Jeffrey Vaughn, president of Frame$-$It Company, was just concluding a budget meeting with his senior staff. It was November of $20$x$0,$ and the group was discussing preparation of the firm$$s master budget for $20$x$1.$I$$ve decided to go ahead and purchase the industrial robot we$$ve been talking about. We$$ll make the acquisition on January $2$ of next year, and I expect it will take most of the year to train the personnel and reorganize the production process to take full advantage of the new equipment.$$

In response to a question about financing the acquisition, Vaughn replied as follows: $$The robot will cost $$1,000,000.$ We$$ll finance it with a one$-$year $$1,000,000$ loan from Shark Bank and Trust Company. I$$ve negotiated a repayment schedule of four equal installments on the last day of each quarter. The interest rate will be $10$ percent, and interest payments will be quarterly as well.$$ With that the meeting broke up$,$ and the$$budget process was on$.$

Frame$-$It Company is a manufacturer of metal picture frames. The firm$$s two product lines are designated as S $($small frames, $5\backslash$times $7$ inches$)$ and L $($large frames, $8\backslash$times $10$ inches$).$ The primary raw materials are flexible metal strips and $9-$inch by $24-$inch glass sheets. Each S frame requires a $2-$foot metal strip; an L frame requires a $3-$foot strip. Allowing for normal breakage and scrap glass, Frame$-$It can get either four S frames or two L frames out of a glass sheet. Other raw materials, such as cardboard backing, are insignificant in cost and are treated as indirect materials. Emily Jackson, Frame$-$It$$s controller, is in charge of preparing the master budget for $20$x$1.$ She has gathered the

following information:

$1.$ Sales in the fourth quarter of $20$x$0$ are expected to be $50,000$ S 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, S frame sales in the first quarter of $20$x$1$ are expected to be $55,000$ units.

$2.$ Frame$-$It$$s sales history indicates that $60$ percent of all sales are on credit, with the remainder of the sales in cash. The company$$s collection experience shows that $80$ percent of the 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 S frame sells for $$10,$ and the L frame sells for $$15.$ These prices are expected to hold constant throughout $20$x$1.$

$4.$ Frame$-$It$$s production manager attempts to end each quarter with enough finished$-$goods inventory in each product line to cover $20$ percent of the following quarter$$s sales. Moreover, 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, Frame$-$It buys them on a just$-$in$-$time basis; inventory is negligible.

$$Sales budget:

$S$ frame unit sales

$S$ sales price

$S$ frame sales revenue

$L$ frame unit sales

$L$ sales price

$L$ frame sales revenue

Total sales revenue

Cash sales$*$

Sales on account ${?}^{}$

${?}^{**}40\%$ of total sales.

$+60\%$ of total sales.equipment."

following information:

example, $S$ frame sales in the first quarter of $201$ are expected to be $55,000$ units.

The $S$ frame sells for $$10,$ and the $L$ frame sells for $$15.$ These prices are expected to hold constant throughout $201.$

glass sheets needed for the following quarter's production. Since metal strips are purchased locally, Frame$-$It buys them on a just$-$in$-$time basis; inventory is negligible.

Sales budget:

S frame unit sales

$S$ sales price

$S$ frame sales revenue

$L$ frame unit sales

$$ L sales price

$L$ frame sales revenue

Total sales revenue

Cash sales$*$

Sales on account ${?}^{}$

${?}^{**}40\%$ of total sales.

$+60\%$ of total sales.

Cash receipts budget:

Cash sales

Cash collections from credit sales

made during current quarter$*$

Cash collections from credit sales

made during previous quarter ${?}^{}$

Total cash receipts

$$