Colombo Master Budget Summer 2012 rev. 6-5-2012 Acct 3351 Colombo Company manufactures a single model trench coat sold throughout the United States. Projected sales in units for the first five months of 2005 are as follows: January 40,000 February 25,000 March 22,000 April 13,000 May 11,000 The following information relates to Colombo?s production and inventory policies and balances: 1. Finished goods inventory is maintained at 75% of the following month?s sales. 2. Two materials are required for each trench coat manufactured, as follows: Direct Materials Yards per Unit Cost per Yard Polyester 5 $8 Lining Material 3 2 Raw materials inventory is maintained at 15% of the following month?s production needs. 3. Direct labor used per unit is two hours. The average rate for labor is $9.50 per hour. 4. Overhead each month is estimated by adding the fixed cost component to the variable cost component. Direct labor hours is used as the basis for variable costs. A summary of expected overhead costs is as follows: Fixed Cost Variable Cost Component Component Factory supplies $1.00 Utilities 0.75 Shop Maintenance $3,000 0.50 Supervision 4,000 Depreciation 60,000 Taxes 5,000 Other 10,000 2.00 Total $82,000 $4.255. Selling, general, and administrative expenses are also calculated by summing the fixed cost component and the variable cost component. The variable cost component is based on the number of units sold. Cost estimates are as follows: Fixed Cost Variable Cost Component Component Salaries $18,000 Commissions $3.00 Depreciation 22,000 Shipping 0.75 Other 10,000 1.50 Total $50,000 $5.25 6. Each trench coat sells for $90. 7. All purchases are made in cash. All sales are on account. Collection of accounts receivable is planned as follows: 90% in the month of sale; 10% in the month following the month of sale. The accounts receivable balance at January 1, 2005, is $145,000, all of which is collectible. The cash balance at January 1, 2005, is $202,000. Required A. Prepare the following portions of the operating master budget, by month, for the first quarter of 2005: 1. Sales Budget 2. Production Budget 3. Materials purchases budget 4. Labor budget 5. Overhead budget 6. Selling and administrative budget 7. Cash Budget B. Suppose Columbo?s management believes that unseasonably warm weather in March and April could cause its sales in units to differ from the original projections as follows: January 40,000 February 25,000 March 15,000 April 11,000 May 11,000 Explain how these fluctuations in sales will affect the other portions of the master budget developed in the previous requirements. What are the implications for the importance of forecasting sales accurately?

ACCT 3351 SAMPLE MASTER BUDGET You may include December or April. Only January, February, March and Quarter are graded. Sales Budget Unit Sales Selling Price Sales Revenue $ $ January February 35,000 20,000 85 $ 85 $ 2,975,000 $ 1,700,000 $ March 15,000 85 $ 1,275,000 $ Quarter 70,000 85 5,950,000 March 15,000 6,400 21,400 12,000 9,400 Quarter 70,000 6,400 76,400 28,000 48,400 March 9,400 5 47,000 3,200 50,200 4,700 45,500 8 364,000 $ Quarter 48,400 5 242,000 3,200 245,200 51,000 194,200 8 1,553,600 Production Budget January 35,000 16,000 51,000 28,000 23,000 Unit Sales Desired ending finished goods Total Units Required Beginning Finished Goods Units to Produce February 20,000 12,000 32,000 16,000 16,000 Materials Purchases Budget for Polyester Production Units Yards of Polyester/unit Total yards of required for production Plus: Desired polyester ending inventory Total requirements in yards Less: Beginning Polyester Inventory Total yards to be purchased Cost per yard Total Polyester Purchased $ January February 23,000 16,000 5 5 115,000 80,000 8,000 4,700 123,000 84,700 51,000 8,000 72,000 76,700 8 8 576,000 $ 613,600 $ Materials Purchases Budget for Lining Material Production Units Yards of Lining/unit Total yards of required for production Plus: Desired lining ending inventory Total requirements in yards Less: Beginning lining Inventory Total yards to be purchased Cost per yard January 23,000 3 69,000 4,800 73,800 30,600 43,200 2 February 16,000 3 48,000 2,820 50,820 4,800 46,020 2 March 9,400 3 28,200 1,920 30,120 2,820 27,300 2 Quarter 48,400 3 145,200 1,920 147,120 30,600 116,520 2 Total Lining Purchased $ 86,400 $ 92,040 $ 54,600 $ 233,040 January February 23,000 16,000 2 2 46,000 32,000 9.50 9.50 437,000 $ 304,000 $ March 9,400 2 18,800 9.50 178,600 $ Quarter 48,400 2 96,800 9.50 919,600 $ $ $ $ March 9,400 2 18,800 4.25 79,900 82,000 161,900 $ $ $ $ Quarter 48,400 2 96,800 4.25 411,400 246,000 657,400 February 20,000 5.25 105,000 50,000 155,000 $ $ $ $ March 15,000 5.25 78,750 50,000 128,750 $ $ $ $ Quarter 70,000 5.25 367,500 150,000 517,500 February 1,495,850 1,827,500 1,300,640 2,022,710 $ $ $ $ March 2,022,710 1,317,500 805,850 2,534,360 $ $ $ $ Quarter 202,000 5,967,500 3,635,140 2,534,360 Labor Budget Total Production (Units) Hours per Unit Total Hours Required Labor Rate per Hour Total Labor Cost $ Overhead Budget Total Production (Units) Hours per Unit Total Hours required Overhead rate per hour Total variable cost Fixed Cost Total Overhead Cost $ $ $ $ January 23,000 2 46,000 4.25 195,500 82,000 277,500 $ $ $ $ February 16,000 2 32,000 4.25 136,000 82,000 218,000 Selling & Administrative Budget Unit Sales Variable expense per sold unit Total Variable expense Fixed expense per month Total Selling & Admin. Expense $ $ $ $ January 35,000 5.25 183,750 50,000 233,750 $ $ $ $ Cash Budget Beginning Cash Balance Plus: Cash Collections Less: Cash Disbursements Ending Balance $ $ $ $ January 202,000 2,822,500 1,528,650 1,495,850 $ $ $ $