Question

Mayson Company produces wooden craft table. The company is completing its fifth year of operations and is preparing to build its master budget for the coming year (2020). 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 Unit sales by quarter (for 2020) are projected as follows: It is expected the sales of the first and second quarter of 2021 will be the same as the fourth quarter of 2020. The selling price is $950 per unit. 50% of sales are cash sales, and 50% are credit sales. Mayson collected 60% of credit sales in the first quarter after the sales, 35% in the following quarter. Allowance for doubtful debts is 5% of credit sales. The ending finished good inventory is 20% of the following quarter sales. Last year, the selling price and product cost/ unit were $900 and $750 respectively. Mayson uses FIFO inventory costing method. b Each furniture unit uses four hours of direct labour and six meters of teak wood and a half slab of marble. The cost of teakwood and marble are the same as last year. Workers are paid $25 per hour, and one meter of teak wood costs $80, while one slab of marble costs $600. c At the end of each quarter, Mayson plans to have 30% of the teak wood and marble needed for next quarter’s unit production. d Mayson buys teak wood and marble on the account. Half of the purchases are paid for in the quarter of acquisition, and the remaining half is paid for in the following quarter. Wages and salaries are paid on the 15th and 30th of each month. e Fixed overhead totals $500 000 each quarter. Of this total, $250 000 represents plant and equipment 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 total labour hours needed for First-quarter 60 000 Second quarter 75 000 Third-quarter 80 000 Fourth-quarter 95 000 Page 3 of 5 the year. f Variable overhead is budgeted at $10 per direct labour hour. All variable overhead expenses are paid for in the quarter incurred. g Fixed selling and administrative expenses total $50 000 per quarter, including $5 000 depreciation. h Variable selling and administrative expenses are budgeted at $10 per unit sold. All selling and administrative expenses are paid for in the quarter incurred. i The balance sheet as at 31 December 2019 is as follows: ASSETS Cash $ 250 000 Direct materials inventory 14 742 000 Inventory Finished good 9 000 000 Accounts receivable, net 3 300 000 Plant and equipment, net 33 500 000 Total assets $60 792 000 LIABILITIES AND SHAREHOLDERS’ EQUITY Accounts payable $ 7 371 000* Capital share 25 571,000 Retained earnings 27 850 000 Total liabilities and shareholders’ equity $60 792 000 * For purchase of direct materials only. The ending balance of Account receivable will be paid in the first quarter of 2020. j Mayson will pay quarterly dividends of $500 000. At the end of the third quarter, $200,000 of equipment will be purchased and paid in cash. This equipment is estimated to have five years of useful life, and Mason applies the straight-line depreciation method. After five years, it is estimated that the equipment can be sold for $5,000 k Mayson maintains a 12% open line of credit for $20 000 000. Interests are paid at the end of each quarter. Mayson maintains a minimum cash balance of $200,000. The company borrows on the first day of the quarter and repays loans on the last day of the quarter, both in multiples of $ 100,000. l The tax rate is 30%.

1. 1) Sales budget (in thousands)

2. 2) Production budget

3. 3) Direct materials purchases budget

4. 4) Direct labour budget

5. 5) Overhead budget

6. 6) Selling and administrative expenses budget

7. 7) Ending finished goods inventory budget

8. 8) Cost of goods sold budget (Note: Assume that there is no change in work in

   process inventories)

9. 9) Cash budget

10. 10) Pro Forma Profit and Loss Statement

Answer 1

1) Sales Budget (In thousands) 01 03/ 601 Budgeted units for sales Sales price per tire (in dollar) Total sales 02 75 950 71250 04 95 950 90250 Year 310 950 294500 950 57000 950 76000 03 0001 2) Production Budget (In units) 01 02 04 Year Budgeted sales 60000 750001 80000 95000 310000 Add: closing inventory (20% of next quarter) 15000 16000 19000 19000 19000 Less: opening inventory - 12000 -150001 - 16000 -19000 - 12000 Production (In units) 63000 76000 83000 95000 317000 Closing inventory for 04 = 95000 units x 20% = 19000 units......... [Being expected sales in next year's Q1 & Q2 is expected to be asme as 4th quarter's sales of 2020 i.e. 95000 units] Opening inventory for Q1 is clsoing inventory of last year's quarter 4. Hence, Opening inventory for Q1 = 60000 units x 20% = 12000 units. Year 02 76000 03 83000 04 95000 317000 3) Direct Material purchase budget Purchase Budget - Teakwood 01 Production (In units) 63000 Units per output required for production Budgeted units for production 378000 Add: Closing inventory (30% of next quarter) 136800 Less: opening inventory -113400 Budgeted units to be purchased 401400 Purchase price per unit $80 Purchase cost $32,112,000 Closing inventory for Q4 = 570000 units x 30% = 171000 units Opening inventory for Q1 = 378000 units x 30% - 113400 units. 456000 149400 -136800 468600 $80 $37,488,000 498000 171000 -149400 519600 $80 $41,568,000 570000 171000 -171000 570000 $80 $45,600,000 1902000 171000 -113400 1959600 $80 $156,768,000

Purchase Budget - Marble 01 02 04 0.5 0.5 Production (In units) 63000 Units per output required for production Budgeted units for production 31500 Add: Closing inventory (30% of next quarter) 11400 Less: opening inventory -9450 Budgeted units to be purchased 33450 Purchase price per unit $600 Purchase cost $20,070,000 Closing inventory for 04 = 47500 units x 30% = 14250 units Opening inventory for Q1 = 31500 units x 30% = 9450 units. 76000 0.5 38000 12450 -11400 39050 $600 $23,430,000 03 83000 95000 0.5 415001 47500 14250 14250 -12450 -14250 43300 47500 $600 $600 $25,980,000 $28,500,000 Year 317000 0.5 1585001 14250 -9450 163300 $600 $97,980,000 Direct Material purchase budget Teakwood Marble Total purchase cost of direct material 01 02 $32,112,000 $37,488,000 20070000123430000 $52,182,000 $60,918,000 03 $41,568,000 2 5980000 $67,548,000 04 $45,600,000 28500000 $74,100,000 Year $156,768,000 97980000 $254,748,000 4) Direct labour budget 04 01 63000 02 76000 03 83000 Year 317000 95000 Production Direct labor hours per unit Total direct labor hours Labour cost per hour Total direct labor cost 252000 $25 $6,300,000 304000 $25 $7,600,000 332000 $25 $8,300,000 380000 $25 $9,500,000 1268000 $25 $31,700,000