Optima Company is a high-technology organization that produces a mass-storage 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 (20X1). 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:

Fourth-quarter sales for 20X0 are 55,000 units.

Unit sales by quarter (for 20X1) are projected as follows:

First quarter	65,000
Second quarter	70,000
Third quarter	75,000
Fourth quarter	90,000

The selling price is $400 per unit. All sales are credit sales. Optima collects 85% of all sales within the quarter in which they are realized; the other 15% is collected in the following quarter. There are no bad debts.There is no beginning inventory of finished goods. Optima is planning the following ending finished goods inventories for each quarter:

First quarter	13,000 units
Second quarter	15,000 units
Third quarter	20,000 units
Fourth quarter	10,000 units

Each mass-storage unit uses 5 hours of direct labor and three units of direct materials. Laborers are paid $10 per hour, and one unit of direct materials costs $80.

There are 65,700 units of direct materials in beginning inventory as of January 1, 20X1. At the end of each quarter, Optima plans to have 30% of the direct materials needed for next quarter's unit sales. Optima will end the year with the same amount of direct materials found in this year's beginning inventory.

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.

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.

Variable overhead is budgeted at $6 per direct labor hour. All variable overhead expenses are paid for in the quarter incurred.

Fixed selling and administrative expenses total $250,000 per quarter, including $50,000 depreciation.

Variable selling and administrative expenses are budgeted at $10 per unit sold. All selling and administrative expenses are paid for in the quarter incurred.

The balance sheet as of December 31, 20X0, is as follows:

Assets
Cash		$ 250,000
Direct materials inventory		5,256,000
Accounts receivable		3,300,000
Plant and equipment, net		33,500,000
Total assets		$42,306,000

Liabilities and Stockholders Equity
Accounts payable		$ 7,248,000*
Capital stock		27,000,000
Retained earnings		8,058,000
Total liabilities and stockholders equity		$42,306,000
* For purchase of direct materials only.

Optima will pay quarterly dividends of $300,000. At the end of the fourth quarter, $2 million of equipment will be purchased.

*Please complete Schedule 6 through 9 using the previous parts completed.* REVIEW THE CHECK FIGURES INDICATED ON THE SELLING AND ADMINISTRATIVE EXPENSE BUDGET AND ENDING FINISHED GOODS INVENTORY BUDGET FOR ACCURACY!

Schedule 1 - Sales Budget Units Unit price Total Sales 01 02 03 04 Total 65,000 70.000 75.000 90.000 300.000 $ 400 S 400 S 400 S 400 S $ 26,000,000 $ 28,000,000 $30,000,000 $ 36,000,000 $ 120,000,000 Schedule 2 - Production Budget Q2 Q3 04 Total Sales in UNITS Plus: Desired finished goods ending inventory Total needs Less: Beginning finished goods inventory Finished goods production needs 65,000 13,000 78,000 70,000 15,000 85,000 13,000 72.000 75,000 20.000 95.000 15,000 80.000 90.000 10.000 100,000 20.000 80.000 300.000 58.000 358,000 48.000 310.000 78,000 Schedule 3: Direct Materials Purchases Budget Q3 Q4 80,000.0 Total 310.000.0 80,000.0 3.0 3.0 3.0 Production units x Materials per unit Production needs for direct materials Plus: Desired ending inventory of direct materials Total needs Less: Beginning direct materials inventory Purchases of direct materials x Cost per unit Direct materials purchases cost Q1 78,000.0 3.0 234.000.0 64.800.0 298.800.0 65.700.0 233,100.0 80S 18,648,000 S Q2 72,000.0 3.0 216,000.0 72.000.0 288.000.0 64.800.0 223.200.0 80 S 17,856,000 S 240,000.0 72.000.0 312.000.0 72.000.0 240,000.0 80 S 19,200,000 $ 240,000.0 65,700.0 305,700.0 72,000.0 233,700.0 80 S 18,696,000 S 930,000.0 274.500.0 1,204,500.0 274,500.0 930,000.0 S 80 74,400,000 Schedule 4: Direct labor Budget Q1 Q2 03 04 Total 310,000 78,000 72,000 80,000 80,000 Production units x Labor Hours per unit Labor hours needed x Cost per labor hour Total direct labor cost S 390,000 10 S 3,900,000 $ 360,000 10 S 3,600,000 $ 400,000 10 S 4,000,000 $ 400,000 10 S 4,000,000 $ 1,550,000 10 15,500,000 $ Q2 360.000 Q3 Total 1,550,000 6 Schedule 5: Overhead Budget Budgeted hours x Variable rate per hour Budgeted variable overhead Budgeted fixed overhead Total Overhead Q1 390,000 6 S 2.340,000 $ 1,000,000 3,340,000 $ Q4 400,000 6 S 2.400,000 $ 1,000,000 3,400,000 $ S S 400,000 6s 2,400,000 $ 1,000,000 3.400.000 S 2,160,000 1,000,000 3,160,000 210 9,300,000 4,000,000 13,300,000 $ Schedule 6: Selling and Administrative Expense Budget Q1 Q2 Q3 Total Planned sales (units) x variable rate per unit Variable expenses Fixed expenses Total selling and administrative expenses $ 4,000,000 Schedule 7: Ending Finished Goods Inventory Budget Unit cost computation: Direct materials (number of units of material/FG * cost per unit) Direct labor (number of units/FG * cost per unit) Overhead: Variable overhead (number of units * cost per unit) Fixed overhead (Total overhead / total units needed) Total cost per unit of finished goods Total finished goods ending inventory (note: multiply total cost x units) S 3,329,000.00 Schedule 8: Cost of Goods Sold Budget Direct materials used (Schedule 3) Direct labor used (Schedule 4) Overhead (Schedule 5) Budgeted manufacturing costs Add: Beginning fished goods inventory (Schedule 7) Cost of goods available for sale Less: Endig finished goods inventory (Schedule 7) Budgeted cost of goods sold Schedule 9: Cash Budget 01 02 03 04 Total Beginning cash Collections: Credit sales: Current quarter Prior quarter Cash available Less disbursements: Direct materials: Current quarter Prior quarter Direct labor Overhead Selling and admin. Dividends Equipment Total cash needs Ending cash Schedule 1 - Sales Budget Units Unit price Total Sales 01 02 03 04 Total 65,000 70.000 75.000 90.000 300.000 $ 400 S 400 S 400 S 400 S $ 26,000,000 $ 28,000,000 $30,000,000 $ 36,000,000 $ 120,000,000 Schedule 2 - Production Budget Q2 Q3 04 Total Sales in UNITS Plus: Desired finished goods ending inventory Total needs Less: Beginning finished goods inventory Finished goods production needs 65,000 13,000 78,000 70,000 15,000 85,000 13,000 72.000 75,000 20.000 95.000 15,000 80.000 90.000 10.000 100,000 20.000 80.000 300.000 58.000 358,000 48.000 310.000 78,000 Schedule 3: Direct Materials Purchases Budget Q3 Q4 80,000.0 Total 310.000.0 80,000.0 3.0 3.0 3.0 Production units x Materials per unit Production needs for direct materials Plus: Desired ending inventory of direct materials Total needs Less: Beginning direct materials inventory Purchases of direct materials x Cost per unit Direct materials purchases cost Q1 78,000.0 3.0 234.000.0 64.800.0 298.800.0 65.700.0 233,100.0 80S 18,648,000 S Q2 72,000.0 3.0 216,000.0 72.000.0 288.000.0 64.800.0 223.200.0 80 S 17,856,000 S 240,000.0 72.000.0 312.000.0 72.000.0 240,000.0 80 S 19,200,000 $ 240,000.0 65,700.0 305,700.0 72,000.0 233,700.0 80 S 18,696,000 S 930,000.0 274.500.0 1,204,500.0 274,500.0 930,000.0 S 80 74,400,000 Schedule 4: Direct labor Budget Q1 Q2 03 04 Total 310,000 78,000 72,000 80,000 80,000 Production units x Labor Hours per unit Labor hours needed x Cost per labor hour Total direct labor cost S 390,000 10 S 3,900,000 $ 360,000 10 S 3,600,000 $ 400,000 10 S 4,000,000 $ 400,000 10 S 4,000,000 $ 1,550,000 10 15,500,000 $ Q2 360.000 Q3 Total 1,550,000 6 Schedule 5: Overhead Budget Budgeted hours x Variable rate per hour Budgeted variable overhead Budgeted fixed overhead Total Overhead Q1 390,000 6 S 2.340,000 $ 1,000,000 3,340,000 $ Q4 400,000 6 S 2.400,000 $ 1,000,000 3,400,000 $ S S 400,000 6s 2,400,000 $ 1,000,000 3.400.000 S 2,160,000 1,000,000 3,160,000 210 9,300,000 4,000,000 13,300,000 $ Schedule 6: Selling and Administrative Expense Budget Q1 Q2 Q3 Total Planned sales (units) x variable rate per unit Variable expenses Fixed expenses Total selling and administrative expenses $ 4,000,000 Schedule 7: Ending Finished Goods Inventory Budget Unit cost computation: Direct materials (number of units of material/FG * cost per unit) Direct labor (number of units/FG * cost per unit) Overhead: Variable overhead (number of units * cost per unit) Fixed overhead (Total overhead / total units needed) Total cost per unit of finished goods Total finished goods ending inventory (note: multiply total cost x units) S 3,329,000.00 Schedule 8: Cost of Goods Sold Budget Direct materials used (Schedule 3) Direct labor used (Schedule 4) Overhead (Schedule 5) Budgeted manufacturing costs Add: Beginning fished goods inventory (Schedule 7) Cost of goods available for sale Less: Endig finished goods inventory (Schedule 7) Budgeted cost of goods sold Schedule 9: Cash Budget 01 02 03 04 Total Beginning cash Collections: Credit sales: Current quarter Prior quarter Cash available Less disbursements: Direct materials: Current quarter Prior quarter Direct labor Overhead Selling and admin. Dividends Equipment Total cash needs Ending cash