Question

SelfKlin Company is a high-technology organisation that produces Robotic Vacuum. The company is completing its tenth year of operations and is preparing to build its master budget for the coming year (2019). 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 Fourth-quarter sales for 2018 are 65 000 units. b Unit sales by quarter (for 2019) are projected as follows: First quarter 65 000 Second quarter 70 000 Third quarter 75 000 Fourth quarter 90 000 The selling price is $500 per unit. All sales are credit sales. SelfKlin collects 85% of all sales within the quarter in which they are realised; the other 13% is collected in the following quarter. Allowance for bad debts is 2% of sales. There is no beginning inventory of finished goods. SelfKlin is planning the following ending finished goods inventories for each quarter

First quarter 13 000 units

Second quarter 15 000 units

Third quarter 20 000 units

Fourth quarter 10 000 units

c Each vaccum unit uses four hours of direct labour and three units of direct materials.

Workers are paid $25 per hour, and one unit of direct materials costs $80.

d There are 65 700 units of direct materials in beginning inventory as at 1 January 2019. At

the end of each quarter, SelfKlin plans to have 30% of the direct materials needed for next

quarter’s unit sales. SelfKlin will end the year with the same amount of direct materials

found in this year’s beginning inventory.

e SelfKlin 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.

f 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.

g Variable overhead is budgeted at $8 per direct labour hour. All variable overhead expenses

are paid for in the quarter incurred.

h Fixed selling and administrative expenses total $250 000 per quarter, including $50 000

depreciation.

i Variable selling and administrative expenses are budgeted at $10 per unit sold. All selling

and administrative expenses are paid for in the quarter incurred.

j The balance sheet as at 31 December 2018 is as follows:

ASSETS

Cash $ 250 000

Direct materials inventory 5 256 000

Accounts receivable, net 4 225 000

Plant and equipment, net 33 500 000

Total assets $43 231 000

LIABILITIES AND SHAREHOLDERS’ EQUITY

Accounts payable $ 7 248 000*

Capital share 27 925 000

Retained earnings 8 058 000

Total liabilities and shareholders’ equity $43 231 000

* For purchase of direct materials only.

k SelfKlin 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 SelfKlin Company for each quarter of 2019 and for the year in

total. The following component budgets must be included:

1 Sales budget

2 Production budget

3 Direct materials purchases budget

4 Direct labour budget

5 Overhead budget

6 Selling and administrative expenses budget

7 Ending finished goods inventory budget

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

inventories.)

9 Cash budget

10 Pro Forma Balance sheet

11 Pro Forma Profit and Loss Statement

Answer 1

1) Sales Budget

	Q1	Q2	Q3	Q4	TOTAL Year
Sales in Units	65000	70000	75000	90000	300000
Selling Price/Unit	500	500	500	500
Sales in amount	32500000	35000000	37500000	45000000	150000000

2) Production Budget

	Q1	Q2	Q3	Q4	TOTAL
Sales (in units)	65000	70000	75000	90000	300000
Less Opening Units	0	(13000)	(15000)	(20000)	(48000)
Add Closing units	130000	15000	20000	10000	58000
Production in Units	78000	72000	80000	80000	310000

For the year 78000 720008000 8000 310000 67500 21000 22500 27000 38000 Q1 Q2 0321 3) Direct Material Purchases Budget Units produced Raw Materials required for Production Less: Opening balance Add: Closing Balance (30% of next Quarter's Sales) Direct materials purchased (in units) Direct materials cost ($80/material) 2340001 2160001 240000 240000 21000 22500 27000 187500 217500244500 280500 138000 930000 15000000 17400000 19560000 20000 74400000 Note 1) Closing balance of direct material is same as that of opening balance. 2) It is given that 3 unit of raw materials are required to prepare unit of Vacc 01 02 03 01 For the year Direct Labour Budget Units produced Direct labour required(4 hrs each unit) Direct Labour Cost ($25/hr) 72000S0000$0000 310000 1240000 7800000 7200000 8000000 8000000 31000000 78000 12000 288000 20000 320000