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Understanding Relationships, Master Budget, Comprehensive Review 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 (20Y1). 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 20Y0 are 55,000 units. Unit sales by quarter (for 20Y1) 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, 20Y1. 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, 20Y0, 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. Required: Prepare a master budget for Optima Company for each quarter of 20Y1 and for the year in total. The following component budgets must be included: 1. Sales Budget (units and budgeted sales in thousands)

1. 7. Ending finished goods inventory budget. Enter amounts in full, not in thousands. Round to the nearest cent.

   Optima Company
   Ending Finished Goods Inventory Budget
   For the Year Ending December 31, 20Y1
   Unit cost computation:
   Direct materials	$
   Direct labor
   Overhead:
   Variable
   Fixed
   Total unit cost	$
   Finished goods	$

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   8. Cost of goods sold budget (Note: Assume that there is no change in work-in-process inventories.) Enter amounts in full, not in thousands. If an amount is zero, enter "0".

   Optima Company
   Cost of Goods Sold Budget
   For the Year Ending December 31, 20Y1
   Direct materials used	$
   Direct labor used
   Overhead
   Budgeted manufacturing costs	$
   Add: Beginning finished goods inventory
   Cost of goods available for sale	$
   Less: Ending finished goods inventory
   Budgeted cost of goods sold	$

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   9. Cash Budget (in thousands)

   Optima Company
   Cash Budget
   For the Year Ending December 31, 20Y1
   	Qtr. 1	Qtr. 2	Qtr. 3	Qtr. 4	Total
   Beginning cash bal.	$	$	$	$	$
   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	$	$	$	$	$

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   10. Pro forma income statement (using absorption costing). Enter amounts in full, not in thousands.(Note: Ignore income taxes.)

   Optima Company
   Pro Forma Income Statement
   For the Year Ending December 31, 20Y1
   Cost of goods sold Income before taxes Sales	$
   Less: Cost of goods sold Less: Gross margin Less: Income before taxes
   Cost of goods sold Gross margin Income before taxes	$
   Less: Gross margin Less: Sales Less: Selling and administrative expenses
   Gross margin Income before taxes Sales	$

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   11. Pro forma balance sheet. Enter amounts in full, not in thousands. List all assets and liabilities in order of liquidity. (Note: Ignore income taxes.)

   Optima Company
   Pro Forma Balance Sheet
   December 31, 20Y1
   Assets
   Accounts payable Capital stock Cash Dividends Retained earnings	$
   Accounts payable Accounts receivable Capital stock Depreciation expense Retained earnings
   Accounts payable Capital stock Direct materials inventory Dividends paid Retained earnings
   Accounts payable Capital stock Depreciation expense Finished goods inventory Retained earnings
   Accounts payable Depreciation expense Dividends Plant and equipment Retained earnings
   Total assets	$
   Liabilities and stockholders' equity
   Accounts payable Accounts receivable Cash Direct materials inventory Plant and equipment	$
   Accounts receivable Capital stock Cash Direct materials inventory Finished goods inventory
   Accounts receivable Cash Direct materials inventory Finished goods inventory Retained earnings
   Total liabilities and stockholders' equity	$