Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Gastow Pumps is a manufacturer of commercial and heavy industrial Pumps. The firm s two product lines are called Directlift and Gravity. The primary raw

Gastow Pumps is a manufacturer of commercial and heavy industrial Pumps. The firms
two product lines are called Directlift and Gravity. The primary raw materials are
flexible steel sheets, and 23cm x 60cm of plastic sheets. Each Directlift pump requires a
2/3 of a meter and a Gravity pump requires a one metre of steel sheet. Allowing for
normal breakage and scrap steel sheet, the company can cut either enough to make four
Directlifts or two Gravity pumps from a single steel sheet. Other raw materials are
costly and treated as indirect materials. Derek Mast, Gastow Pumps accountant has
gathered the following information in preparation for the companys annual budget for
the next year.
Sales in the fourth quarter of the current year are expected to be 50,000 Directlift
and 40,000 Gravity pumps. The sales manager predicts that, over the next two
years, sales in each product line will grow by 5000 units each quarter over the
previous quarter.
Gastows sales history indicates that 60 per cent of all sales are on credit, with the
remainder of the sales in cash. The companys experience shows that 80 per cent of
the credit sales are collected during the quarter in which the sales are made, while
the remaining 20 per cent are collected in the following quarter. There are no bad
debts.
The Directlift sells for $10 and Gravity for $15. Prices of both products are
expected to increase by 2% in the third quarter of the budget year.
Gastows production manager tries to end each quarter with enough finished goods
inventory in each product line to cover 20 per cent of the following quarters sales.
In addition, an attempt is made to end each quarter with 20 per cent of the plastic
sheets needed for the following quarters production requirement. Since steel
sheets are purchased locally, Beckett buys them on a just-in-time basis, so
inventory is negligible.
All of Gastows direct material purchases are on credit, and 80 per cent of each
quarters purchases are paid during the same quarter as the purchases are made.
The other 20 per cent is paid in the next quarter.
Indirect materials are purchased as needed for cash.
Work in process inventory in negligible.
Projected manufacturing costs for each product in the budget year are as follows:
Directlift Gravity
Direct material
Steel sheet:
Directlift: 2/3 metre @$3 per metre $2
Gravity: 1 metre @ $3 per metre $3
Plastic sheet:
Directlift: sheet @$8 per sheet 2
Gravity: (1)/(2) sheet @ $8 per sheet 4
Direct labour
0.1 hour @ $20 per hour 22
The following are budgeted manufacturing overhead costs (all these costs except
for the depreciation charges will be paid during the quarter incurred).
o Indirect materials are expected to be $10,200 for quarter 1 & are
expected to increase by $1,000 every quarter.
o Indirect Labour is expected to be $40,800 for quarter 1 & is
expected to increase by $4,000 every quarter
o Other overheads are expected to be $31,000 for quarter 1 &
expected to increase by $5,000 every quarter
o Depreciation is calculated on a straight-line basis at $20,000 per
quarter.
Gastow pumps quarterly selling and administrative expenses are $100,000 paid
in cash
Derek Mast anticipates that dividends of $50,000 will be declared and paid in
cash each quarter.
MOH costs are allocated to each product based on Direct Labour hours.
Gastows projected balance sheet as 31 December of the current year is as
follows:
Cash $95000
Accounts receivable 132000
Inventory:
Raw materials 59200
Finished goods 167000
Plant and equipment (net of accumulated depreciation)8000000
Total assets $8453200
Accounts payable $99400
Ordinary shares 5000000
Retained earnings 3353800
Total liabilities and shareholders equity $8453200
Additional information:
The CEO has decided to invest in purchasing a fully automated electric machine
which is expected to increase production significantly. The acquisition of the new
machine will take place at the start of January next year. The machine will cost
$950,000 and there will be an additional $50,000 of equipment purchase to
allow the machine to operate. The purchase will be financed with a $1,000,000
loan from National Australia Bank. The CEO has negotiated a repayment
schedule of four equal instalments, payable on the last day of each quarter. The
interest rate is 10 per cent per annum and interest is also paid quarterly with
each instalment payment of the principal.
ACT502 Assignment, Semester 1,2024 Page 4
Required:
Prepare Gastow Pumps annual budget for the next year by completing:
Sales budget (7.5 marks)
Production budget (6 Marks)
Direct Material Budget (8.5 marks)
Direct Labour budget (2 marks)
Manufacturing Overhead budget (4 marks)
S & A Budget (1 mark)
Budgeted cost of goods sold (6 marks)
Budgeted Income & Expenditure Statement (5 marks)
Cash receipt budget
Cash payments budget
Cash budget
Budget balance sheet as of 31 December

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Financial Accounting Tools for Business Decision Making

Authors: Paul D. Kimmel, Jerry J. Weygandt, Donald E. Kieso, Barbara Trenholm, Wayne Irvine

5th Canadian edition

978-1118024492

More Books

Students also viewed these Accounting questions

Question

Does the coordination failure model fit the data?

Answered: 1 week ago