Chapter 22 The Budgeting Process C3 BEGINNING BALANCESHEET ASSETS Current Assets Cash Accounts Receivable 15,500 20,000 Direct Materials Inventory Work in Process Inventory Finished Goods Inventory Total Current Assets 114 0 4,794 40,408 Property, Plant & Equipment Land Plant & Equipment Less Accum. Deprec 46,000 80,000 20,000 60,000 Total PP&E 106,000 146,408 Total Assets LIABILITIES Current Liabilities Accounts Payable 850 Total Current Liabilities 850 Long-Term Liabilities Notes Payable 0 0 Total Long-Term Liabilities Total Liabilities 21,350 STOCKHOLDERS' EQUITY Contributed Capital Common Stock Retained Earnir 100,000 25,058 125,058 Total Stockholders' Equity 146,408 Total Liabilities & SE Chapter 22 The Budgeting Process Preparing a Comprehensive Budget Country Custom began manufacturing cooking products in 2001. a Master Budget for the company for 2019 Prepare a Master Budget for Country Custom for the year 2019 its biggest customer is a national retail chain that specializes in such products Celia Custom, the owner of Country Custom, would like to have Sales Budget Production Budget Direct Materials Budget Direct Labor Budget Overhead Budget Selling & Administration Budget Cost of Goods Manufactured Budget Budgeted Income Statement Schedule of Cash Collections Schedule of Cash Payments - for Direct Materials Cash Budget Budgeted Balance Sheet The following data is available for your calculations SALES BUDGET Expected Sales in Units is: 2019 Quarter 1 4,000 3,000 5,000 5,000 2020 1 6,000 Quarter 10.00 Sales Price per unit is The company's policy on ending inventory for Finished Goods is: desired level of Ending Finished Goods Inventory is 20% of the next quarter's budgeted sales 800 Beginning Finished Goods Inventory (in units) for the year is: Production requires 3 ounces of direct material per unit of finished goods Direct Materials cost 0.10 per ounce The company's policy on ending inventory for Direct Materials is desired ounces of Ending Direct Materials Inventory is 10% of the next quarter's budgeted production needs in ounces Ending Direct Materials Inventory (in ounces) for the year will be: Beginning Direct Materials Inventory (in ounces) for the year is: 1,80012018 1,140- the company's Production Department has estimated the need of 12 minutes of Direct Labor per unit the Human Resources Department estimates Direct Labor Costs of 5.00 per hour The company's estimated single Predetermined Overhead Rate for the upcoming year is: Factory Supplies Employee Benefits Inspection C 0.10 c 0.15 0.20 Maintenance & Repair 0.35 Utilities C 0.10 E 0.90 Variable POR per Unit produced (see Production Budget) The Company's fixed overhead costs for a quarter are Depreciation, Machinery 1,000 Depreciation, Building14,000 Supervision Maintenance & Repair Other Overhead Expenses500 700 300 The company's estimated Variable Selling & Administrative Expense Rates for the upcoming year is: 0.20 0.25 Delivery Expenses Sales Commissions Accounting Other Admin Exp C 0.10 0.10 0.65 per unit sold The Company's fixed selling & administrative costs for a quarter are: Sales Salaries Depreciation 7,000 800 Office Equipment Taxes & Insurance1,500 Remember when calculating the Direct Materials Inventory (Beginning or Ending) balance that you must multiply the ounces by the cost per ounce I see the Direct Materials Budget for data] It is the company's policy to have no units in process (WIP) at the beginning or end of the year Remember to calculate the Product Unit Cost The Company's Income Tax rate is: 20% round to the nearest dollar) Beginning Finished Goods Inventory dollar value is listed on the Balance Sheet 4794 Ending Finished Goods Inventory equals 7,192 (due to rounding) NOTE: Finished Goods Inventory balances assume that Product Unit costs are the same in both years C3 Accounts Receivable 20,000 5,000 collect in Quarter 1 15,000 collect in Quarter 2 The company expects sales to be: 20% 80% Cash Sales Credit Sales The company collect Credit Sales payments: 60% 30% 10% in the quarter of the sale in the quarter following the sale in the second quarter following the sale SCHEDULE OF EXPECTED CASH PAYMENTS The company pays for its Direct Materials Purchases: 50% 50% in the quarter of the sale in the quarter following the sale CASH BUDGET Capital Expenditures: the company plans to purchase a machine costing 35,000 and to pay for it: 25,000 in the first quarter 10,000 in the second quarter The company has a The Interest Rate 20.500 Notes Payable (see Beginning Balance Sheet 7% annually must be included on the Income Statement and the Cash Budget -divide the interest expense equally (into 4 quarters) for the Cash Budget 3,686 for the year The company pays the taxes quarterly in equal payments divide the income taxes equally iby 4) to get the payment for each quarter) Chapter 22 The Budgeting Process Ca Preparing a Comprehensive Budget EVALUATION Evaluate the information you have been provided by the company. Indicate areas where you agree with the company policies or places where you would make changes. What actions would you suggest for the company? Comment on the overall process for the company. What benefits can the company expect from completing a Master Budget