Susquehanna Corp is a manufacturer of earrings You have been hired as a new management trainee of the company In the past, the company has done very little in budgeting and at certain times of the year has experienced a shortage of cash Since you are well trained in budgeting, you have decided to prepare a master budget for the upcoming year You have gathered the beginning balance sheet and the necessary assumptions for you to create the budget The company has an agreement with a bank that allows the company to borrow in increments of $10,000 at the beginning of each quarter The interest is 2 per quarter and for simplicity we will assume that interest is not compounded At the end of the quarter, the company will pay the bank all of the accumulated interest for the quarter on the loan and as much of the loan as possible (in increments of $10,000), while still retaining at least $40,000 in cash Insurance for the whole year will be paid in January Prepare the master budget for the year 2017 0 Earrings Corp Earrings Corp Balance Sheet Budgeting Assumptions December 31, 2016 2017 2018 Assets Sales Budget Assumptions Same for all quarters Quarter 1 Quarter 2 Quarter 3 Quarter 4 Quarter 1 Quarter 2 Current assets Budgeted sales in pairs of earrings 105,000 50,000 60,000 100,000 135,000 65,000 Cash $ 48,000 Selling price per pair $ 23 50 Accounts receivable 224,000 Percentage of sales collected in the quarter of sale 60 Raw materials inventory (240,000 grams of silver) 120,000 Percentage of sales collected in the quarter after sale 40 Finished goods inventory (48,000 pairs of earrings) 480,000 Total current assets $ 872,000 Production Budget Assumptions Plant and equipment Percentage of next quarter's sales needed in ending finished goods inventory 40 Land 50,000 Buildings and equipment 650,000 Direct Materials Budget Assumptions Accumulated depreciation (330,000) Grams of silver per pair of earring 10 Total Plant and equipment, net 370,000 Cost per gram of silver $ 0 50 Total assets $ 1,242,000 Percentage of next quarter's production needs in ending inventory 20 Percentage of purchases paid in the quarter of purchase 55 Liabilities and Stockholders' Equity Percentage of purchases paid in the quarter after purchase 45 Current liabilities Accounts payable $ 93,000 Direct Labor Budget Assumptions Stockholders' equity Direct labor hours required per pair 0 20 Common stock $ 700,000 Direct labor cost per hour $ 12 00 Retained earnings 449,000 Total stockholders' equity 1,149,000 Manufacturing Overhead Budget Assumptions Total liabilities and stockholders' equity $ 1,242,000 Variable manufacturing overhead per direct labor hour $ 1 50 Fixed manufacturing overhead excluding depreciation per quarter $ 145,950 Depreciation on factory assets per quarter $ 25,000 $ 30,000 $ 32,000 $ 33,000 Selling and Administrative Expense Budget Assumptions Variable selling and administrative expense per pair $ 2 80 Fixed selling and administrative expense Advertising expense per quarter $ 270,000 Executive salaries per quarter $ 105,000 Insurance expense per quarter $ 48,000 (the whole year's insurance will be paid in January) Rent expense per quarter $ 240,000 Depreciation on non factory assets per quarter $ 14,000 $ 16,000 $ 17,000 $ 18,000 Cash Budget Assumptions Minimum cash balance $ 40,000 Equipment purchases $ 20,000 $ 40,000 $ 15,000 $ 10,000 Dividends per quarter $ 15,000 Interest rate per quarter 2 Loans can be made and repaid in increments of $10,000 Earrings Corp Master Budget For the Year Ended December 31, 2017 Sales Budget Quarter 1 2 3 4 Year Budgeted unit sales (in pairs) Selling price per unit Total sales Schedule of Expected Cash Collections Beginning accounts receivable First quarter sales Second quarter sales Third quarter sales Fourth quarter sales Total cash collections Production Budget Quarter 1 2 3 4 Year Budgeted unit sales Add Desired units of ending finished goods inventory Total needs Less Units of beginning finshed goods inventory Required production in units Direct Materials Budget Quarter 1 2 3 4 Year Required production in pairs Units of raw materials needed per pair Units of raw materials needed to meet production Add desired units of ending raw materials inventory 214,000 Total units of raw materials needed Less units of beginning raw materials inventory Units of raw materias to be purchased Cost of raw materials per pound Cost of raw materials to be purchased Schedule of Expected Cash Disbursements for Purchases of Materials Beginning accounts payable First quarter purchases Second quarter purchases Third quarter purchases Forth quarter purchases Total cash disbursements for materials Direct Labor Budget Quarter 1 2 3 4 Year Required production in pairs Direct labor hours per pair Total direct labor hours needed Direct labor cost per hour Total direct labor cost Manufacturing Overhead Budget Quarter 1 2 3 4 Year Budgeted direct labor hours Variable manufacturing overhead rate Variable manufacturing overhead Fixed manufacturing overhead Total manufacturing overhead Less depreciation on factory assets Cash disbursements for manufacturing overhead Total manufacturing overhead Budgeted direct labor hours Predetermined overhead rate for the year 2017 Ending Finished Goods Inventory Budget (absorption costing basis) Item Quantity Cost Total Production cost per case Direct materials grams per gram Direct labor hours per hour Manufacturing overhead hours per hour Unit product cost Budgeted finished goods inventory Ending finished goods inventory in cases Unit product cost Ending finished goods inventory in dollars Selling and Administrative Expense Budget Quarter 1 2 3 4 Year Budgeted unit sales Variable selling and administrative expense per pair Total variable selling and administrative expense Fixed selling and administrative expense per quarter Advertising Executive salaries Insurance Rent Depreciation on non factory assets Total fixed selling and administrative expense Total selling and administrative expense Adjustment for prepaid insurance VALUE VALUE VALUE VALUE VALUE Less depreciation on non factory assets Cash disbursements for selling and administrative expense Cash Budget Quarter 1 2 3 4 Year Beginning cash balance Add cash receipts Collections from customers Total cash available Less cash disbursements Direct materials Direct labor Manufacturing overhead Selling and administrative Equipment purchases Dividends Total cash disbursements Excess (deficiency) of cash available over disbursements Financing Borrowings (at the beginnings of quarters) $ 50,000 00 $ Repayments (at end of the year) $ Interest $ (1,000 00) Total financing $ 49,000 00 Ending cash balance

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Susquehanna Corp. is a manufacturer of earrings. You have been hired as a new management trainee of the company. In the past, the company has

Susquehanna Corp. is a manufacturer of earrings. You have been hired as a new management trainee of the company. In the past, the company has done very little in budgeting and at certain times of the year has experienced a shortage of cash. Since you are well trained in budgeting, you have decided to prepare a master budget for the upcoming year. You have gathered the beginning balance sheet and the necessary assumptions for you to create the budget. The company has an agreement with a bank that allows the company to borrow in increments of $10,000 at the beginning of each quarter. The interest is 2% per quarter and for simplicity we will assume that interest is not compounded. At the end of the quarter, the company will pay the bank all of the accumulated interest for the quarter on the loan and as much of the loan as possible (in increments of $10,000), while still retaining at least $40,000 in cash. Insurance for the whole year will be paid in January. Prepare the master budget for the year 2017.

Earrings Corp.

Balance Sheet

Budgeting Assumptions

December 31, 2016

2017

2018

Assets

Sales Budget Assumptions

Same for all quarters

Quarter 1

Quarter 2

Quarter 3

Quarter 4

Quarter 1

Quarter 2

Current assets:

Budgeted sales in pairs of earrings

105,000

50,000

60,000

100,000

135,000

65,000

Cash

$ 48,000

Selling price per pair

$ 23.50

Accounts receivable

224,000

Percentage of sales collected in the quarter of sale

60%

Raw materials inventory (240,000 grams of silver)

120,000

Percentage of sales collected in the quarter after sale

40%

Finished goods inventory (48,000 pairs of earrings)

480,000

Total current assets

$ 872,000

Production Budget Assumptions

Plant and equipment:

Percentage of next quarter's sales needed in ending finished goods inventory

40%

Land

50,000

Buildings and equipment

650,000

Direct Materials Budget Assumptions

Accumulated depreciation

(330,000)

Grams of silver per pair of earring

Total Plant and equipment, net

370,000

Cost per gram of silver

$ 0.50

Total assets

$ 1,242,000

Percentage of next quarter's production needs in ending inventory

20%

Percentage of purchases paid in the quarter of purchase

55%

Liabilities and Stockholders' Equity

Percentage of purchases paid in the quarter after purchase

45%

Current liabilities:

Accounts payable

$ 93,000

Direct Labor Budget Assumptions

Stockholders' equity:

Direct labor-hours required per pair

0.20

Common stock

$ 700,000

Direct labor cost per hour

$ 12.00

Retained earnings

449,000

Total stockholders' equity

1,149,000

Manufacturing Overhead Budget Assumptions

Total liabilities and stockholders' equity

$ 1,242,000

Variable manufacturing overhead per direct labor-hour

$ 1.50

Fixed manufacturing overhead excluding depreciation per quarter

$ 145,950

Depreciation on factory assets per quarter

$ 25,000

$ 30,000

$ 32,000

$ 33,000

Selling and Administrative Expense Budget Assumptions

Variable selling and administrative expense per pair

$ 2.80

Fixed selling and administrative expense:

Advertising expense per quarter

$ 270,000

Executive salaries per quarter

$ 105,000

Insurance expense per quarter

$ 48,000

(the whole year's insurance will be paid in January)

Rent expense per quarter

$ 240,000

Depreciation on non-factory assets per quarter

$ 14,000

$ 16,000

$ 17,000

$ 18,000

Cash Budget Assumptions

Minimum cash balance

$ 40,000

Equipment purchases

$ 20,000

$ 40,000

$ 15,000

$ 10,000

Dividends per quarter

$ 15,000

Interest rate per quarter

Loans can be made and repaid in increments of $10,000

Earrings Corp.

Master Budget

For the Year Ended December 31, 2017

Sales Budget

Quarter

Year

Budgeted unit sales (in pairs)

Selling price per unit

Total sales

Schedule of Expected Cash Collections

Beginning accounts receivable

First quarter sales

Second quarter sales

Third quarter sales

Fourth quarter sales

Total cash collections

Production Budget

Quarter

Year

Budgeted unit sales

Add: Desired units of ending finished goods inventory

Total needs

Less: Units of beginning finshed goods inventory

Required production in units

Direct Materials Budget

Quarter

Year

Required production in pairs

Units of raw materials needed per pair

Units of raw materials needed to meet production

Add desired units of ending raw materials inventory

214,000

Total units of raw materials needed

Less units of beginning raw materials inventory

Units of raw materias to be purchased

Cost of raw materials per pound

Cost of raw materials to be purchased

Schedule of Expected Cash Disbursements for Purchases of Materials

Beginning accounts payable

First quarter purchases

Second quarter purchases

Third quarter purchases

Forth quarter purchases

Total cash disbursements for materials

Direct Labor Budget

Quarter

Year

Required production in pairs

Direct labor-hours per pair

Total direct labor-hours needed

Direct labor cost per hour

Total direct labor cost

Manufacturing Overhead Budget

Quarter

Year

Budgeted direct labor-hours

Variable manufacturing overhead rate

Variable manufacturing overhead

Fixed manufacturing overhead

Total manufacturing overhead

Less depreciation on factory assets

Cash disbursements for manufacturing overhead

Total manufacturing overhead

Budgeted direct labor-hours

Predetermined overhead rate for the year 2017

Ending Finished Goods Inventory Budget (absorption costing basis)

Item

Quantity

Cost

Total

Production cost per case:

Direct materials

grams

per gram

Direct labor

hours

per hour

Manufacturing overhead

hours

per hour

Unit product cost

Budgeted finished goods inventory:

Ending finished goods inventory in cases

Unit product cost

Ending finished goods inventory in dollars

Selling and Administrative Expense Budget

Quarter

Year

Budgeted unit sales

Variable selling and administrative expense per pair

Total variable selling and administrative expense

Fixed selling and administrative expense per quarter:

Advertising

Executive salaries

Insurance

Rent

Depreciation on non-factory assets

Total fixed selling and administrative expense

Total selling and administrative expense

Adjustment for prepaid insurance

#VALUE!

Less depreciation on non-factory assets

Cash disbursements for selling and administrative expense

Cash Budget

Quarter

Year

Beginning cash balance

Add cash receipts:

Collections from customers

Total cash available

Less cash disbursements:

Direct materials

Direct labor

Manufacturing overhead

Selling and administrative

Equipment purchases

Dividends

Total cash disbursements

Excess (deficiency) of cash available over disbursements

Financing:

Borrowings (at the beginnings of quarters)

$ 50,000.00

$ -

Repayments (at end of the year)

$ -

Interest

$ (1,000.00)

Total financing

$ 49,000.00

Ending cash balance

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