how is the master budget for splide pharmaceuticals created?

Spilde Pharmaceuticals manufactures an academic steroid (ACTC) known to improve the brain function in MBA students. The drug is believed to be an effective treatment for students challenged by Module 2 content. Sponsler Pharmaceuticals' pro forma balance sheet for the year ending December 31, 2019, is presented below.

Cash $11,000

Accounts Payable Long-term Debt

Total Liabilities Common Stock - $10 par Additional Paid-in Capital Retained Earnings

Total Shareholders' Equity Total Liabilities & SE

$ 3,600 50,000 $53,600 $35,000 25,000 33,648 93,648 $147,248

Short-term Investments

Accounts Receivable

*Raw Materials Inventory

*Finished Goods Inven.

Equipment 80,000 Accumulated Depreciation (6,000)

Total Assets $147,248

Spilde Pharmaceuticals Balance Sheet

Year Ending December 31st, 2019

20,000 36,000 2,000 4,248

*Note: Raw Materials Inventory consists of 500-lbs. at $4 per lb., and Finished Goods Inventory consists of 1,200 bottles at an average cost of $3.54 per bottle.

You are required to prepare a 2020 master budget for Spilde Pharmaceuticals.

The master budget needs to include the following components, and should be presented in a professional format using either an Excel spreadsheet or a Word document (Excel spreadsheet

will be

1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

much easier):

Sales budget

Production budget

Direct materials purchase budget

Direct labor budget

Manufacturing overhead budget

Selling and administrative expenses budget

Ending finished goods inventory/Cost of goods sold

Cash budget

Pro forma income statement for the year ending December 31, 2020 Pro forma balance sheet as of December 31, 2020

1

Sales Volume: sales are anticipated as follows.

2020:

Quarter 1: 10,000 bottles Quarter 2: 12,000 bottles Quarter 3: 9,000 bottles Quarter 4: 12,000 bottles

2021:

Quarter 1: 10,000 bottles Quarter 2: 14,000 bottles

The average selling price is $10 per unit. All sales are placed on account. Cash collections are as follows: 65% is collected in period sold, and 32% is collected in the following quarter. The remaining 3% of the quarter's total sales is deemed uncollectible and is written off as bad debt expense in the quarter sold. The December 2019 accounts receivable is expected to be collected in full (which represents 32% of December 2019 sales) during the first quarter of 2020.

Production: The company has adopted the policy that the desired finished goods ending inventory (in bottles) for any quarter should be equal to 20% of the next quarter's budgeted sales volume.

Raw Materials: The company has adopted the policy that the desired ending inventory for raw materials should be equal to 40% of the next quarter's production needs. It takes 1-lb. of the chemical to make one 1,000 pills (each bottle holds 200 pills). The expected cost per pound for the chemical is $4.00. The company's disbursement policy for payment of raw materials: 80% is paid for in the quarter purchased, and the remaining 20% is paid in the following quarter. The December 2019 accounts payable is expected to be paid in full the first quarter of 2020.

Direct Labor: It takes one-half hour of direct labor (30 minutes) to complete 1,000 pills. The average hourly wage is $20. The company pays all direct labor costs in the quarter incurred.

Manufacturing Overhead: The following is a breakdown of the variable and fixed overhead expected costs. The company pays for all manufacturing overhead in the quarter incurred. Spilde Pharmaceuticals uses a predetermined overhead rate based on the number of direct labor hours expected to be incurred.

Variable (per DLH):

• Indirect Materials: $1.50
• Indirect Labor: $1.20
• Utilities: $.40
• Maintenance: $.30

2

Fixed (annual basis):

• Depreciation: $13,320
• Property taxes: $4,200
• Total Unit Cost (per 1,000 pills):
• Raw materials ($4 x 1)
• Direct Labor ($20 x .5)
• V ariable OH ($3.4 x .5 DLH)
• Fixed OH
• Total Unit Cost

$ 4.00 10.00 1.70 2.00

$17.70 ($17.70/5 = $3.54 per bottle)

Selling and Administrative expenses: the following is a breakdown of the variable and fixed selling and administrative expected costs. The company pays all selling and administrative costs in the quarter incurred.

Variable (per bottle):

• Commission: $1.20
• Freight-out: $.40
• Fixed (annual basis):
• Advertising: $6,000
• Sales Salaries: $32,000
• Office Salaries: $14,000
• Depreciation: $4,000
• Insurance: $7,000
• Other additional information:
• Short-term investments are deemed worthless at the end of 2020, so the company
• recorded a $20,000 loss on its Income Statement.
• The company expects to purchase new equipment costing $50,000 cash in the third quarter of 2020 (ignore any additional depreciation expense on the new purchase).
• The company makes equal quarterly payments ($12,000/quarter) for its estimated annual income taxes which are expected to total $48,000 for 2020.
• The company has adopted the policy of a $20,000 minimum cash balance. If it needs to borrow, a revolving line of credit is available up to $100,000. The company can borrow and repay in increments of $1,000 only. The interest is due in the following quarter on any borrowings outstanding at the rate of 6% per quarter.
• For simplicity assume there is a quarterly interest expense of $2,000 on the long-term debt ($8,000 for the year).
• The company paid dividends to shareholders totaling $15,000 in the third quarter.