Question

9. If more information is required please be specific in what is needed.

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:

9. Cash Budget (in thousands)

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: 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.

QUESTION: Create a Cash Budget (in thousands) Optima Company Cash Budget For the Year Ending December 31, 20X1 Qtr. 1 Qtr. 2 Qtr. 3 Qtr. 4 Total Beginning cash bal. $ $ $ $ $ Collections: Credit sales: Current quarter Prior quarter Cash available $ $ $ $ Less disbursements: Direct materials: Current quarter $ $ $ $ $ Prior quarter Direct labor Overhead Selling and admin. Dividends Equipment Total cash needs $ $ $ $ $ Ending cash $ $ $ $ $

Answer 1

Calculation Qtr. 1 Qtr. 2 Qtr. 2 Qtr. 3 Qtr. 4 Qtr. 1 250,000 Qtr. 3 2,876,000 Qtr.4 5,748,000 Total 250,000 1,038,000 22,100,000 3,300,000 25,650,000 23,800,000 3,900,000 28,738,000 25,500,000 4,200,000 32,576,000 30,600,000 4,500,000 40,848,000 102,000,000 15,900,000 118,150,000 =26,000,000*85% =55,000*400*15% =28,000,000*85% = 26,000,000*15% =30,000,000*85% =28,000,000*15% =36,000,000*85% =30,000,000*15% Cash budget Req9 Beginning cash bal. Collections: Credit sales: Current quarter Prior quarter Cash available Less disbursements: Direct materials: Current quarter Prior quarter Direct labor Overhead Selling and admin. Dividends Equipment Total cash needs Ending Cash =18,648,000*50% AP from BS =17,856,000*50% =18,648,000*50% -19,200,000*50% =17,856,000*50% -18,696,000*50% =19,200,000*50% 9,324,000 7,248,000 3,900,000 2,990,000 850,000 300,000 8,928,000 9,324,000 3,600,000 2,810,000 900,000 300,000 9,600,000 8,928,000 4,000,000 3,050,000 950,000 300,000 9,348,000 9,600,000 4,000,000 3,050,000 1,100,000 300,000 2,000,000 29,398,000 11,450,000 37,200,000 35,100,000 15,500,000 11,900,000 3,800,000 1,200,000 2,000,000 106,700,000 11,450,000 =3,340,000-350,000 =3,160,000-350,000 =3,400,000-350,000 =3,400,000-350,000 =900,000-50,000 =950,000-50,000 =1,000,000-50,000 =1,150,000-50,000 24,612,000 1,038,000 25,862,000 2,876,000 26,828,000 5,748,000

Calculation Qtr. 1 Qtr. 2 Qtr. 3 Qtr. 4 Optima Company Sales Budget Req1 Units Unit price Total sales Qtr. 1 65,000 400 26,000,000 Qtr. 2 70,000 400 28,000,000 Qtr. 3 75,000 400 30,000,000 Qtr. 4 90,000 400 36,000,000 Total 300,000 400 120,000,000 =65,000*400 =70,000*400 =75,000*400 =90,000*400 Schedule of cash receipts Req 1A Receipts in quarter of sale Receipts in quarter after sale Total cash receipts Qtr. 1 22,100,000 3,300,000 25,400,000 Qtr. 2 23,800,000 3,900,000 27,700,000 Qtr. 3 25,500,000 4,200,000 29,700,000 Qtr. 4 30,600,000 4,500,000 35,100,000 Total 102,000,000 15,900,000 117,900,000 Qtr. 1 -26,000,000*85% =55,000*400*15% Qtr. 2 -28,000,000*85% -26,000,000*15% Qtr. 3 Qtr. 4 =30,000,000*85% =36,000,000*85% =28,000,000*15% =30,000,000*15% Qtr. 1 Qtr. 2 Qtr. 3 Qtr. 4 Production budget Req2 Planned sales Desired ending inventory Inventory needs Less: Beginning inventory Production Qtr. 1 65,000 13,000 78,000 Qtr. 2 70,000 15,000 85,000 13,000 72,000 Qtr. 3 75,000 20,000 95,000 15,000 80,000 Qtr. 4 90,000 10,000 100,000 20,000 80,000 Total 300,000 10,000 310,000 End Inv of Qtr 1 End Inv of Qtr 2 End Inv of Qtr 3 78,000 310,000 Qtr. 1 Qtr. 2 Qtr. 3 Qtr. 4 =80,000*3 Direct Materials Purchases Budget Req3 Production Materials/unit Production needs Desired ending inventory Total needs Less: Beginning inventory Purchases Cost per unit Purchase cost Qtr. 1 78,000 3.00 234,000 64,800 298,800 65,700 233,100 =78,000*3 =216,000*30% =72,000*3 =240,000*30% Qtr. 2 72,000 3.00 216,000 72,000 288,000 64,800 223,200 80 17,856,000 Total 310,000 3.00 930,000 65,700 995,700 65,700 930,000 =80,000*3 =240,000*30% Qtr. 3 80,000 3.00 240,000 72,000 312,000 72,000 240,000 80 19,200,000 Qtr.4 80,000 3.00 240,000 65,700 305,700 72,000 233,700 80 18,696,000 End Inv of Qtr 1 End Inv of Qtr 2 End Inv of Qtr 3 80 18,648,000 74,400,000 =233,100*80 =223,200*80 =240,000*80 =233,700*80

Calculation Qtr. 1 Qtr. 2 Qtr. 3 Qtr. 4 Qtr. 1 78,000 Qtr. 2 72,000 Qtr. 3 80,000 Qtr.4 80,000 Total 310,000 Direct Labor Budget Req 4 Production Hours per unit Hours needed Cost per hour Total cost 360,000 400,000 1 =78,000*5 =72,000*5 =80,000*5 =80,000*5 390,000 10 3,900,000 10 400,000 10 4,000,000 10 ,000 2,000,000 2,000,000 15,500,000 -390,000-120 1,550,000 10 15,500,000 3,600,000 4,000,000 =390,000*10 =360,000*10 -400,000*10 -400,000*10 Qtr. 1 Qtr. 2 Qtr. 3 Qtr. 4 Qtr. 1 390,000 Qtr. 2 360,000 Qtr. 3 400,000 Qtr.4 400,000 Total 1,550,000 Overhead Budget Req 5 Budgeted hours Variable rate Budgeted VOH Budgeted FOH Total OH =390,000*6 =360,000*6 =400,000*6 -400,000*6 2,340,000 1,000,000 3,340,000 2,160,000 1,000,000 3,160,000 2,400,000 1,000,000 3,400,000 2,400,000 1,000,000 3,400,000 9,300,000 4,000,000 13,300,000 Qtr. 1 Qtr. 2 Qtr. 3 Qtr. 4 Qtr. 1 65,000 Qtr. 2 70,000 Selling and Administrative Expenses Budget Req6 Planned sales Variable rate Variable expenses Fixed expenses Total expenses 10 10 Qtr. 3 75,000 10 750,000 250,000 1,000,000 Qtr.4 90,000 10 900,000 250,000 1,150,000 Total 300,000 10 3,000,000 1,000,000 4,000,000 -65,000*10 =70,000*10 =75,000*10 =90,000*10 650,000 250,000 900,000 700,000 250,000 950,000

Calculation 240.00 50.00 =3 units *$80 per unit =5 hours *$10 per hour Ending Finished Goods Inventory Budget Reqz Unit cost computation Direct materials Direct labor Overhead: Variable Fixed Total unit cost Finished goods =5 hours *$6 per hour =$4,000,000/310,000 production units 30.00 12.90 332.90 3,329,032 =10,000 units * $332.90 =(65,700+930,000-65,700) *80 Cost of goods sold budget Req8 Direct materials used Direct labor used Overhead Budgeted manufacturing costs 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