Problem 10.2 (L02) Master Budget The results of operations for the Garret Bug Spray Manufacturing Company for the fourth quarter of 2020 were as follows (in thousands): Sales of bug spray $500,000 Less variable cost of goods sold 280,000 Contribution margin 220,000 Less xed production costs 90,000 Less xed selling and administrative expenses 50,000 140,000 Income before taxes 80,000 Less taxes on income 32,000 Net income $ 48,000 Note: Garret uses the variable costing method. Thus, only variable costs are included in the cost of goods sold. Fixed costs are charged to expense in the period incurred. The company's balance sheet as of the end of the fourth quarter of 2020 was as follows (in thousands): Assets: Cash $ 30,000 Accounts receivable 250,000 Total current assets 280,000 Fixtures and equipment $130,000 Less accumulated depreciation 50,000 Total assets $330,000 Liabilities and owners' equity: Accounts payable $ 44,800 Retained earnings 175,000 Common stock 110,200 Total liabilities and owners' equity $330,000 Additional information: 1. Sales and variable costs of sales are expected to increase by seven percent in the next quarter. 2. All sales are on credit with 50 percent collected in the quarter of sale and 50 percent collected in the following quarter. 3. Variable cost of sales consists of 40 percent materials, 40 percent direct labor, and 20 percent variable overhead. Materials are purchased on credit. Sixty percent are paid for in the quarter of purchase, and the remaining amount is paid for in the quarter after purchase. There is no inventory. Also, direct labor and variable overhead costs are paid in the quarter the expenses are incurred. 4. Fixed production costs (other than $5,000 of depreciation expense) are expected to increase by 1.5 percent. Fixed production costs requiring payment are paid in the quarter they are incurred. 5. Fixed selling and administrative costs (other than $3,0_oo_of depreciation expense) are 5. Fixed selling and administrative costs (other than $3,000 of depreciation expense) are expected to increase by three percent. Fixed selling and administrative costs requiring payment are paid in the quarter they are incurred. 6. The tax rate is expected to be 20 percent. All taxes are paid in the quarter they are incurred. 7. No purchases of fixtures or equipment are expected in the first quarter of 2021