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Sales Budget Assume that Stillwater Designs produces two automotive subwoofers: S12L7 and S12L5. The S12L7 sells for $475, and the S12L5 sells for $300. Projected sales (number of speakers) for the coming five quarters are as follows: The vice president of sales believes that the projected sales are realistic and can be achieved by the company. 1. Prepare a sales budget for each quarter of 2012 and for the year in total. Show sales by product and in total for each time period. Do not include a multiplication symbol as part of your answer. 2. Production Budget Pumpro Inc. produces submersible water pumps for ponds and cisterns. The unit sales for selected months of the year are as follows: Company policy requires that ending inventories for each month be 30 percent of next month's sales. However, at the beginning of April, due to greater sales in March than anticipated, the beginning inventory of water pumps is only 40,000. Prepare a production budget for the second quarter of the year. Show the number of units that should be produced 3. Direct Materials Purchases Budget You may use the attached spreadsheet to help you complete this activity, but you are not required to do so. You will find the spreadsheet by clicking on the link in the dropdown menu above. Fang Company produces decorative plastic items, including hollow plastic pumpkins often used by trickor treaters for Halloween. Each pumpkin requires about 5 ounces of plastic costing $0.08 per ounce. Fang molds the plastic into a pumpkin shape and applies decoration to the outside of each pumpkin. Fang has budgeted production of the pumpkins for the next four months as follows: Inventory policy requires that sufficient plastic be in ending monthly inventory to satisfy 20 percent of the following month's production needs. The inventory of plastic at the beginning of July equals exactly the amount needed to satisfy the inventory policy. Prepare a direct materials purchases budget for July, August, and September, showing purchases in units and in dollars for each month and in total. 4. Exercise 1939 Direct Labor Budget Links to learning objectives referenced by this question can be accessed in the "Additional Resources" drop down menu above. Joaquin Company produces asphalt roofing materials. The production budget in bundles for Joaquin's most popular weight of asphalt shingle is shown for the following months: Each bundle produced requires (on average) 0.30 direct labor hours. The average cost of direct labor is $20 per hour. Prepare a direct labor budget for March, April, and May, showing the hours needed and the direct labor cost for each month and in total. Do not include a multiplication symbol as part of your answer. 5. Schedule of Cash Collections on Accounts Receivable and Cash Budget Lopez Inc. found that about 35 percent of its sales during the month were for cash. Lopez has the following accounts receivable payment experience: Lopez's anticipated sales for the next few months are as follows: 1a. Calculate credit sales for May. $ 1b. Calculate credit sales for June. $ 1c. Calculate credit sales for July. $ 1d. Calculate credit sales for August. 2. Prepare a schedule of cash receipts for July and August. 6. Cash Payments Schedule Draper Company provided the following information relating to cash payments: a. Draper purchased direct materials on account in the following amounts: b. Draper pays 15 percent of accounts payable in the month of purchase and the remaining 85 percent in the following month. c. In July, direct labor cost was $34,500. August direct labor cost was $36,700. The company finds that typically 90 percent of direct labor cost is paid in cash during the month, with the remainder paid in the following month. d. August overhead amounted to $83,200, including $5,900 of depreciation. e. Draper had taken out a loan of $15,000 on May 1. Interest, due with payment of principal, accrued at the rate of 9 percent per year. The loan and all interest were repaid on August 31. B. Prepare a schedule of cash payments for Draper Company for the month of August. 7. Cash Budget Links to learning objectives referenced by this question can be accessed in the "Additional Resources" drop down menu above. The owner of a small mining supply company has requested a cash budget for June. After examining the records of the company, you find the following: a. Cash balance on June 1 is $1,230. b. Actual sales for April and May are as follows: c. Credit sales are collected over a threemonth period: 40 percent in the month of sale, 35 percent in the second month, and 20 percent in the third month. The sales collected in the third month are subject to a 2 percent late fee, which is paid by those customers in addition to what they owe. The remaining sales are uncollectible. d. Inventory purchases average 65 percent of a month's total sales. Of those purchases, 20 percent are paid for in the month of purchase. The remaining 80 percent are paid for in the following month. e. Salaries and wages total $12,500 per month, including a $4,500 salary paid to the owner. f. Rent is $4,340 per month. g. Taxes to be paid in June are $6,780. The owner also tells you that he expects cash sales of $19,500 and credit sales of $52,000 for June. No minimum cash balance is required. The owner of the company doesn't have access to shortterm loans. 1. Prepare a cash budget for June. Include supporting schedules for cash collections and cash payments. Round calculations 8. Operating Budget, Comprehensive Analysis You may use the attached spreadsheet to help you complete this activity, but you are not required to do so. You will find the spreadsheet by clicking on the link in the dropdown menu above. Allison Manufacturing produces a subassembly used in the production of jet aircraft engines. The assembly is sold to engine manufacturers and aircraft maintenance facilities. Projected sales in units for the coming five months follow: The following data pertain to production policies and manufacturing specifications followed by Allison Manufacturing: a. Finished goods inventory on January 1 is 32,000 units, each costing $166.06. The desired ending inventory for each month is 80 percent of the next month's sales. b. The data on materials used are as follows: Inventory policy dictates that sufficient materials be on hand at the beginning of the month to produce 50 percent of the next month's production needs. This is exactly the amount of material on hand on December 31 of the prior year. c. The direct labor used per unit of output is three hours. The average direct labor cost per hour is $14.25. d. Overhead each month is estimated using a flexible budget formula. (Activity is measured in direct labor hours.) e. Monthly selling and administrative expenses are also estimated using a flexible budgeting formula. (Activity is measured in units sold.) f. g. The unit selling price of the subassembly is $205. All sales and purchases are for cash. The cash balance on January 1 equals $400,000. The firm requires a minimum ending balance of $50,000. If the firm develops a cash shortage by the end of the month, sufficient cash is borrowed to cover the shortage. Any cash borrowed is repaid at the end of the quarter, as is the interest due (cash borrowed at the end of the quarter is repaid at the end of the following quarter). The interest rate is 12 percent per annum. No money is owed at the beginning of January. 1. Prepare a monthly operating budget for the first quarter with the following schedules. (Assume that there is no change in workinprocess inventories.) Schedule 1: Sales Budget. Do not include a multiplication symbol as part of your answer. Schedule 2: Production Budget. c. Schedule 3: Direct Materials Purchases Budget. Do not include a multiplication symbol as part of your answer. d. Schedule 4: Direct Labor Budget. If required, round amounts to the nearest cent. Do not include a multiplication symbol as part of your answer. e. Schedule 5: Overhead Budget. If required, round amounts to the nearest cent. Do not include a multiplication symbol as part of your answer. f. Schedule 6: Selling and Administrative Expenses Budget. If required, round amounts to the nearest cent. Do not include a multiplication symbol as part of your answer. g. Schedule 7: Ending Finished Goods Inventory Budget. If required, round amounts to the nearest cent. h. Schedule 8: Cost of Goods Sold Budget. i. Schedule 9: Budgeted Income Statement. Use a minus sign to indicate a negative amount. j. Schedule 10: Cash Budget. If an amount is zero, enter "0". Use a minus sign to enter negative amount. 9. Understanding Relationships, Cash Budget, Pro Forma Balance Sheet Links to learning objectives referenced by this question can be accessed in the "Additional Resources" drop down menu above. Ryan Richards, controller for Grange Retailers, has assembled the following data to assist in the preparation of a cash budget for the third quarter of 2012: a. Sales b. Each month, 30 percent of sales are for cash and 70 percent are on credit. The collection pattern for credit sales is 20 percent in the month of sale, 50 percent in the following month, and 30 percent in the second month following the sale. c. Each month, the ending inventory exactly equals 50 percent of the cost of next month's sales. The markup on goods is 25 percent of cost. d. Inventory purchases are paid for in the month following the purchase. e. Recurring monthly expenses are as follows: Salaries and wages Depreciation on plant and equipment Utilities Other f. g. h. $10,000 4,000 1,000 1,700 Property taxes of $15,000 are due and payable on July 15, 2012. Advertising fees of $6,000 must be paid on August 20, 2012. A lease on a new storage facility is scheduled to begin on September 2, 2012. Monthly payments are $5,000. i. The company has a policy to maintain a minimum cash balance of $10,000. If necessary, it will borrow to meet its shortterm needs. All borrowing is done at the beginning of the month. All payments on principal and interest are made at the end of a month. The annual interest rate is 9 percent. The company must borrow in multiples of $1,000. j. A partially completed balance sheet as of June 30, 2012, follows. (Accounts payable is for inventory purchases only.) 1. Complete the balance sheet given in item j. 2. Prepare a cash budget for each month in the third quarter and for the quarter in total (the third quarter begins on July 1). If an amount is zero, enter "0" or leave the entry box blank. 3. Prepare a pro forma balance sheet as of September 30, 2012 10. Cash Budget The controller of Feinberg Company is gathering data to prepare the cash budget for July. He plans to develop the budget from the following information: a. Of all sales, 40 percent are cash sales. b. Of credit sales, 45 percent are collected within the month of sale. Half of the credit sales collected within the month receive a 2 percent cash discount (for accounts paid within 10 days). Thirty percent of credit sales are collected in the following month; remaining credit sales are collected the month thereafter. There are virtually no bad debts. c. Sales for the second two quarters of the year follow. (The first three months are actual sales, and the last three months are estimated sales.) d. The company sells all that it produces each month. The cost of raw materials equals 26 percent of each sales dollar. The company requires a monthly ending inventory equal to the coming month's production requirements. Of raw materials purchases, 50 percent are paid for in the month of purchase. The remaining 50 percent is paid for in the following month. e. Wages total $105,000 each month and are paid in the month incurred. f. Budgeted monthly operating expenses total $376,000, of which $45,000 is depreciation and $6,000 is expiration of prepaid insurance (the annual premium of $72,000 is paid on January 1). g. Dividends of $130,000, declared on June 30, will be paid on July 15. h. Old equipment will be sold for $25,200 on July 4. i. On July 13, new equipment will be purchased for $173,000. j. The company maintains a minimum cash balance of $20,000. k. The cash balance on July 1 is $27,000. Prepare a cash budget for July. 11. Understanding Relationships, Master Budget, Comprehensive Review Optima Company is a hightechnology organization that produces a massstorage system. The design of Optima's system is unique and represents a breakthrough in the industry. The units Optima produces combine positive features of both compact and hard disks. The company is completing its fifth year of operations and is preparing to build its master budget for the coming year (2012). The budget will detail each quarter's activity and the activity for the year in total. The master budget will be based on the following information: a. Fourthquarter sales for 2011 are 55,000 units. b. Unit sales by quarter (for 2012) are projected as follows: The selling price is $400 per unit. All sales are credit sales. Optima collects 85 percent of all sales within the quarter in which they are realized; the other 15 percent is collected in the following quarter. There are no bad debts. c. There is no beginning inventory of finished goods. Optima is planning the following ending finished goods inventories for each quarter: d. Each massstorage 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. e. There are 65,700 units of direct materials in beginning inventory as of January 1, 2012. At the end of each quarter, Optima plans to have 30 percent of the direct materials needed for next quarter's unit sales. Optima will end the year with the same level of direct materials found in this year's beginning inventory. f. Optima buys direct materials on account. Half of the purchases are paid for in the quarter of acquisition, and the remaining half are paid for in the following quarter. Wages and salaries are paid on the 15th and 30th of each month. g. 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 year's total fixed overhead by the year's budgeted production in units. h. Variable overhead is budgeted at $6 per direct labor hour. All variable overhead expenses are paid for in the quarter incurred. i. Fixed selling and administrative expenses total $250,000 per quarter, including $50,000 depreciation. j. Variable selling and administrative expenses are budgeted at $10 per unit sold. All selling and administrative expenses are paid for in the quarter incurred. k. The balance sheet as of December 31, 2011, is as follows: l. Optima will pay quarterly dividends of $300,000. At the end of the fourth quarter, $2 million of equipment will be purchased. Prepare a master budget for Optima Company for each quarter of 2012 and for the year in total. The following component budgets must be included: 1. Sales budget (units and budgeted sales in thousands). Do not include a multiplication symbol as part of your answer. 2. Production budget. (amounts in full, not in thousands) If an amount is zero, enter "0". 3. Direct materials purchases budget (in thousands, except for per unit/hour data). If required, round answers to one decimal place. Do not include a multiplication symbol as part of your answer. 4. Direct labor budget (in thousands, except per unit/hour data). Do not include a multiplication symbol as part of your 5. Overhead budget (in thousands, except per unit/hour data). Do not include a multiplication symbol as part of your answer. 6. Selling and administrative expenses budget (in thousands, except per unit/hour data). Do not include a multiplication symbol as part of your answer. 7. Ending finished goods inventory budget. Enter amounts in full, not in thousands. Round to the nearest cent. 8. Cost of goods sold budget. (Assume that there is no change in workinprocess inventories.) Enter amounts in full, not in thousands. If an amount is zero, enter "0". 9. Cash Budget (in thousands). 12. Cash Budgeting Jordana Krull owns The Eatery in Miami, Florida. The Eatery is an affordable restaurant located near tourist attractions. Jordana accepts cash and checks. Checks are deposited immediately. The bank charges $0.50 per check; the amount per check averages $65. Bad checks that Jordana cannot collect make up 2 percent of check revenue. During a typical month, The Eatery has sales of $75,000. About 75 percent are cash sales. Estimated sales for the next three months are as follows: Jordana thinks that it may be time to refuse to accept checks and to start accepting credit cards. She is negotiating with a credit card processing service that will allow her to accept all major credit cards. She would start the new policy on May 1. Jordana estimates that with the drop in sales from the nochecks policy and the increase in sales from the acceptance of credit cards, the net increase in sales will be 20 percent. The credit card processing service will charge no setup fee, however the following fees and conditions apply: Monthly gateway and statement fee totaling $19, paid on the first day of the month. Discount fee of 2 percent of the total sale. This is not paid separately, instead, the amount that Jordana receives from each credit sale is reduced by 2 percent. For example, on a credit card sale of $150, the processing company would take $3 and remit a net amount of $147 to Jordana's account. Transaction fee of $0.25 per transaction paid at the time of the transaction. There will be a twoday delay between the date of the transaction and the date on which the net amount will be deposited into Jordana's account. On average, 94 percent of a month's net credit card sales will be deposited into her account that month. The remaining 6 percent will be deposited the next month. If Jordana adds credit cards, she believes that cash sales will average just 5 percent of total sales, and that the average credit card transaction will be $50. 1. Prepare a schedule of cash receipts for August and September under the current policy of accepting checks. Round your answers to the nearest dollar. Assuming that Jordana decides to accept credit cards,calculate the total estimated credit card transactions for August and September. Number of credit card transactions: August September 3. Prepare a schedule of cash receipts for August and September that incorporates the changes in policy. Round to