Frameit Company is a manufacturer of metal picture frames. The firm's two product lines are designated as 8 (small frames; 50 X 70 cm} and L [large frames; 80 X 100 cm}. The primary raw materials are flexible metal strips and 90cm by 240cm glass sheets. Each 5 frame requires a 2metre metal strip; an Lframe requires a 3-metre strip. Allowing for normal breakage and scrap glass, the company can get either four 5 frames or two L frames out of a glass sheet. Other raw materials, such as cardboard backing, are insignificant in cost and are treated as indirect materials. Emily Jackson, Frameit's controller, is in charge of preparing the master budget for 20x3. She has gathered the following information: 1. Sales in the fourth quarter of 20x2 are expected to be 50,000 5 frames and 40,000 L frames. The sales manager predicts that over the next two years, sales in each product line will grow by 5,000 units each quarter over the previous quarter. For example, 5 frame sales in the first quarter of 20:6 are expected to be 55,000 units. 2. Frameit's sales history indicates that 60 percent of all sales are on credit, with the remainder of the sales in cash. The company's collection experience shows that 80 percent ofthe credit sales are collected during the quarter in which the sale is made, while the remaining 20 percent is collected in the following quarter. {For simplicity, assume the company is able to collect 100 percent of its accounts receivable.) 3. The 5 frame sells for $10, and the L frame sells for $15. These prices are expected to held constant throughout 20x3. 4. For the S frames, the production manager attempts to end each quarter with enough finishedgoods inventory in each product line to cover 20 percent ofthe following quarter's sales. For the Lframes, only 10 percent of the following quarter's sales is required in ending inventory. Additionally, an attempt is made to end each quarter with 20 percent of the glass sheets needed for the following quarter's production. Since metal strips are purchased locally, the company buys them on a justintime basis; inventory is negligible. 5. All direct-material purchases are made on account, and 80 percent of each quarter's purchases are paid in cash during the same quarter as the purchase. The other 20 percent is paid in the next quarter. 6. Indirect materials are purchased with cash as needed. Workinprocess is negligible. 7. Projected production costs in 20x3 are as follows: S-Frame L-Frame Direct material: Metal strips: 5: 2 metres @ $1 per metre .................... 52 L: 3 metres @ $1 per metre S3 Glass sheets 5: E4 sheet @ 58 per sheet 2 L: 1/3 sheet @ $8 per sheet 4 Direct Labour: 0.1 hour@ 820 per hour 2 2 Production overhead 0.1 directlabourhourxSlO per hour...... 1 1 Total production cost per unit $7 $10 8. Direct labour costs are paid for in cash in the quarter they are incurred. 9. The predetermined overhead rate is $10 per direct-labour hour. The following production- overhead costs are budgeted for 20x3. 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Entire year Indirect material ... $10,200 $11,200 $12,200 $13,200 $46,800 Indirect labour ... 40,800 44,800 48,800 52,800 $187,200 Other overhead .... 31,000 36,000 41,000 46,000 $154,000 Depreciation 20,000 20,000 20,000 20,000 $80,000 Total Overhead ....... $102,000 $112,000 $122,000 $132,000 $468,000 All of these costs will be paid in cash during the quarter incurred except for depreciation. 10. Frame-it's quarterly selling and administrative expenses are $100,000, paid in cash. 11. Jackson anticipates that dividends of $50,000 will be declared and paid in cash each quarter. 12. Frame-it's projected balance sheet as of December 31, 20x2, follows: Cash ... $ 95,000 Accounts receivable ...... 132,000 Inventory: Raw material .. 59,200 Finished goods .... 167,000 Plant and equipment (net of accummulated depreciation) 8,000,000 Total assets .. 8,453,200 Accounts payable ..... $ 99,400 Ordinary shares .... 5,000,000 Retained earnings .. 3,353,800 Total liabilities and shareholders' equity ....... 8,453,200 13. Frame-it Company is subject to 30% income taxREQUIRED: A. Prepare Frameit Company's 20x3 master budget, which should include the following, in quarters and for the whole year: |. Sales budget ||. Production budget lll. Direct materials budget {metal strips and glass sheets} IV. Cash receipts budget V. Cash disbursements budget VI. Summary cash budget VII. Budgeted income statement