Question

Budgeting Part 2 (Q 5-9)

Dave’s Co. is a manufacturing firm of a computer hardware device. Its sales forecasts for the year 2020 is as follows:

Quarter	Sales in units	Price	Revenue
Q1, 2020	500	$              400	$     200,000
Q2, 2020	1000	400	400,000
Q3, 2020	1000	400	400,000
Q4, 2020	1000	400	400,000
Q1, 2021	2000	400	800,000
Q2, 2021	1500	400	600,000
Q3, 2021	1000	$              400	$     400,000

The company will start its business this year with $30,000 of cash balance. As of Q4 of the fiscal year 2019, it does not have any material, work in progress, or finished goods inventories. The company currently has no debt and entirely owned by shareholders. The balance sheet of Andy’s Co. as of the end of the year 2019 is as follows:

Cash

30,000

Equity

30,000

Direct material costs per unit are $150. Each unit requires three direct labor hours to be completed. The hourly wage is $40. For the year 2020, the company expects the variable overhead to be $136,000. The company allocates variable overhead by direct labor hours. Fixed overhead is expected to be $204,000, including the depreciation of the equipment ($47,500). The company will evenly allocate the fixed overhead for each quarter.

At the beginning of the year 2020, the company will invest in $95,000 for the equipment.

The company supplies products with no material selling and administrative expenses. Their products are immediately picked up by other manufacturers in the complex for cash. Due to the highly efficient just-in-time inventory management system, the company does not hold materials inventories. All materials are purchased just enough to be used in production each quarter. The company also does not hold work in progress inventories. However, they keep 10% of next quarter’s sales as ending inventories of finished goods.

The company also engages in flexible cash management. They require a minimum balance of zero. Whenever they run short of cash, they can borrow from a partnered venture capital at the quarterly interest rate of 2%. They obtain the short-term loan at the beginning of the quarter, and they repay both principal and interest at the end of the quarter if they have enough cash.

The company will incur 20% of taxable income (operating income less interest expenses) as tax expenses but will pay the income taxes in the year 2021.

5) Complete the overhead budget including the cash disbursement for Dave’s Co. for the fiscal year 2020

6) Complete the cost of goods manufactured budget for Dave’s Co. for the fiscal year 2020

7) Complete the cost of goods sold budget for Dave’s Co. for the fiscal year 2020

8) Complete the cash budget for Dave’s Co. for the fiscal year 2020

9) Complete the income statement for Dave’s Co. for the fiscal year 2020

Answer 1

5. Factory Overhead Budget: $136,000/11,100 Hours Total Direct Labor Hours Needed Predetermined Overhead Rate Total Variable Overhead Fixed Overhead-Cash Total Overheads Less: Depreciation Cash Payment for Overheads Q2 1,800 12.25 $ 22,054 $ 51,000 $ 73,054 $ -11,875 $ 61,179 $ Q3 3,000 12.25 $ 36,757 $ 51,000 $ 87,757 $ -11,875 $ 75,882 $ Q4 3,000 12.25 $ 36,757 $ 51,000 $ 87,757 $ -11,875 $ 75,882 $ Total 3,300 11,100 12.25 $ 12.25 40,432 $ 136,000 51,000 $ 204,000 91,432 $ 340,000 -11,875 $ 47,500 79,557 $ 292,500 $204,000/4 $47,500/4 Predetermned overhead Rate $292,500/11,100 26.35 6. Cost of goods manufactured Hours/Units Rate Material Labor Manufacturing overheads Per Finished goods Cost 150.00 40.00 $ 120.00 26.35 $ 79.05 3.00 3.00 $ $ Unit product cost Units producted during the year Cost of goods manufactured 349.05 3,700.00 1,291,485 atb 7. Cost of Goods Sold Budget Beginning Finished goods inventory Add: Cost of goods manufactured Cost of goods availabel for sale Ending finished goods inventory Cost of goods available for sale 1,291,485 1,291,485 -69,810 1,221,675.00 200*$349.05

9. Budgeted Income Statement: Sales Revenue Less: Cost of Goods Sold Gross Profit Less Interst Expense 1,400,000 -1,221,675 178,325 -1,764 Income before tax Less: Income Tax 20% Net Income 176,561 -35,312 141,249 8. Cash Budget: Q2 Q3 Q4 Beginning Balance Add: Cash Collected against sales 30,000 200,000 $ $ 54,118 400,000 $ $ 108,236 400,000 Total $ 30,000 $ 1,400,000 400,000 $ 230,000 $ 400,000 $ 454,118 $ 508,236 $ 1,430,000 Total Available Cash Less: Cash disbursment for: Material Purchase Direct Labor Manufacturing Overheads Equipment 90,000 72,000 61,179 95,000 $ $ $ 150,000 $ 120,000 $ 75,882 $ 150,000 $ 120,000 $ 75,882 $ 165,000 $ 132,000 $ 79,557 $ $ 555,000 444,000 292,500 95,000 318,179 -88,179 $ $ 345,882 $ 54,118 $ 345,882 $ 108,236 $ 376,557 $ 131,679 $ 1,386,500 43,500 88,179 Total Cash Payment Cash excess/(Deficit) Financing: Borrowing Repayment Interst Total Financing Ending Balance $ $ $ 108,236 $ $ -88,179 $ -1,764 $ 89,943 $ 41,736 $ 88,179 -88,179 -1,764 -1,764 41,736 88,179 $ 54,118 $