.l_i\\ Red'ord. president of Photo Artistry Company. wasjust concluding a budget meeting with his senior .nt't. it was November of 20x4. and the group was discussing preparation of the lion's master budget for 306. \"l'vc decided to go ahead and purchase the industrial robot we've been talking about. We'll make lliC acquisition on January 2 of next year. and I expect it will take most ofthe year to train the personnel and rcorgaui7e the production process to take full advantage of the new equipment." in response to a question about nancing the acquisition, Rexford replied as follows: \"The robot inil cost 3950.000. There will also be an additional $50,000 in ancillary equipment to be purchased. \\ic'll nance these purchases with a oneyear $1,000,000 loan from Shark Bank and Trust Company. l'ic negotiated a repayment schedule of four equal installments on the last day of each quarter. The interest rate will be [0 percent, and interest payments will be quarterly as well.\" With that the meeting broke up. and the budget process was on. Photo Artistry Company is a manufacturer of metal picture frames. The firm's two product lines atedcsignated as S (small frames; 5 X 7 inches) and L (large frames: 8 X 10 inches). The primary raw materials are flexible metal strips and 9minch 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. the com- pany can get either four S frames or two L frames out of a glass sheet. Other raw materials. such as cardboard backing, are insignicant in cost and are treated as indirect materials. Emily Jackson. Photo Artistry's controller, is in charge of preparing the master budget for 20x5. She has gathered the follow- ing information: 1. Sales in the fourth quarter of 20x4 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 rst quarter of 20x5 are expected to be 55,000 units. Photo Artistry'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 col- lected 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 S; I 0. and the L frame sells for $15. These prices are expected to hold constant throughout 20x5. 4. The 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, the company buys them on ajust-intimc basis; inventory is negligible. 5. All direct-material purchases are made on account. and 80 percent of each quarter's purchases are paid in cash during the same quarter as the purchase. The other 20 percent is paid in the next quarter. go 6. indirect materials are purchased with cash as needed. Work-in-process is negligible. 7- Projected production costs in 20x5 are as follows: 5 Frame L Frame Direct triateriai: Meta strips: 53 Ht @ $1 per foot ......... . .................................. $2 t; 3 it. (a) $1 per loot ........................................... $3 Slams st tracts. S a sheet (a) $8 per sheet ...................................... 2 1 yr sheet to $8 per sheet ................................... . 4 Direct labor: 1 hour (a) $20 ........................................................ 2 1' Production overhead 1 directiabor hour x $10 per hour ......................... t l lvtal production cost per unit ......................................... 3;! 35 | U at Case 9-45 Comprehensive Master Budget; ShortTerm Financing; Acquisition of Robotic Equipment (L0 9-2, 9-3, 9-5, 9-6) 1 Total salesrevenue A\"? quarter Sat 600006 7 Cost of QOOElo sold $3,850,000 8 Gross margin st 800 cm ExL \f3. Production budget: 20x4 20x5 4th 1st 2nd 3rd 4th Entire Quarter Quarter Quarter Quarter Quarter Year S frames: Sales (in units) .......4. Add: Desired ending inventory ...... Total units needed ........' Less: Expected beginning inventory .. Units to be produced ...... L frames: Sales (in units) .......". Add: Desired ending inventory ...... Total units needed ........... Less: Expected beginning inventory ..... Units to be produced ..........". 4. Direct-material budget: 20x4 20x5 1st 2nd 3rd 4th Entire 4th Quarter Quarter Quarter Quarter Quarter Year Metal strips S frames to be produced ............". X Metal quantity per unit (ft.) .. Needed for S frame production .. L frames to be produced ............... X Metal quantity per unit (ft.) ..... Needed for L frame production .. Total metal needed for production; to be purchased (ft.) ..................... X Price per foot ......41. ......... Cost of metal strips to be purchased .......... Glass sheets: S frames to be produced .. X Glass quantity per unit (sheets) ... Needed for S frame production .... ...... L frames to be produced .........4.." Glass quantity per unit (sheets) .. Needed for L frame production .......4... Total glass needed for production (sheets) ............... 10,400 10,400 Add: Desired ending inventory .. Total glass needs . . Less: Expected beginning inventory ..........man Glass to be purchased ,..........(215:5:1: Price per glass sheet .1.(:' Cost of glass to be purchased .... . Total raw material purchases (metal and glass) .:t rxli .i\" tun \\K'.\"."l'.|\\ liar-law, '1': 20x5 2:4? 2nd 3rd 4th Entire aaaftar Quarter quarter Quarter Year lino material purchases: Gash payments for purchases dllrllig the current quarter . . i Cash payments tor purchases dunno the preceding quarter .r . ,. . Total cash payments lor raw-material purchases . Direct labor Frames produced (S and L) ................ >