs various departments: advertising $50,000; salaries $100,000; insurance $32,000; legal and professional fees $26,000; taxes $40,000; depreciation $18,000. CASH BUDGET: o Beachs cash policy requires a minimum cash balance of $20,000. o Per a loan agreement with the local bank, Beach must pay 5% per quarter interest on any borrowings. Assume that borrowings occur on the first day of the period and repayments occur on the last day of the period. Borrowings must be made in $1,000 increments, and interest is paid when the loan repayments are made. o The cash balance at the beginning of the year was $60,000. o Beach is expecting to purchase new machinery costing $70,000 in the second quarter and $30,000 in the third quarter. o Beach is expecting to pay dividends of $12,000 in the fourth quarter. BUDGETED INCOME STATEMENT: o See Beachs previous budget schedules for information needed to prepare this schedule. BUDGETED BALANCE SHEET: o Beginning Buildings & Equipment = $435,000; Beginning Accumulated Depreciation = $236,000 (assume no fixed assets were sold) o Common stock balance is $30,000 (this did not change throughout the year) o Beginning of year retained earnings = $258,048 BASED ON THE ABOVE BUDGETING ASSUMPTIONS, PREPARE THE FOLLOWING: 1. SALES BUDGET 2. PRODUCTION BUDGET 3. DIRECT MATERIALS BUDGET 4. DIRECT LABOR BUDGET 5. MANUFACTURING OVERHEAD BUDGET 6. ENDING FINISHED GOODS INVENTORY BUDGET 7. SELLING AND ADMINISTRATIVE EXPENSE BUDGET 8. CASH BUDGET 9. BUDGETED INCOME STATEMENT 10. BUDGETED BALANCE SHEET

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