Synopsis

Camilla has just recently inherited her grandfathers Ferrari factory. She has no accounting background, and at the young age of only 24 , she has requested your expert help in creating a budget for next year (2018). The following information was obtained through an interview with her and her top management.

-Sales

Expected Sales (units): Management expect to sell 100 cars the first quarter with a 10% increase each succeeding quarter.

Expected Sales price = $325,000

-Production

Since Ferrari cars are generally pre-ordered, each quarter the company manufactures the number of cars expected to be sold in the following quarter. Ferrari does not maintain any inventory. Production for the fourth quarter will be equal to expected sales in the first quarter 2019 or 140 units.

-Materials

Ferrari maintains an ending inventory of raw materials equal to 10% of the next quarters production requirements.

The manufacture of each car requires 2000 pounds of raw materials, and the expected cost per pound is $50/pound.

Assume that the desired ending direct materials amount is 28,000 pounds for the fourth quarter of 2018.

-Labor

Direct labor hours are determined from the production budget. At Ferrari, much is done by robots, however the final touches require twenty hours of direct labor to produce each car. The anticipated hourly wage rate is $25.

-Manufacturing overhead

Ferrari expects variable costs to fluctuate with production volume on the basis of the following rates per direct labor hour:

indirect materials $2,500

indirect labor $1,000

utilities $500

maintenance $250.

-Ferrari expects Fixed Manufacturing Costs to be as follows (quarterly):

Supervisory salaries $50,000

Depreciation $21,250

Property taxes $40,000

Maintenance $15,000

Selling and Administrative

Variable expense rates per unit of sales are sales commissions $5,000 and freight-out $2,500.

Ferraris fixed selling and administrative costs are as follows (quarterly):

Camillas Salary and Bonus $2,500,000

Advertising $1,000,000

Sales salaries $500,000

Office salaries $600,000

Depreciation $1,000,000

Property Taxes and Insurance $1,500,000

-Other

Interest Expense for 2018 $100,000

Taxes are computed at 40% of pretax income

Question: Complete the 2018 budget as requested. You must create the following budgets:

Sales Budget Quarterly

Production Budget Quarterly

Materials Budget Quarterly

Labor Budget Quarterly

Manufacturing Overhead Budget Quarterly

Administrative and Selling Budget Quarterly

Income Statement Annual