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Problem 9-73 Understanding Relationships, Master Budget, Comprehensive Review Opcima 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 Sompleting its fifth year of operations and is preparing to build its master budget for the coming vear (20X1). The budget will detail cach quarter's activity and the activity for the year in total. The master budget will be based on the following information: a. Fourth-quarter sales for 20X0 are 55,000 units. b. Unit sales by quarter (for 20X1) are projected as follows: OBJECTIVE 123 First quarter 65,000 Second quarter Third quarter Fourth quarter 70,000 75,000 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. c. There is no beginning inventory of finished goods. Optima is planning the following ending finished goods inventories for each quarter: 13,000 units First quarter 15,000 units Second quarter 20,000 units 10,000 units Third quarter Fourth quarter (Continued d. 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. e. There are 65,700 units of direct materials in beginning inventory as of January 1, 20X1. At the end of cach 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. f. 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. h. Variable overhead is budgeted at $6 per direct labor hour. All variable overhead expenses are paid for in the quarter incurred. iFixed selling and administrative expenses total $250,000 per quarter, including $50,000 depreciation. j. Variable selling and administrative expenses are budgeted at $10 per unit sold. All selling and administrative expenses are paid for in the quarter incurred. k. The balance sheet as of December 31, 20X0, is as follows: Profit Planning and Flexible Budgets Chapter 9 Assets Cash Direct materials inventory 250,000 $ 5,256,000 Accounts receivable 3,300,000 Plant and equipment, net 33,500,000 Total assets ro $42.306,000 Liabilities and Stockholders' Equity Accounts payable Capital stock Retained carnings Total liabilities and stockholders' equity "For purchase of direct materials only. $ 7,248,000 27,000,000 8,058,000 $42,306,000 L Optima will lpay quarterly dividends of $300,000. At the end of the fourth quarter, $2 million of equipment will be purchased. Requirodu 6. Selling and administrative expenses budget 7. Ending finished goods inventory budget 8. Cost of goods sold budget (Note: Assume that there is no change in work-in-process inventories.) 9. Cash budget 10. Pro forma income statement (using absorption costing) (Note: Ignore income taxes.) 11. Pro forma balance sheet (Note: Ignore income taxes.) 1) Sales budget Q1 Q2 Q3 Q4 Total Total units 65000 70000 75000 90000 300000 Unit prices Total sales 400 400 400 400 26000000 28000000 30000000 36000000 120000000 2) Production budget Q1 Q3 Q4 Total Q2 65000 70000 13000 15000 90000 300000 Total sales 75000 58000 Desired ending inventory Total needs Less: Beginning inventory 10000 20000 358000 78000 85000 100000 95000 48000 20000 15000 13000 310000 80000 78000 72000 80000 Production in units Direct material purchase budget Total Q4 Q3 80000 Q2 310000 80000 72000 78000 Total production Material per unit 3 3 930000 240000 240000 216000 234000 Production needs 274500 65700 72000 72000 64800 Desired ending 1204500 inventory total needs 305700 312000 288000 298800 274500 72000 72000 64800 65700 Less: beginning 930000 inventory Purchases 233700 240000 223200 233100 80 80 80 80 80 74400000 Cost per unit 18696000 18648000 17856000 19200000 Purchase cost 4) Direct labor budget Q1 Q2 Total Q3 Q4 Total 78000 80000 310000 72000 80000 production Hours per unit 5 5 5 5 5 400000 1550000 400000 Hours needed 390000 360000 10 Cost per hour 10 10 10 10 15500000 3900000 3600000 4000000 4000000 Total cost 5) Overhead budget Total Q4 400000 Q3 Q2 360000 Q1 1550000 400000 390000 Total budgeted hours 6 6 Variable rate 6 6 9300000 2340000 2160000 1000000 1000000 3340000 3160000 2400000 2400000 Budgeted VOH Budgeted FOH 4000000 1000000 1000000 13300000 3400000 3400000 Total OH Problem 9-73 Understanding Relationships, Master Budget, Comprehensive Review Opcima 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 Sompleting its fifth year of operations and is preparing to build its master budget for the coming vear (20X1). The budget will detail cach quarter's activity and the activity for the year in total. The master budget will be based on the following information: a. Fourth-quarter sales for 20X0 are 55,000 units. b. Unit sales by quarter (for 20X1) are projected as follows: OBJECTIVE 123 First quarter 65,000 Second quarter Third quarter Fourth quarter 70,000 75,000 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. c. There is no beginning inventory of finished goods. Optima is planning the following ending finished goods inventories for each quarter: 13,000 units First quarter 15,000 units Second quarter 20,000 units 10,000 units Third quarter Fourth quarter (Continued d. 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. e. There are 65,700 units of direct materials in beginning inventory as of January 1, 20X1. At the end of cach 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. f. 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. h. Variable overhead is budgeted at $6 per direct labor hour. All variable overhead expenses are paid for in the quarter incurred. iFixed selling and administrative expenses total $250,000 per quarter, including $50,000 depreciation. j. Variable selling and administrative expenses are budgeted at $10 per unit sold. All selling and administrative expenses are paid for in the quarter incurred. k. The balance sheet as of December 31, 20X0, is as follows: Profit Planning and Flexible Budgets Chapter 9 Assets Cash Direct materials inventory 250,000 $ 5,256,000 Accounts receivable 3,300,000 Plant and equipment, net 33,500,000 Total assets ro $42.306,000 Liabilities and Stockholders' Equity Accounts payable Capital stock Retained carnings Total liabilities and stockholders' equity "For purchase of direct materials only. $ 7,248,000 27,000,000 8,058,000 $42,306,000 L Optima will lpay quarterly dividends of $300,000. At the end of the fourth quarter, $2 million of equipment will be purchased. Requirodu 6. Selling and administrative expenses budget 7. Ending finished goods inventory budget 8. Cost of goods sold budget (Note: Assume that there is no change in work-in-process inventories.) 9. Cash budget 10. Pro forma income statement (using absorption costing) (Note: Ignore income taxes.) 11. Pro forma balance sheet (Note: Ignore income taxes.) 1) Sales budget Q1 Q2 Q3 Q4 Total Total units 65000 70000 75000 90000 300000 Unit prices Total sales 400 400 400 400 26000000 28000000 30000000 36000000 120000000 2) Production budget Q1 Q3 Q4 Total Q2 65000 70000 13000 15000 90000 300000 Total sales 75000 58000 Desired ending inventory Total needs Less: Beginning inventory 10000 20000 358000 78000 85000 100000 95000 48000 20000 15000 13000 310000 80000 78000 72000 80000 Production in units Direct material purchase budget Total Q4 Q3 80000 Q2 310000 80000 72000 78000 Total production Material per unit 3 3 930000 240000 240000 216000 234000 Production needs 274500 65700 72000 72000 64800 Desired ending 1204500 inventory total needs 305700 312000 288000 298800 274500 72000 72000 64800 65700 Less: beginning 930000 inventory Purchases 233700 240000 223200 233100 80 80 80 80 80 74400000 Cost per unit 18696000 18648000 17856000 19200000 Purchase cost 4) Direct labor budget Q1 Q2 Total Q3 Q4 Total 78000 80000 310000 72000 80000 production Hours per unit 5 5 5 5 5 400000 1550000 400000 Hours needed 390000 360000 10 Cost per hour 10 10 10 10 15500000 3900000 3600000 4000000 4000000 Total cost 5) Overhead budget Total Q4 400000 Q3 Q2 360000 Q1 1550000 400000 390000 Total budgeted hours 6 6 Variable rate 6 6 9300000 2340000 2160000 1000000 1000000 3340000 3160000 2400000 2400000 Budgeted VOH Budgeted FOH 4000000 1000000 1000000 13300000 3400000 3400000 Total OH