Okay Company is preparing to build its master budget. The budget will detail each quarter’s activity and the activity for the year in total. The master budget will be based on the following information: a. This will be the first year of operation for Okay Company.
b. Budgeted unit sales by quarter for 2019 are projected as follows: First quarter 6,500, Second quarter 6,000, Third quarter 6,100 & Fourth quarter 6,250. First and second quarter 2020 budgeted sales units is 6,300 each quarter.
c. The selling price is $50 per unit. Sales are estimated to be collected 70% in cash and 30% credit. Of the credit sales, 80% are estimated to be collected in the quarter following the sale and 20% are collected in the second quarter following the sale.
d. Since this is the first year of operations there is no beginning inventory of finished goods at the beginning of the year. Okay’s ending finished good inventory policy is 40% of the following quarter’s unit sales needs.
e. Each unit uses 0.75 hours of direct labor and 2 units of direct materials. Laborers are paid $10 per hour and one unit of direct materials costs $5.
f. Since this is the first year of operations there is no beginning inventory of direct materials at the beginning of the year. Okay plans to have 30% of the direct materials needed for the next quarter’s production units on hand at the end of each quarter.
g. Okay buys direct materials on account. 90% of the purchases are paid for in the quarter of acquisition, and the remaining 10% are paid for in the following quarter.
h. Fixed overhead totals $25,000 each quarter. Of this total, $5,000 represents depreciation. All other fixed expenses are paid for in cash in the quarter incurred.
i. Variable overhead is budgeted at $3 per direct labor hour. All variable overhead expenses are paid for in the quarter incurred.
j. Fixed selling and administrative expenses total $15,000 per quarter, including $2,500 depreciation.
k. Variable selling and administrative expenses are budgeted at $1.25 per unit sold. All selling and administrative expenses are paid for in the quarter incurred.
l. Okay will pay quarterly dividends of $10,000. During the first quarter, $55,000 of equipment will be purchased. Required: Prepare a master budget for Okay Company for each quarter of 2019 and for the year in total. The following component budgets must be included:
1. Sales budget
2. Cash Collections of Sales
3. Production budget
4. Direct materials purchases budget
5. Cash Payments of Direct materials
6. Direct labor budget
7. Overhead budget
8. Operating expenses budget
9. Cash budget
10. Calculate the Accounts Receivable balance at year-end
11. Calculate the Accounts Payable balance at year-end
12. Calculate the Ending Cash Balance if 1st Quarter Sales is changed to 6,000 units
13. For correct formulas in excel spreadsheet.
| 1 | Sales Budget | |||||||
| Quarter 1 | Quarter 2 | Quarter 3 | Quarter 4 | Full Year | Q1 2020 | Q2 2020 | ||
| Budgeted sales units | $ 6,500 | $ 6,000 | $ 6,100 | $ 6,250 | $ 24,850 | $ 6,300 | $ 6,300 | |
| selling price per unit | $ 50 | $ 50 | $ 50 | $ 50 | $ 50 | $ 50 | $ 50 | |
| Budgeted sales | $ 325,000 | $ 300,000 | $ 305,000 | $ 312,500 | $ 1,242,500 | $ 315,000 | $ 315,000 | |
| 2 | Quarter 1 | Quarter 2 | Quarter 3 | Quarter 4 | Full Year | |||
| Cash sales 70% | $ 227,500 | $ 210,000 | $ 213,500 | $ 218,750 | $ 869,750 | $ 220,500 | $ 220,500 | |
| Credit Sales 30% | $ 97,500 | $ 90,000 | $ 91,500 | $ 93,750 | $ 372,750 | |||
| Cash Collection of sales | ||||||||
| Quarter 1 | Quarter 2 | Quarter 3 | Quarter 4 | Full Year | ||||
| Cash Sales collection | $ 227,500 | $ 210,000 | $ 213,500 | $ 218,750 | $ 869,750 | |||
| Credit sales collection 80% in follwing month | $ 78,000 | $ 72,000 | $ 73,200 | $ 223,200 | ||||
| Credit sales collection 20% in second quarter follwing sales month | $ 19,500 | $ 18,000 | $ 37,500 | |||||
| Total Cash collected | $ 227,500 | $ 288,000 | $ 305,000 | $ 309,950 | $ 1,130,450 | |||
| 3 | Production Budget | |||||||
| Quarter 1 | Quarter 2 | Quarter 3 | Quarter 4 | Full Year | Q1 2020 | Q2 2020 | ||
| Ending finished goods inventory | $ 2,400 | $ 2,440 | $ 2,500 | $ 2,520 | $ 9,860 | $ 2,520 | ||
| (40% of the following quarter’s unit sales needs) | ||||||||
| Add | Sales during the month | $ 6,500 | $ 6,000 | $ 6,100 | $ 6,250 | $ 24,850 | $ 6,300 | |
| Less | Opening inventory | $ - | $ 2,400 | $ 2,440 | $ 2,500 | $ 7,340 | $ 2,520 | |
| Production Budget | $ 8,900 | $ 6,040 | $ 6,160 | $ 6,270 | $ 27,370 | $ 6,300 | ||
| 4 | Direct materials purchases budget | |||||||
| Quarter 1 | Quarter 2 | Quarter 3 | Quarter 4 | Full Year | Q1 2020 | |||
| Direct material to be used 2 units per unit of finished goods | $ 17,800 | $ 12,080 | $ 12,320 | $ 12,540 | $ 54,740 | $ 12,600 | ||
| Add: | Closing inventory (30% of next quarter's production) | $ 3,624 | $ 3,696 | $ 3,762 | $ 3,780 | $ 14,862 | ||
| Less | Opening Inventory | $ - | $ 3,624 | $ 3,696 | $ 3,762 | $ 11,082 | $ 3,780 | |
| Direct material to be purchased | $ 21,424 | $ 12,152 | $ 12,386 | $ 12,558 | $ 58,520 | |||
| 5 | Direct materials Cost | |||||||
| Quarter 1 | Quarter 2 | Quarter 3 | Quarter 4 | Full Year | ||||
| Direct material to be purchased | $ 21,424 | $ 12,152 | $ 12,386 | $ 12,558 | $ 58,520 | |||
| Per unit cost | $ 5 | $ 5 | $ 5 | $ 5 | $ 5 | |||
| Direct Material Cost | $ 107,120 | $ 60,760 | $ 61,930 | $ 62,790 | $ 292,600 | |||
| Direct materials Cash & Credit Cost | ||||||||
| Quarter 1 | Quarter 2 | Quarter 3 | Quarter 4 | Full Year | ||||
| Cash purchases 90% | $ 96,408 | $ 54,684 | $ 55,737 | $ 56,511 | $ 263,340 | |||
| Crdit Purchases 10% | $ 10,712 | $ 6,076 | $ 6,193 | $ 6,279 | $ 29,260 | |||
| Cash Payments of Direct materials | ||||||||
| Quarter 1 | Quarter 2 | Quarter 3 | Quarter 4 | Full Year | ||||
| Cash purchases | $ 96,408 | $ 54,684 | $ 55,737 | $ 56,511 | $ 263,340 | |||
| Payment for credit purchases | $ 10,712 | $ 6,076 | $ 6,193 | $ 22,981 | ||||
| Total cash payment | $ 96,408 | $ 65,396 | $ 61,813 | $ 62,704 | $ 286,321 | |||
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