Question

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:

First quarter	65,000
Second quarter	70,000
Third quarter	75,000
Fourth quarter	90,000

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:

First quarter	13,000 units
Second quarter	15,000 units
Third quarter	20,000 units
Fourth quarter	10,000 units

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:

Assets
Cash		$ 250,000
Direct materials inventory		5,256,000
Accounts receivable		3,300,000
Plant and equipment, net		33,500,000
Total assets		$42,306,000

Liabilities and Stockholders’ Equity
Accounts payable		$ 7,248,000*
Capital stock		27,000,000
Retained earnings		8,058,000
Total liabilities and stockholders’ equity		$42,306,000
* For purchase of direct materials only.

Optima will pay quarterly dividends of $300,000. At the end of the fourth quarter, $2 million of equipment will be purchased.

*Please complete Schedule 6 through 9 using the previous parts completed.*

Schedule 1 - Sales Budget Units Unit price Total Sales 01 02 03 04 Total 65,000 70.000 75.000 90,000 300.000 $ 400 $ 400 $ 400 S 400 S . $ 26,000,000 $ 28,000,000 $ 30,000,000 $ 36,000,000 $ 120,000,000 Schedule 2 - Production Budget Q1 02 03 04 Total 65,000 13.000 Sales in UNITS Plus: Desired finished goods ending inventory Total needs Less: Beginning finished goods inventory Finished goods production needs 78,000 70,000 15.000 85,000 13.000 72.000 75,000 20,000 95,000 15.000 80,000 90,000 10,000 100,000 20,000 80,000 300.000 58.000 358.000 48.000 310,000 78,000

Answer 1

Answer is given below with full working

Schedule 1 Sales Budget | Sales units Selling price Sales value Quarter! 65,000 $400.00 $26,000,000 Quarter II | Quarter III Quarter IV Full year 70,000 75,000 90,000 300,000 $400.00 $400.00 $400.00 $400.00 $28,000,000 $30,000,000 $36,000,000 $120,000,000 Schedule of Cash collected from Customers Quarter Quarter III Quarter III Quarter IV Full year $22,100,000 $3,900,000 $23,800,000 Collection from Customers Quarter Quarter 11 Quarter III Quarter IV Opening Accounts Receivable Cash received from Debtors $26,000,000 $4,200,000 $28,000,000 $25,500,000 $4,500,000 $30,000,000 $30,600,000 $30,600,000 $3,300,000 $29,700,000 $35,100,000 $117,900,000 | $3,300,000 $25,400,000 $27,700,000 Schedule 2 Production Budget - Units Budgeted Unit sales Add: Desired Closing inventory Total Needs Less Opening Stock Total Production in units Quarter 65,000 13,000 78,000 Quarter II 70,000 15,000 85,000 13,000 72,000 Quarter III 75,000 20,000 95,000 15,000 80,000 Quarter IV | Full year 90,000 300,000 10,000 10,000 100,000 310,000 20,000 80,000 310,000 78,000 Schedule 3 Direct Material Purchase Budget Units needed for production Add: Desired Closing inventory Quarter 234,000 64,800 298,800 65,700 233,100 $80 $18,648,000 Quarter II | Quarter III Quarter IV 216,000 240,000 240,000 72,000 72,000 65,700 288,000 312,000 305,700 64,800 72,000 72,000 223,200 240,000 233,700 $80 $80 $80 $17,856,000 $19,200,000 $18,696,000 Full year 930,000 65,700 995,700 65,700 930,000 $80 $74,400,000 Less Opening Stock Total Purchase Budget Purchase Price per unit Purchase value budget Schedule of Cash payment for purchases Quarter $18,648,000 Quarter II | Quarter III | Quarter IV $17,856,000 $19,200,000 $18,696,000 Full year $74,400,000 $9,324,000 $9,324,000 $8,928,000 Purchases Payment Quarter I purchase Quarter II purchase Quarter III purchase Quarter IV purchase Opening Accounts Payable balance Total payment for purchases $8,928,000 $9,600,000 $9,600,000 $9,348,000 $18,648,000 $17,856,000 $19,200,000 $9,348,000 $7,248,000 $72,300,000 $7,248,000 $16,572,000 $18,252,000 $18,528,000 $18,948,000 Schedule 4 Direct Labor Budget Production units Direct labor hour per unit Total Direct labor hours DL rate per hour Total Direct Labor cost Budget Quarter 78,000 5.00 390,000 $10 $3,900,000 Quarter II | Quarter III | Quarter IV 72,000 80,000 80,000 5.00 5.00 5.00 360,000 400,000 400,000 $10 $100 $3,600,000 $4,000,000 $4,000,000 Full year 310,000 5.00 1,550,000 $10 $15,500,000 Schedule 5 Manufacturing Overhead budget Variable Overhead - $6 per DL hour Fixed Manufacturing Overhead Total Manufacturing Overhead paid in cash Depreciation Total Manufacturing overhead budget Quarter $2,340,000 $650,000 $2,990,000 $350,000 $3,340,000 Quarter II $2,160,000 $650,000 $2,810,000 $350,000 $3,160,000 Quarter III $2,400,000 $650,000 $3,050,000 $350,000 $3,400,000 Quarter IV Full year $2,400,000 $9,300,000 $650,000 $2,600,000 $3,050,000 $11,900,000 $350,000 $1,400,000 $3,400,000 $13,300,000 Schedule 6 Selling and Administration Expense Budget Variable Selling Expense Fixed Selling expenses Totals & A Overhead paid in Cash Depreciation Total Selling and administration Expense Budget Quarter $650,000 $200,000 $850,000 $50,000 $900,000 Quarter II $700,000 $200,000 $900,000 $50,000 $950,000 Quarter III | Quarter IV | Full year $750,000 $900,000 $3,000,000 $200,000 $200,000 $800,000 $950,000 $1,100,000 $3,800,000 $50,000 $50,000 $200,000 $1,000,000 $1,150,000 $4,000,000 $240.00 $50.00 Schedule 7 Unit Cost Computation Direct Material Direct Labor Overhead Variable Overhead Fixed Overhead Total cost per unit of Finished Goods Total cost of Finished Goods Inventory $30.00 $12.90 $332.90 $3,329,032 Schedule 8 Cost of Goods Sold Budget Direct Material used Direct Labor used Overhead Budgeted Manufacturing Cost Add: Beginning finished goods inventory Cost of Goods available for Sale Less: Ending Finished Goods inventory Budgeted Cost of Goods Sold $74,400,000 $15,500,000 $13,300,000 $103,200,000 $103,200,000 $3,329,032 $99,870,968 Schedule 9 Cash Budget Quarter $250,000 Quarter II | Quarter III | Quarter IV $1,038,000 $2,876,000 $5,748,000 Total $250,000 Beginning balance Collections Credit sales Current Quarter Prior Quarter $22,100,000 $3,300,000 $25,500,000 $30,600,000 $102,000,000 $4,200,000 $4,500,000 $15,900,000 $3,900,000 $25,650,000 $28,738,000 $32,576,000 $40,848,000 $118,150,000 Cash available for disbursement Cash disbursements Direct Material Current Quarter Prior Quarter Direct Labor Manufacturing overhead Selling and administration expenses Equipment purchase Dividends Cash paid for disbursements Ending cash balance $9,324,000 $7,248,000 $3,900,000 $2,990,000 $850,000 $8,928,000 $9,324,000 $3,600,000 $2,810,000 $900,000 $9,600,000 $9,348,000 $37,200,000 $8,928,000 $9,600,000 $35,100,000 $4,000,000 $4,000,000 $15,500,000 $3,050,000 $3,050,000 $11,900,000 $950,000 $1,100,000 $3,800,000 $2,000,000 $2,000,000 $300,000 $300,000 $1,200,000 $26,828,000 $29,398,000 $106,700,000 $5,748,000 $11,450,000 $11,450,000 $300,000 $24,612,000 $1,038,000 $300,000 $25,862,000 $2,876,000