Our controller, Richard Kimmel is negotiating with potential new Clay suppliers in Kentucky. We need the Extra-large Gnome Divisions Master Budget for the fiscal year ended June 30, 2019 for our corporate strategic planning process, and we cannot wait for Richards return from Kentucky. We would like you to prepare the Extra-large Gnome Divisions Master Budget for the fiscal year ended June 30, 2019.

Required tasks:

5. Manufacturing overhead budget.

6. Ending Finished Goods Inventory budget calculating the expected value of the finished goods inventory as of June 30, 2019.*

7. Selling and Administrative Expense budget.

8. Cash budget.

For the Cash budget, understand that funds are borrowed at the beginning of the quarter and paid at the end of the quarter; therefore, if you must borrow money within the quarter, you must borrow enough to also pay the interest due within that quarter. Include interest payment as part of cash disbursement section, since the Cash budget shows cash flows in and out.

The hard copies of these budget schedules should be delivered by the company deadline. You can print more than one schedule per page, but do not have a page break in the middle of a budget schedule.

A brief description of the Extra-large Gnome Division to the budget data is attached.

The Extra-large Gnome Division manufactures and sells gnomes between 20 and 24 inches in length or height. Many different styles are made, but each extra-large gnome requires virtually the same amount of time and materials.

During 2018-19 fiscal year, the average selling price for extra-large gnomes is expected to be $259 per gnome. The Extra-large Gnome Division forecasts the following number gnome sales.

Quarter	First	Second	Third	Fourth
Gnome sales	13,000	22,000	14,000	28,000

The collection pattern for Accounts Receivable is as follows:

70 percent of all sales are collected within the quarter in which they are sold

30 percent of all sales are collected in the following quarter.

There are no bad debts/uncollectables.

Due to higher than expected demand this year, the Extra-large Gnome Division expects to have no finished gnomes in inventory on July 1, 2018, the beginning of the first quarter of the new fiscal year. To avoid having that problem in the coming fiscal year, the Extra-large Gnome Division would like to have the ending inventory of Gnomes at the end of each of the first three quarters equal to 31% of the budgeted sales for the next quarter. They would like to have 8,000 finished gnomes on hand on June 30, 2019.

Quarter	First	Second	Third	Fourth
Ending Finished Goods Inventory in Gnomes as a % of the next quarter's budgeted sales	31%	31%	31%	?
Ending FG Inventory in Gnomes	?	?	?	8,000

Each extra-large gnome requires an average of 10 pounds of clay. The Extra-large Gnome Division buys clay for $1.10 per pound and they expect the price to remain constant throughout the year. They expect to have 50,000 pounds of clay on hand as of July 1, 2018, the beginning of the first quarter of the fiscal year. At the end of each of the first three quarters, the Extra-large Gnome Division would like to have their direct materials inventory quantity to equal 30 percent of the amount required for the following quarters planned production. On June 30, 2019, the end of the fiscal year, Extra-large Gnome Division would like to have 70,000 pounds of clay on hand.

Quarter	First	Second	Third	Fourth
Ending Direct Materials inventory as a % of the next quarter's production requirement	30%	30%	30%	?
Ending DM inventory in pounds	?	?	?	70,000

The Extra-large Gnome Division buys its clay on account. It pays for 45% of its purchases of direct materials in the quarter in which they were purchased and 55% in the quarter after they were purchased.

Each extra-large gnome requires 6.00 hours (360 minutes) of direct labor. Employees engaged in direct labor will be paid an estimated $16.00 per labor hour. Wages and salaries are paid on the 15th and 30th of each month.

Variable manufacturing overhead is estimated to be $10.00 per direct labor hour for the coming fiscal year. All variable manufacturing overhead expenses are paid for in the quarter incurred.

Fixed manufacturing overhead is estimated to total $490,000 each quarter, with $340,000 out of the total amount of $490,000 representing depreciation on machinery, equipment and the factory. All other fixed manufacturing overhead expenses are paid in cash in the quarter they occur. The fixed manufacturing overhead rate will be computed by dividing the years total fixed manufacturing overhead by the years budgeted direct labor hours. Round the fixed overhead rate to the nearest penny.

Variable selling and administrative expenses are estimated to be $47.00 per gnome sold. Fixed selling and administrative expenses are expected to total $110,000 each quarter, with $30,000 out of the total amount of $110,000 representing depreciation on the office space, furniture and equipment. Other than depreciation, all selling and administrative expenses are paid for in the quarter they occur.

On June 30, 2019 the Extra-large Gnome Division plans to buy new machinery and equipment for $2,500,000. The new machinery and equipment will be acquired at the very end of the year, so it will not be used in production and sales during the coming year and it will not be depreciated until the following year. The Extra-large Gnome Division expects to pay 10% down and finance the remaining 90% of the equipment cost with a loan. No interest will accrue on the equipment loan until after June 30, 2019.

The Division must maintain a minimum cash balance of $60,000. If after accounting for cash receipts and disbursements (including dividends) in the cash budget, the budgeted cash available cash falls below $60,000 in any quarter, the Division will need to borrow cash. They have arranged a line of credit with Liberty Bank, allowing it to borrow in $10,000 increments. Assume borrowing will take place at the beginning of any quarter in which the available cash would otherwise be below $60,000 so that at no time during the quarter will the cash balance fall below $60,000 (after payment of interest). If there is extra cash at the end of the quarter and there is borrowing outstanding, the division should pay down principal (also in increments of $10,000). Liberty Bank charges the Division interest at the rate of 1.0% per quarter, which must be paid at the end of each quarter.

As a fully owned subsidiary, the Extra-large Gnome Division does not pay income taxes. All income taxes are charged to Kimmel Gnomes, the parent company. Extra-large Gnome Division will pay dividends of $20,000 each quarter to its corporate parent, Kimmel Gnomes. The dividends must be paid, even if the Extra-large Gnome Division has to borrow on its line of credit to make the payment.

The budgeted balance sheet for the Extra-large Gnome Division on June 30, 2018 (which is the same as the budgeted balance sheet at the beginning of business July 1, 2018) is presented below. Kimmel Gnomes owns 100% of the Capital Stock of the Extra-large Gnome Division.

			Extra-large Gnome Division - Kimmel Gnomes
			Budgeted Balance Sheet
			June 30, 2018
	Assets				Liabilities & Equity
Cash		$91,000		Accounts Payable		$73,000
Accounts Receivable		930,000		Notes Payable		0
Raw Material Inventory		55,000		Capital Stock		4,000,000
Plant and Equipment		14,500,000		Retained Earnings		11,503,000
Total Assets		$15,576,000		TTL LIAB. & SE		$15,576,000

Cheers to the Anonymous user who helped with parts 1-4. I'm checking my work referencing yours and its very helpful seeing where I went wrong!

Parts 1-4:

1. Sales budget, including a schedule of expected cash collections Q1 13000 22000 259 3367000 5698000 3626000 7252000 19943000 Q2 Q3 14000 28000 77000 259 Q4 Ful Year Estimated no of Units Selling Price per Unit Total Budgeted Sales 259 259 259 Collection Schedule: Same Quarter Next Quarter Accounts Receivable-Last Year Q1 Q2 Q3 Q4 Total Estimated Collection 70% 30% 930000 3367000 5698000 2538200 1087800 3626000 5076400 5076400 3286900 4998700 |4247600 6164200 18697400 930000 2356900 1010100 3988600 1709400