Cost of Goods Sold Budget Quarter 3 4 Year Direct materials used Direct labor used Overhead Budgeted manufacturing costs Beginning finished goods Cost of goods available for sale Less: Ending finished goods Budgeted cost of goods sold Selling and Administrative Budget Quarter 3 66,000 68,000 75,000 6.00 6.00 6.00 396,000 408,000 450,000 Planned sales in units Variable selling and admin exp per unit Total variable expense Fixed selling and admin expense Total selling and admin expenses 85,000 6.00 510,000 Year 294,000 6.00 1,764,000 Note: depreciation in fixed selling and admin expense Proforma Income Statement Year Sales Less: Cost of goods sold Gross margin Less: Seling and admin expenses Operating income Less: Interest expense Income before income taxes Less: Income taxes Net income 30% End of operating budget Quaint Stem Company is a high-end glassware manufacturer that produces fine stemware of the highest quality. The company is completing its fourth year of operations and is preparing to build its master budget for the coming year (2020). The budget will detail each quarter's activity and the activity for the year in the total. The master budget will be based on the following information: a. Fourth-quarter sales for 2019 are 82,000 units and 65,000 for the first quarter of 2021. b. Unit sales by quarter (for 2020) are projected as follows: First quarter 66,000 Second quarter 68,000 Third quarter 75,000 Fourth quarter 85,000 The selling price is $86 per unit. Cash sales make up 25% of all sales. Quaint collects 75 percent of the credit sales within the quarter in which they are realized; the other 25 percent are collected in the following quarter. There are no bad debts. The beginning inventory of finished goods is 13,000 units. Required ending inventory is 25% of the next quarter's sales in units. d. Each stemware unit uses one and a half hours of direct labor and two units of direct materials. Laborers are paid $23.00 per hour, and one unit of direct materials costs $12. e. There are 10,400 units of direct materials in beginning inventory as of January 1, 2019. At the end of each quarter, Quaint plans to have 10 percent of the direct materials needed for next quarter's unit sales. The ending unit of direct materials on hand at the end of the year was 19,500. f. Quaint buys direct materials on account. Half of the purchases are paid for in the quarter of acquisition, and the remaining half are paid for in the following quarter. Wages and salaries are paid on the 15th and 30th of each month. g. Fixed overhead totals $671,600 for each of the first three quarters. Of this total, $255,000 represents depreciation. During the fourth quarter, the depreciation and total fixed overhead increases by $18,575. All fixed expenses other than depreciation are paid for in cash in the quarter incurred. The fixed overhead rate is computed by dividing the year's total fixed overhead by the year's expected actual units produced. h. Variable overhead is budgeted at $5.50 per direct labor hour. All variable overhead expenses are paid for in the quarter incurred. i. Fixed selling and administrative expenses total $285,000 per quarter, including $50,000 depreciation. j. Variable selling and administrative expenses are budgeted at $6 k. per unit sold. All selling and administrative expenses are paid for in the quarter incurred. The balance sheet as of December 31, 2019, is as follows: ASSETS LIABILITIES and STOCKHOLDERS'EQUITY 1. Accounts Payable $ 680,000 Cash Accounts Receivable Raw Materials Inventory Finished Goods Inventory Plant and equipment, net Total Assets $ 52,000 1,275,000 124,800 656,500 9,360,000 $11,468,300 Capital Stock Retained Earnings Total Liab. & Equity 9,750,000 1,038,300 $11,468,300 m. Quaint has a required cash balance of $50,000. An operating line of credit is available up to $250,000 at 8% interest. All borrowings and payments must be made in increments of $10,000 and interest is paid when principal is paid. All borrowings take place at the beginning of the quarter and all payments take place at the end of the quarter. n. Quaint will pay quarterly dividends of $55,000. At the end of the third quarter, $525,000 of equipment will be purchased and at the end of the fourth quarter, $225,000 of equipment will be purchased 0. The income tax rate is 30%
