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9:52 Master Budget Case Jeffrey Vaughn, president of Frame-It Company, was just concluding a budget meeting with his senior staff. It was November of and the group was discussing preparation of the firm's master budget for 201. T've decided to go ahead and purchase the industrial robot we've been talking about. We'll make the tion on Jany of Text year, and expect it will take most of the year to train the end and reorganite the production proces to take full advantage of the new equipment In response to a question about financing the acquisition replied as follows: The robot will cost $1,000,000. Well finance it with a 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 so 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 frame. The firm's two product lines are designated as small frames. 5-7 inches) and Large frame, 8x to inches). The primary raw materials are flexible metal strips and inch by 2-inch glass sheets Fach S frame requires a 2-foot metal stripan L. frame requires as-foot strip. Allowing for normal breakage and scrap glass, Frame-It can get the foreframes 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 materiale Emily Jackson Frame-It's controller, is in charge of preparing the master budget for. She has gathered the following information: 1. Sales in the fourth quarter of are expected to be 50.000 frames and 40,000 frames. The sales manager predicts that cover the next two years, sales in each product line will grow by 5.000 units each quarter over the previos quarter. For example, Sfrume sales in the first quarter of 2017 are expected to be 58.000 units 3. Frame-It's sales history indicates that 6 peront of all siren credit with the remainder of the sales in cash. The company's collection esperience 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 quartet (For simplicity assume the company is able to collect 100 percent of accounts recevable) 3. The frame sells for $10, and the frame sells for $is. These prices are expected to hold constant throughout 20x1. 4. Prame It's production manager attempts to end eacher with enough finished Boods inventory in each product line to cover 30 percet of the following quarters sales. Moreover, an attempt is made to end each quarter with 20 percent of the dass sheets needed for the following quarter production Since metal strips are purchased locally, Frame.It buys them on a fast-intime has inventory is negligible 5. All of Frame-It's direct-material purchases are made on accent, and so percent of each quarter's purchases are paid in cash during the sameganter as the purchase The other 20 percent is paid in the best quarter. 6. Indirect materials are purchased as needed and paid for in case Work-in-perces 7. Projected production costs in 2011 are as follows Frame Frame Direct material Metal strips S2 it $1 per foot 1 of 7 L3151 per foot $3 Glass sheets Sheets per sheet 2 sheet persen Din har 9:52 Indirect materials are purchased as needed and paid for in cash. Work-in-process inventory is negligible Projected production costs in 20xt are as follows: S Frame L Frame Direct material Metal strips S: 2 ft $1 per foot 52 L: 3ft $1 per foot $3 Glass sheets S: sheet 58 per sheet La sheet 58 per sheet Direct labor 1 hour $20 per hour Production overhead: 1 direct-Labor hour $10 per hour Total production cost per unit SLO The predetermined overhead rate is $io per direct-laboe hour. The following production overhead costs are budgeted for at 1st 2nd 3rd Entire Quarter Quarter Quarter Quarter Year Indirect material $ 10,200 $ 11200 $ 12.2005 13.200 $46.800 Indirect labor 40,300 44.800 48.800 52.800 187 200 Other overhead 31,000 36,000 41,000 46.000 154.000 Depreciation 20,000 20.000 20.000 20.000 80,000 Total overhead $102,000 $112.000 $122.000 $132.000 $468.000 All of these costs will be paid in cash during the quarter incurred except for the depreciation charges Frame-It's quarterly selling and administrative expenses are $100,000, paid in cash Jackson anticipates that dividends of $50,000 will be declared and paid in cash each quarter. th ( 2 of 7 Frume-It's projected balance sheet as of December 31, 200, follos Cash 000 9:52 12. Frame-It's projected balance sheet as of December 31, 2000, follows: Cash $95.000 Accounts receivable 132.000 Inventory: Raw material 59.200 Finished goods 167,000 Plant and equipment (net of accumulated depreciation) 5.000.000 Total assets 58,453.200 Accounts payable $ 99,400 Common stock 5.000.000 Retained earnings 3353.800 Total liabilities and stockholders equity 58,453,200 Required: Prepare Frame-It Company's master budget for 2011 by completing the following schedules and statements 1. Sales budget 20x0 20x1 4th 2nd 3rd 4th Entire Quarter Quarter Quarter Quarter Quarter Year S frame unit sales 50,000 Ssales price Sframe sales revenue 500,000 L frame unit sales 40,000 L sales price $15 Lframe sales revenue $15 Total sales revenue $600.000 Cash sales 440,000 Sales on account 510