Beckett Pumps is a manufacturer of commercial and heavy industrial Pumps. The firm's two product lines are called Directlift and Gravity. The primary raw materials are flexible steel sheet, and 23cm x 60cm of plastic sheets. Each Directlift pump requires a two to three metres and a Gravity pump requires a one metre of steel sheet. Allowing for normal breakage and scrap steel sheet, the company can cut either enough to make four Directlifts or two Gravity pumps from a single steel sheet. Other raw materials are costly and treated as indirect materials. Jo Smith Beckett Pump's accountant has gathered the following information in preparation for the company's annual budget for the next year.

• Sales in the fourth quarter of the current year are expected to be 50,000 Directlift and 40,000 Gravity pumps. The sales manager predicts that, over the next two years, sales in each product line will grow by 5000 units each quarter over the previous quarter. For example, Directlift sales in the first quarter of the budget year are expected to be 55,000 units.
• Beckett's sales history indicates that 60 per cent of all sales are on credit, with the remainder of the sales in cash. The company's experience shows that 80 per cent of the credit sales are collected during the quarter in which the sales are made, while the remaining 20 per cent are collected in the following quarter, there are no bad debts.
• The Directlift sells for $10 and Gravity for $15. These prices are not to change throughout the budget year.
• Beckett's production manager tries to end each quarter with enough finished goods inventory in each product line to cover 20 per cent of the following quarter's sales. In addition, an attempt is made to end each quarter with 20 per cent of the plastic sheets needed for the following quarter's production. Since steel sheets are purchased locally, Beckett buys them on a just-in-time basis, so inventory is negligible.
• All of Beckett's direct material purchases are on credit, and 80 per cent of each quarter's purchases are paid in cash during the same quarter as the purchases are made. The other 20 per cent are paid in the next quarter.
• Indirect materials are purchased as needed for cash.
• Work in process inventory in negligible.
• Projected manufacturing costs for each product in the budget year are as follows:

DirectliftGravityDirect material

Steel sheet:

Directlift: 2/3 metre @$3 per metre$2

Gravity: 1 metre @ $3 per metre

$3Plastic sheet:

Directlift: sheet @$8 per sheet2

Gravity: 1/2c sheet @ $8 per sheet

4Direct labour:

0.1 hour @ $20 per hour22Manufacturing overhead:

0.1 direct labour hour @ $10 per hour11Total manufacturing cost per unit$7$10

• The predetermined overhead rate is $10 per direct labour hour. The following manufacturing overhead costs (all these costs except for the depreciation charges will be paid in cash during the quarter incurred).

1st quarter2nd quarter3rd quarter4th quarterEntire yearIndirect material$10200$11200$12200$13200$46800Indirect labour40800448004880052800187200Other overhead31000360004100046000154000Depreciation2000020000200002000080000Total overhead$102000$112000$122000$132000$468000

• Beckett pump's quarterly selling and administrative expenses are $100,000 paid in cash
• Jo Smith anticipates that dividends of $50,000 will be declared and paid in cash each quarter.
• Beckett's projected balance sheet as 31 December of the current year is as follows:

Cash$95000Accounts receivable132000Inventory:

Raw materials59200Finished goods167000Plant and equipment (net of accumulated depreciation)8 000 000Total assets$8 453 200Accounts payable$99400Ordinary shares5 000 000Retained earnings3 353 800Total liabilities and shareholders' equity$8 453 200

Additional information:

• The CEO has decided to invest in purchasing in a fully automated electric machine which is expected to increase production significantly. The acquisition of the new machine will take place at the start of January next year. The machine will cost $950,000 and there will be an additional $50,000 of equipment purchase to allow the machine to operate. The purchase will be financed with a $1,000,000 loan from National Australia Bank. The CEO has negotiated a repayment schedule of four equal instalments, payable on the last day of each quarter. The interest rate is 10 per cent and interest is also paid quarterly.

Required:

Prepare Beckett Pump's annual budget for the next year by completing:

• Sales budget (21 marks)
• Cash receipt budget (13 marks)
• Production budget ((24 marks)
• Direct material budget (27 marks)
• Cash payments budget (20 marks)
• Cash budget (13 marks)
• Budgeted schedule of cost of goods manufactured and sold (hint: in the budget, actual and applied overhead will be equal) (5 marks)
• Budgeted income statement (ignore income tax)(7 marks)
• Budgeted balance sheet as of 31 December of the budget year (10 marks)