DELAWARE CORPORATION Delaware Corporation produces Super WidgetsTM, which are made of with one raw material, Kryptonite, using a unique proprietary manufacturing process. The company is preparing to build its master budget for the coming year (2017). The budget will detail each quarter's activity and the activity for the year in total. The master budget will be based on the following information: a) Fourth-quarter sales for 2016 are 55,000 units. b) Unit sales by quarter (for 2017) are projected as follows: Quarter 1 Quarter 2 Quarter 3 Quarter 4 70,000 65,000 75,000 90,000 c) The selling price is $500 per unit. All sales are credit sales. Delaware collects 85 percent of all sales within the quarter in which they are realized; the other 15 percent is collected in the following quarter. There are no bad debts. d) There were no beginning inventories of finished goods. The company follows a policy of planning a certain amount of safety stock of finished units based on a formula and projected demand in future quarters. Their planned ending inventories as of the end of the quarters is as follows: Quarter 1 13,000 units Quarter 2 15,000 units Quarter 3 20,000 units Quarter 4 10,000 units e) The company has established standards for the production of the widgets which call for five hours of direct labor and three pounds of direct materials per unit. Laborers are paid $10 per hour, and direct materials standards are $80 per pound. f) There are 65,700 pounds of Kryptonite (direct materials) in beginning inventory as of January 1, 2017. At the end of each quarter, Delaware plans to have 30 percent of the direct materials needed for next quarter's unit sales. Delaware will end the year with the same level of direct materials found in this year's beginning inventory. g) Delaware 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 always paid in the current quarter, on the 15th and 30th of each month. h) Fixed overhead totals $1 million each quarter. Of this total, $350,000 represents depreciation. All other fixed expenses are paid for in cash in the quarter incurred. i) The fixed overhead rate is computed by dividing the year's total budgeted fixed overhead by the year's budgeted production in units. (They use a rate per unit, versus per hour.) j) Variable overhead is budgeted at $6 per direct labor hour. All variable overhead expenses are paid for in the quarter incurred. k) Fixed selling and administrative expenses total $250,000 per quarter, which includes $50,000 depreciation. 1) Variable selling and administrative expenses are budgeted at $10 per unit sold. All selling and administrative expenses are paid for in the quarter incurred. m) The balance sheet as of December 31, 2016 (beginning of year) is as follows: DELAWARE CORPORATION BALANCE SHEET As of December 31, 2016 Assets Cash Accounts Receivable Direct materials inventory Current Assets Plant & equiment, net Total Assets $ 250,000 3,300,000 5,256,000 $ 8,806,000 33,500,000 $ 42,306,000 Liabilities & Equity Accts payable (materials only) $ 7,248,000 Common stock 27,000,000 Retained earnings 8,058,000 $42,306,000 n) The company pays quarterly dividends in the amount of $300,000. o) At the end of the 4* quarter, they plan to purchase new WidgetTron equipment for $3 million. Required: Prepare an Operating Budget for Delaware Corporation for each quarter of 2017 AND for the year in total. The following budget components MUST be presented for full credit: Sales budget Ending inventory budget (if desired - may be combined in Production budget) Production budget Direct materials purchases budget (showing lbs. and price) Direct labor budget (showing hours and cost) Overhead budget (fixed, variable and total) Selling and administrative budget Note: If you wish to do a separate Ending inventory budget as shown in the book, that is fine, but not required. Sometimes it helps so that you are only doing one thing at a time with each and every budget