Required tasks: (Marked with >)

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7. Selling and Administrative Expense budget (Completed Below thanks to Anonymous user 2)

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Prerequisite information presented at the end (Sales budget, production budget, Direct Materials Budget, Direct Labor Budget, Manufacturing OH Budget)

All the Master Budget schedules except those marked with an asterisk for the Extra-large Gnome Division should include a column for each quarter and a total column for the fiscal year. We only need a year-end total for the value of finished goods inventory (schedule 6).

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 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.

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.

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.

Prerequisite Information:

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Requirement 7:

Credit to Anonymous user 1, Katalina H., and Anonymous user 2 who were immense helps with the information above.

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