Fourth quarter sales for 2017 are 55,000 units Unit sales by quarter for 2018 are projected as follows: First quarter 65,000 Second quarter 70,000 Third quarter 75,000 Fourth quarter 90,000 The selling price is $400 per unit. All sales are credit sales. Cutting Edge collects 85 percent of all sales within the quarter in which they are realized; the other 15 percent are collected in the following quarter. There are no bad debts. There is no beginning inventory of finished goods. Cutting Edge is planning the following ending finished goods inventories (in units) for each quarter: First quarter 13,000 Second quarter 15,000 Third quarter 20,000 Fourth quarter 10,000 Each mass storage unit uses five hours of direct labor and three units of direct materials. Laborers are paid $10 per hour, and one unit of direct materials costs $80. There are 65,700 units of direct materials in beginning inventory as of January 1, 2018. at the end of each quarter, Cutting Edge plans to have 30 percent of the direct materials needed for next quarters unit sales. Cutting Edge will end the year with the same level of direct materials found in this years beginning inventory. Cutting Edge buys direct materials on account. Half of the purchases are paid for in the quarter. Wages and salaries are paid on the 15th and 30th of each month. 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. The fixed overhead rate is computed by dividing the years total fixed overhead by the years expected actual units produced. Variable overhead is budgeted at $6 per direct labor hour. All variable overhead expenses are paid for in the quarter incurred. Fixed selling and administrative expenses total $250,000 per quarter, including $50,000 depreciation. Variable selling and administrative expenses are budgeted at $10 per unit sold. All selling and administrative expenses are paid for in the quarter incurred. Cutting Edge will pay quarterly dividends of $300,000. At the end of the fourth quarter, $2,000,000 of equipment will be purchased. Management has set a policy requiring a minimum cash balance of $5,000. An open line of credit is available at a local bank for any borrowing that may be needed during the quarter. All borrowing is done at the beginning of the quarter and all repayments are made at the end of the quarter. Borrowings and repayments must be in multiples of $1,000. Interest is due and paid at the end of each quarter. Cutting Edge makes principle payments when the cash balance exceeds the minimum by at least $1,000. The annual interest rate is 12%.

Selling and Administrative Budget

Ending Finished Goods Budget

Cost of Goods Budget

Cash Budget