Question

11.

Understanding Relationships, Master Budget, Comprehensive Review
Optima Company is a high-technology organization that produces a mass-storage system. The design of Optima's system is unique and represents a breakthrough in the industry. The units Optima produces combine positive features of both compact and hard disks. The company is completing its fifth year of operations and is preparing to build its master budget for the coming year (20X1). 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:
* Fourth-quarter sales for 20X0 are 55,000 units.
* Unit sales by quarter (for 20X1) are projected as follows:
c.   First quarter   d.   65,000   e.   f.
g.   Second quarter   h.   70,000   i.   j.
k.   Third quarter   l.   75,000   m.   n.
o.   Fourth quarter   p.   90,000   q.   r.
   s.   The selling price is $400 per unit. All sales are credit sales. Optima collects 85% of all sales within the quarter in which they are realized; the other 15% is collected in the following quarter. There are no bad debts.
* There is no beginning inventory of finished goods. Optima is planning the following ending finished goods inventories for each quarter:
u.   First quarter   v.   13,000 units   w.   x.
y.   Second quarter   z.   15,000 units   a.   b.
c.   Third quarter   d.   20,000 units   e.   f.
g.   Fourth quarter   h.   10,000 units   i.   j.
   k.   Each mass-storage unit uses 5 hours of direct labor and three units of direct materials. Laborers are paid $10 per hour, and one unit of direct materials costs $80.
* There are 65,700 units of direct materials in beginning inventory as of January 1, 20X1. At the end of each quarter, Optima plans to have 30% of the direct materials needed for next quarter's unit sales. Optima will end the year with the same amount of direct materials found in this year's beginning inventory.
* Optima buys direct materials on account. Half of the purchases are paid for in the quarter of acquisition, and the remaining half are paid for in the following quarter. Wages and salaries are paid on the 15th and 30th of each month.
* Fixed overhead totals $1 million each quarter. Of this total, $350,000 represents depreciation. All other fixed expenses are paid for in cash in the quarter incurred. The fixed overhead rate is computed by dividing the year's total fixed overhead by the year's budgeted production in units.
* Variable overhead is budgeted at $6 per direct labor hour. All variable overhead expenses are paid for in the quarter incurred.
* Fixed selling and administrative expenses total $250,000 per quarter, including $50,000 depreciation.
* Variable selling and administrative expenses are budgeted at $10 per unit sold. All selling and administrative expenses are paid for in the quarter incurred.
* The balance sheet as of December 31, 20X0, is as follows:
s.   Assets              
t.   Cash       u.   v.   $ 250,000   w.
x.   Direct materials inventory       y.   z.   5,256,000   a.
b.   Accounts receivable       c.   d.   3,300,000   e.
f.   Plant and equipment, net       g.   h.   33,500,000   i.
j.         Total assets       k.   l.   $42,306,000   m.
   n.  
o.   Liabilities and Stockholders’ Equity              
p.   Accounts payable       q.   r.   $ 7,248,000*   s.
t.   Capital stock       u.   v.   27,000,000   w.
x.   Retained earnings       y.   z.   8,058,000   a.
b.         Total liabilities and stockholders’ equity       c.   d.   $42,306,000   e.
f.   * For purchase of direct materials only.              
   g.   Optima will pay quarterly dividends of $300,000. At the end of the fourth quarter, $2 million of equipment will be purchased.
Required:
Prepare a master budget for Optima Company for each quarter of 20X1 and for the year in total. The following component budgets must be included:

11. Pro forma balance sheet. Enter amounts in full, not in thousands. List all assets and liabilities in order of liquidity. (Note: Ignore income taxes.)

Optima Company
Pro Forma Balance Sheet
December 31, 20X1
Assets
Choose One: AP Capital Stock Cash Dividends Retained Earnings	$
Choose One: AP AR Capital Stock Depreciation Expense Retained Earnings
Choose One: AP Capital Stock Depreciation Expense Retained Earnings
Choose One: AP Capital Stock Depreciation Expense Retained Earnings
Choose One: AP Capital Stock Depreciation Expense Retained Earnings
Total assets	$
Liabilities and stockholders' equity
Choose One: AP AR Cash Direct Materials Inventory Plant Equipment	$
Choose One: AR Capital Stock Cash Direct Material Inventory Finished Goods Inventory
Choose One: AR Cash Direct Materialsl Inventory Finished Goods Inventory Retained Earnings
Total liabilities and stockholders' equity	$

Answer 1

Master Budget
a) Sale Budget
	Qtr 4 (20X0)	Qtr 1	Qtr 2	Qtr 3	Qtr 4	Total (20X1)
Sale (units)	55,000	65,000	70,000	75,000	90,000	300,000
Selling price per unit	400	400	400	400	400
Total sale	22,000,000	26,000,000	28,000,000	30,000,000	36,000,000	120,000,000
Cash Sale	18,700,000	22,100,000	23,800,000	25,500,000	30,600,000	102,000,000
Credit Sale	3,300,000	3,900,000	4,200,000	4,500,000	5,400,000	18,000,000
Total Cash Inflow		25,400,000	27,700,000	29,700,000	35,100,000	117,900,000
b) Production Budget		Qtr 1	Qtr 2	Qtr 3	Qtr 4	Total (20X1)
Sales	55,000	65,000	70,000	75,000	90,000	300,000
Add: Closing stock		13,000	15,000	20,000	10,000	10,000
Less: Opening stock			13,000	15,000	20,000	0
Production (units)	55,000	78,000	72,000	80,000	80,000	310,000
c) Labour Budget		Qtr 1	Qtr 2	Qtr 3	Qtr 4	Total (20X1)
Production (units)	55,000	78,000	72,000	80,000	80,000	310,000
Hours required	275,000	390,000	360,000	400,000	400,000	1,550,000
Rate per hour	10	10	10	10	10
Total cost	2,750,000	3,900,000	3,600,000	4,000,000	4,000,000	15,500,000
d) Material usage budget		Qtr 1	Qtr 2	Qtr 3	Qtr 4	Total (20X1)
Production (units)	55,000	78,000	72,000	80,000	80,000	310,000
Units required	165,000	234,000	216,000	240,000	240,000	930,000
Rate per unit	80	80	80	80	80
Total cost	13,200,000	18,720,000	17,280,000	19,200,000	19,200,000	74,400,000
e) Material purchase budget		Qtr 1	Qtr 2	Qtr 3	Qtr 4	Total (20X1)
Units Required	165,000	234,000	216,000	240,000	240,000	930,000
Add: Closing	65,700	63,000	67,500	81,000	65,700	65,700
Less: Opening	0	65,700	63,000	67,500	81,000	65,700
Material purchased	230,700	231,300	220,500	253,500	224,700	930,000
Purchase budget (Cash)		Qtr 1	Qtr 2	Qtr 3	Qtr 4	Total (20X1)
Material Puchased( units)	230,700	231,300	220,500	253,500	224,700	930,000
Rate per unit	80	80	80	80	80
Total Cost	18,456,000	18,504,000	17,640,000	20,280,000	17,976,000	74,400,000
Payment made in cash		18,480,000	18,072,000	18,960,000	19,128,000	74,640,000
Fixed Overheads		Qtr 1	Qtr 2	Qtr 3	Qtr 4	Total (20X1)
Total fixed expenses		1,000,000	1,000,000	1,000,000	1,000,000	4,000,000
Less: Depreciation		350,000	350,000	350,000	350,000	1,400,000
Cash fixed cost		650,000	650,000	650,000	650,000	2,600,000
Budget production(units)		78,000	72,000	80,000	80,000	310,000
Fixed overhead rate		12.82	13.89	12.50	12.50
Variable overhead		Qtr 1	Qtr 2	Qtr 3	Qtr 4	Total (20X1)
Budget production(units)		78,000	72,000	80,000	80,000	310,000
Toatl hours		390,000	360,000	400,000	400,000	1,550,000
Cost per hour		6	6	6	6
Toatl cost		2,340,000	2,160,000	2,400,000	2,400,000	9,300,000
Selling and Admin Expenses		Qtr 1	Qtr 2	Qtr 3	Qtr 4	Total (20X1)
Fixed		250,000	250,000	250,000	250,000	1,000,000
Variable		650,000	700,000	750,000	900,000	3,000,000
Total		900,000	950,000	1,000,000	1,150,000	4,000,000
Cash account
Opening	250,000
add: Sale	117,900,000
Less: Labour	15,500,000
Less: Material	74,640,000
Less: Fixed Expenses	2,600,000
Less: Variable expenses	9,300,000
Less: Selling and Admin	3,800,000
Closing	12,310,000
Porforma Balance Sheet	20XI
Assets
Cash	12,310,000
Accounts receivable	5,400,000
Capital Stock	2,400,000
Plant and Equipment	33,500,000
Less: Depreciation expenses	1,400,000
Total Assets	52,210,000
Liabilities
Accounts payable	8,988,000
Capital	35,058,000
Retained Earnings	8,164,000
Total Liabilities	52,210,000