Question

The Diesel Dynamo Company is a high-tech diesel subsystem production business that produces technology accessories for trucks and other transport. The design of Diesel Dynamo products are unique and represent a breakthrough in the industry. The units Diesel Dynamo produces claim to provide for greater dependability, quality and longevity. The company is completing its third year of operations and is preparing to create a master budget for next year, 2017. The budget will detail each quarter’s activities and the activity for the year in total.Through connections at the Rotary Club, the CEO was able obtain a template for use in creating a master budget and has provided it to you along with financial information from the corporate controller. Your job is to create the following:

Variable Costing Income Statement

Revenue

Less: Variable costs

Variable cost of goods sold

Variable selling and administrative

Bad debt expense

Contributing margin

Less: Fixed costs

Fixed manufacturing cost

Fixed selling & Administrative

Operating income

Plus: Interest revenue

   Income before taxes

		Diesel Dynamo Company
			Budget Project
			Fall 2017
INPUT SECTION
SALES
		4th	1st	2nd	3rd	4th
		Quarter	Quarter	Quarter	Quarter	Quarter
		2017	2018	2018	2018	2018
	Budgeted Sales in units	43,000	37,900	34,500	31,000	43,000
	Budgeted Selling Price	$530	per production unit (Finished Good)
RECEIVABLES
	Receivables Collection Schedule	91.50%	quarter of sale
		5.50%	quarter following sale
		3.00%	uncollectible
		100.00%
	Policy		Entire projected uncollectible receivables are written off each quarter
INVENTORY COSTS
	Direct Labor	4.5	hours
		$19.50	per direct labor hour
	Raw Materials	3	direct material units per finished good production unit
		$85.00	per raw material unit
	Variable Overhead	$9.50	per Direct Labor Hour
	Fixed Overhead
	Depreciation	$304,000	per quarter
	Other Fixed Overhead	$950,000	per quarter
	Fixed Overhead Application Rate	CALCULATE FROM PRODUCTION BUDGET
INVENTORY ACCOUNTS
		4th	1st	2nd	3rd	4th
	Ending Finished Goods Inventory	Quarter	Quarter	Quarter	Quarter	Quarter
	in units	0	15,000	19,000	20,000	15,000
	Raw Materials Inventory
	Beginning Inventory 1/1/2018	28,436	units

Answer 1

Variable Costing income statement $ 77,592,000 Note 1 $ (59,802,640) No information given in the question $ (2,327,760) Note 2 $ 15,461,600 Revenue Less: Variable costs Variable cost of goods sold Variable selling & administrative Bad debt expense Contribution Margin Less: Fixed costs Fixed manufacturing cost Fixed selling & administrative expense Operating income Plus: Interest revenue Income before taxes $ (5,016,000) Note 6 No information given in the question $ 10,445,600 $ 10,445,600

Note 1 Sales Budget Total for 2018 146,400 Budgeted sales in units Budgeted selling price/unit Budgeted Sales revenue Qtr 4 2017 43,000 530 $ 22,790,000 Qtr 1 Qtr 2 37,900 34,500 $ 530 $ 530 $20,087,000 $18,285,000 Qtr 3 31,000 $ 530 $16,430,000 Qtr 4 43,000 $ 530 $22,790,000 $ 77,592,000 Note 2 Collection of Receivables Collection 2018 Qtr 4 2017 $ 22,790,000 Qtr 1 $20,087,000 Qtr 2 $18,285,000 Qtr 3 $16,430,000 Qtr 4 $22,790,000 $ 20,852,850 $ 1,253,450 $18,379,605 Budgeted Sales revenue Collections: Qtr 4 2017 Qtr 1 2018 Qtr 2 2018 Qtr 3 2018 Qtr 4 2018 Total Collections Uncollectibles 3% $ $ 1,104,785 $ $ 16,730,775 $ 1,005,675 $ $ 15,033,450 $ 903,650 $ $ 20,852,850 $ $17,835,560 $ 16,039,125 $21,756,500 $ $ 548,550 $ 492,900 $ 683,700 $ 1,253,450 19,484,390 17,736,450 15,937,100 20,852,850 75,264,240 2,327,760 $ 20,852,850 $ 19,633,055 $ 602,610

Note 3 Direct Labour Budget Qtr 1 Qtr 4 2017 43,000 37,900 15,000 52,900 43,000 Budgeted sales in units Add: Ending Finished goods inventory Desired inventory Less: Opening inventory Budgeted production in units Direct labour hours/unit Total hours required for production Rate per direct labour hour Direct labour cost Qtr 2 Qtr 3 Qtr 4 Total for 2018 34,500 31,000 43,000 19,000 20,000 15,000 53,500 51,000 58,000 (15,000) (19,000) (20,000) 38,500 32,000 38,000 $ 161,400 4.50 4.50 4.50 173,250 144,000 171,000 $ 726,300 $ 19.50 $ 19.50 $ 19.50 $ 3,378,375 $ 2,808,000 $ 3,334,500 $ 14,162,850 52,900 4.50 238,050 19.50 $ 4,641,975

Note 4 Raw Material Budget Qtr 4 2017 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Total for 2018 52,900 38,500 32,000 38,000 Budgeted production of Finished goods in units Direct material units per finished good production unit Total Direct raw material units required 3 158,700 3 115,500 cron 96,000 114,000 $ 484,200 Ending invetory of raw material is not given in the question, therefore it is not considered in the calculation and may show misleading result (28,436) Less: Opening invetory of raw material Total Direct raw material units to be purchased Raw material cost per unit Direct material cost $ 455,764 130,264 $ 85 $ 11,072,440 115,500 $ 85 $ 9,817,500 96,000 $ 85 $ 8,160,000 114,000 $ 85 $9,690,000 $ 38,739,940

Note 5 Variable cost of Goods sold: Direct material cost Direct Labour cost Variable overhead ($9.50 * 726,300 hours) $ 38,739,940 Note 4 $ 14,162,850 Note 3 $ 6,899,850 $ 59,802,640 Note 6 Fixed overhead Depreciation ($304,000*4) Other Fixed overhead ($950,000*4) $ $ $ 1,216,000 3,800,000 5,016,000