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Thor Thunder Hammers, Inc makes heavy-duty steel hammers. The company is planning for 2022 and has asked you, the lead accountant, to prepare a
Thor Thunder Hammers, Inc makes heavy-duty steel hammers. The company is planning for 2022 and has asked you, the lead accountant, to prepare a quarterly budget. You have the following information as well as the company's 2021 balance sheet (on the next tab) to work from: a. The sales department has predicted that sales for the first quarter of 2022 will be 1,400 hammers and will increase by 150 hammers per quarter through 2023. b. You expect 30% of all sales to be cash; the rest will be on account. The credit sales are expected to be paid off 55% in the quarter of the sale and 45% in the following quarter. The outstanding receivable balance on December 31, 2021 is expected to be fully collected in the first quarter of 2022. c. The sales department thinks each hammer will sell for $85. d. The supply chain manager would like for Finished Goods Inventory at the end of each quarter to be 40% of the next quarter's sales. FIFO inventory accounting method is used. Ending inventory on Dec 31, 2021 consisted of 200 hammers. e. The ending Raw Materials inventory on December 31, 2021 was 600 pounds. f. The purchasing department would like to end each quarter with 10% of the next quarter's production needs on hand in Raw Materials Inventory. Assume production needs for Quarter 1 2023 will be the same as the sales units. g. Each hammer requires 3 pounds of direct materials. The direct materials cost $2 per pound. i. Each hammer requires 3 hours of direct labor, which averages $17 per hour. j. The variable manufacturing overhead is budgeted at $12 per direct labor hour. k. Fixed manufacturing overhead for each quarter is as follows: Insurance Property taxes Depreciation 1,500 1,085 7,000 1. Fixed selling and administrative expenses for each quarter are as follows: Salaries Rent Insurance Depreciation 11,000 1,660 1,350 1,500 m. Variable selling and administrative expenses are only supplies, and are expected to be 2% of sales for the quarter. n. New capital equipment is going to be purchased and paid for in the first quarter, $45,000. o. Direct materials purchases are paid 90% in the quarter they are purchased and 10% in the next quarter. The full AP balance on Dec 31, 2021 will be paid first quarter of 2022. p. All non-raw material expenses are paid in the quarter they are incurred. q. Income tax expense is estimated to be $3,500 per quarter. r. You have decided to budget manufacturing overhead costs based on direct labor hours.
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