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: First-quarter 60 000 Second quarter 75 000 Third-quarter 80 000 Fourth-quarter 95 000 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 Page 4 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%

REQUIRED.

1. CASH BUDGET
2. PRO FORMA PROFIT AND LOSS STATEMENT

Answer 1

Finished Good Inventory - 9,000,000

Finished Good Inventory Qty = 9,000,000/900 per unit = 10,000 unit

Detail of Table qty
	2020				2021
Particulars	First Qtr	Second	third	Fourth	First Qtr	Second	third	Fourth
Open Stock	10000	12000	15000	16000	19000	19000	19000
Sales	60000	75000	80000	95000	95000	95000
Closing sstock	12000	15000	16000	19000	19000	19000
Production	62000	78000	81000	98000	95000	95000

	Cash Budget
Cash Received	Quarter 2020	Quarter 2020	Quarter 2020	Quarter 2020	Quarter 2021	Quarter 2021	Quarter 2021	Quarter 2021
	1	2	3	4	1	2	3	4
Cash Sales	28250000	35625000	38000000	45125000	45125000	45125000
Cash Collected	1980000	16950000	21375000	22800000	27075000	27075000	27075000
Cash Collected		1155000	9887500	12468750	13300000	15793750	15793750	15793750
Total Cash Collected	30,230,000.00	53,730,000.00	69,262,500.00	80,393,750.00	85,500,000.00	87,993,750.00	42,868,750.00	15,793,750.00

Cash payment	Quarter 2020	Quarter 2020	Quarter 2020	Quarter 2020	Quarter 2021	Quarter 2021	Quarter 2021
	1	2	3	4	1	2	3
Creditor Payment	7,371,000.00
Direct Labour	6,200,000.00	7,800,000.00	8,100,000.00	9,800,000.00	9,500,000.00	9,500,000.00
Teak Wood @50% current	14,880,000.00	9,360,000.00	19,440,000.00	23,520,000.00	22,800,000.00	22,800,000.00
Teak Wood @50% current next Quarter		14,880,000.00	4,680,000.00	9,720,000.00	11,760,000.00	11,400,000.00	11,400,000.00
Marble Cost	4,650,000.00	5,850,000.00	6,075,000.00	7,350,000.00	7,125,000.00	7,125,000.00
Marble Cost@ 50% next Qtr		2,325,000.00	2,925,000.00	3,037,500.00	3,675,000.00	3,562,500.00	3,562,500.00
Variable O/Head	2,480,000.00	3,120,000.00	3,240,000.00	3,920,000.00	3,800,000.00	3,800,000.00
Variable Adm Exp	600,000.00	750,000.00	800,000.00	950,000.00	950,000.00	950,000.00
Fixed Overhead	250,000.00	250,000.00	250,000.00	250,000.00	250,000.00	250,000.00
Fixed Selling & Adm Exp	45,000.00	45,000.00	45,000.00	45,000.00	45,000.00	45,000.00
Cash Paid Equipment			200,000.00
Total Cash Payment	36,476,000.00	44,380,000.00	45,755,000.00	58,592,500.00	59,905,000.00	59,432,500.00	14,962,500.00