Broncos Corp. manufactures wooden frames with the bronco medallion for framing the college degrees awarded by Western Michigan University. Each Bronco frame sells for $150 and requires:

• 5 linear feet of special Oak wood that costs $4.00 per foot

• another direct material package (each package includes one Bronco Medallion, a glass face, and a cardboard cutout) that costs $25 each package (bought from an outside supplier)

• 30 minutes of labor hours to build (Labor cost averages $15.00 per hour)

Bronco Corp. has the following inventory policies:

▪ Ending finished goods inventory should be 25% of next month’s sales.

▪ Ending inventory of Oakwood should be 30% of next month’s production need.

▪ Ending inventory of other direct material package should be 20% of next month’s production need. (the supply chain for the other direct material packages is quite efficient and therefore, company maintains a smaller inventory of these packages as compared to Oak wood inventory)

As per the Marketing and Sales department of the Bronco Corp., sales are high in the month of graduation and the month following the graduation during Fall and Spring each year. Therefore, months of December, January, April, and May are considered high demand months. In a November budget meeting of the current year, the Sales Manager provided following estimates of unit sales for the upcoming months (December current year – May next year):

December 2,000 frames

January 1,600 frames

February 900 frames

March 760 frames

April 2,100 frames

May 1,800 frames

Variable manufacturing overhead is incurred at a rate of $12.50 per frame produced. Annual fixed manufacturing overhead is estimated to be $300,000 ($25,000 per month) for expected production of 20,000 frames for the year. Fixed selling and administrative expenses are estimated at $31,000 per month and variable selling and administrative expenses are estimated at $15.00 per unit sold.

Of its sales each month, 80% is collected in the same month and remaining 20% in the month following the sales.

Of the purchase of Oak wood, 60% is paid for during the month of purchase and remaining 40% is paid in the following month. Budgeted Oak wood purchase for December is $34,200. Other direct material package purchases are all paid for in the month of purchase. Also, all other operating costs are paid during the month incurred. Monthly fixed manufacturing overhead includes $5,000 in depreciation. During January, Bronco Corp. plans to pay $110,000 for a piece of equipment to replace old equipment.

Bronco had $61,000 cash on hand on January 1. The company has a policy to maintain a monthly minimum cash balance of $50,000. The company may borrow any amount using the credit line provided by their bank to pay for deficits and maintain the minimum required balance of cash. Borrowings or any part of the borrowings may be paid off in the month there is excess cash available (Ignore interest on borrowings).

Requirements:

1. Using the information provided above prepare the following budgets for the first quarter (January - March) for Bronco Corporation. Include each month and quarter 1 (January- March) total for each budget.

a. Sales budget

b. Production budget

c. Direct Materials budgets (Hint: You will need TWO Direct Material Purchases budgets – one for the Oak wood and another for the Direct Material Package.)

d. Direct labor budget

e. Manufacturing Overheads budget f. Budgeted Cost of Goods Sold (COGS)

g. Selling and administrative expenses budget

2. Prepare Bronco’s budgeted income statement for quarter 1 (January- March).

3. Prepare the following for Bronco for quarter 1:

a. Budgeted cash receipts/collection each month (including quarter 1 total)

b. Budgeted cash payments each month (including quarter 1 total)

c. Cash budget of Bronco for quarter 1.

4. After completing requirements 1-3 above revise the budget spreadsheet in a new worksheet to include following changes (you can copy and paste the “Original data” spreadsheet into the “Revised estimates” tab and incorporate following changes):

Bronco Corp. is contemplating increasing the selling price of the frames by 10% during the high sales months (graduation months) of December- January and April-May. The management of Bronco believes that it would affect unit sales marginally only, thereby, reducing unit sales by 5% in those months. How would these two changes affect the income of Quarter 1? Based on the analysis, should Bronco Corp. increase the price of frames temporarily during those high demand months? Complete the Conclusion tab. (You need to revise your Excel spreadsheet to determine the effect on income statement. If you used your formulas correctly for requirements 1-3, you will not need to make whole lot of changes to your spreadsheet).

5. Save a copy of the Excel solution file after completing requirement 4 on your computer or flash drive.

6. Submit your Excel file you saved in requirement 5 above (one with revised estimates) on the eLearning Dropbox (You should not revise your excel file to the original data).