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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 cm x cm of plastic sheets. Each Directlift pump requires a
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 Directlift
and Gravity pumps. The sales manager predicts that, over the next two
years, sales in each product line will grow by units each quarter over the
previous quarter.
Gastows sales history indicates that per cent of all sales are on credit, with the
remainder of the sales in cash. The companys experience shows that per cent of
the credit sales are collected during the quarter in which the sales are made, while
the remaining per cent are collected in the following quarter. There are no bad
debts.
The Directlift sells for $ and Gravity for $ Prices of both products are
expected to increase by 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 per cent of the following quarters sales.
In addition, an attempt is made to end each quarter with per cent of the plastic
sheets needed for the following quarters production requirement. Since steel
sheets are purchased locally, Beckett buys them on a justintime basis, so
inventory is negligible.
All of Gastows direct material purchases are on credit, and per cent of each
quarters purchases are paid during the same quarter as the purchases are made.
The other 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: metre @$ per metre $
Gravity: metre @ $ per metre $
Plastic sheet:
Directlift: sheet @$ per sheet
Gravity: sheet @ $ per sheet
Direct labour
hour @ $ per hour
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 $ for quarter & are
expected to increase by $ every quarter.
o Indirect Labour is expected to be $ for quarter & is
expected to increase by $ every quarter
o Other overheads are expected to be $ for quarter &
expected to increase by $ every quarter
o Depreciation is calculated on a straightline basis at $ per
quarter.
Gastow pumps quarterly selling and administrative expenses are $ paid
in cash
Derek Mast anticipates that dividends of $ 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 December of the current year is as
follows:
Cash $
Accounts receivable
Inventory:
Raw materials
Finished goods
Plant and equipment net of accumulated depreciation
Total assets $
Accounts payable $
Ordinary shares
Retained earnings
Total liabilities and shareholders equity $
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
$ and there will be an additional $ of equipment purchase to
allow the machine to operate. The purchase will be financed with a $
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 per cent per annum and interest is also paid quarterly with
each instalment payment of the principal.
ACT Assignment, Semester Page
Required:
Prepare Gastow Pumps annual budget for the next year by completing:
Sales budget marks
Production budget Marks
Direct Material Budget marks
Direct Labour budget marks
Manufacturing Overhead budget marks
S & A Budget mark
Budgeted cost of goods sold marks
Budgeted Income & Expenditure Statement marks
Cash receipt budget
Cash payments budget
Cash budget
Budget balance sheet as of December
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