The following assignment is a take-home portion of Exam 2. It is worth 30 points

Question

The following assignment is a take-home portion of Exam 2. It is worth 30 points of the exam.

Budget Problem:

Better Plants, Inc. manufactures small biodegradable seedling starter trays. Josie Chase, owner, wants you to prepare the 2015 master budget for the company. The balance sheet at the end of 2014 follows:

Sales volume in Quarter 4 -2014 was 2,250,000 trays. Based on their research, the marketing department forecasts sales volume will be: 1,750,000 trays in Quarter 1 – 2015; 1,000,000 trays in Quarter 2 – 2015; 1,250,000 trays in Quarter 3 – 2015; and 2,000,000 trays in Quarter 4 – 2015. For Quarter 1 – 2016 and Quarter 2 – 2016 they forecast that 2,250,000 and 1,300,000 trays will be sold, respectively. To achieve the projected sales volume, Josie estimates a selling price of $2.75 per tray.

Based on previous estimates of sales fluctuations, the marketing department believes that the desired ending finished goods inventory each quarter should equal 18% of the following quarter’s sales quantity. The beginning finished goods inventory (quantity) in 2015 should be calculated from the 2014 balance sheet.   The accounting department estimates that the units in beginning finished goods will have an assigned cost of $1.20 per tray.

The trays are produced using a material purchased from a supplier for $.20 per ounce. It takes .5 ounces of material to produce one tray. To avoid material stock-outs, Josie maintains ending raw materials inventory equal to 20% of the following quarter’s production needs. Materials inventory (quantity) at the beginning of 2015 should be calculated from the 2014 balance sheet. The cost of beginning materials inventory is expected to be $0.20 per ounce.

Based on a study of the production processes, it takes 3 minutes to produce one tray. Direct labor workers are paid $12 per hour.

The accounting department has gathered the following information about the remaining product and period costs. (For Manufacturing Costs: all variable rates are per unit produced, and all fixed rates are per quarter. For Selling, General, and Administrative Expenses (SGA): all variable rates are per unit of sales, and all fixed rates are per quarter).

Assume that there is no beginning or ending work-in-process inventories.

Cash information:

Cash collections of sales revenue are 80% in the quarter of sale; 18% in the quarter following the sale; and 2% uncollectible. Better Plants recognizes bad debt expense on an accrual basis rather than the direct-write off method.

Materials purchased for production are the source of accounts payable. Purchases are paid 75% in the quarter of purchase; and 25% in the quarter following purchase. We pay all our debts.

At the beginning of Quarter 1 – 2015, Better Plants borrowed $150,000 from a local financial institution at an annual interest rate of 4%. Repayment of the loan will take place over the year with quarterly payments (at end of each quarter) of $37,500 principal plus accrued interest. The loan will be used to increase factory space and make improvements to the plant. The amounts spent will be as follows: $55,000 in Quarter 1 – 2015; $45,000 in Quarter 2 – 2015; $25,000 in Quarter 3 – 2015; and $25,000 in Quarter 4 – 2015.

Required:

Using Excel, prepare the master budget. Begin with the Balance Sheet – 2014; include all operating budgets; include a cash budget; and end with the Balance Sheet – 2015. You must prepare your own budget template and answers. Group work on Excel will not receive credit.

All inputs must be on the initial page of the workbook and all subsequent worksheets linked to the input page. Budgets that are not properly linked will not receive credit!

Each budget must be on a separate worksheet within the Excel workbook.

Each worksheet tab must be labeled with the name of the budget.

Each budget must be properly formatted (title, labels, etc.).

Any worksheet cell that involves a calculation must include a formula.

Any worksheet cell that uses a value from another budget or table must include a cell reference.

Grading

Submit an Excel file to the Assignment drop-box through Canvas for grading. To evaluate your work, predetermined values on the initial input page of the budget will be changed. To receive full credit, the change must correctly flow through the related budgets.

Example 1 – check figures:

If the sales estimate in Quarter 1 - 2015 changes from 1,750,000 units to 3,000,000 units, to receive credit for the assignment, income for the year should change from $1,862,651 to $2,589,678.

Example 2 – check figures:

If Current Direct Materials Cost per ounce changes from $0.20 to $0.25, to receive credit for the assignment, income for the year should change from $1,862,651 to $1,736,961.

Example 3 – check figures:

If the revenue collection pattern changes percentages from 80/18/2 for 2014 to 80/15/5 for 2015, to receive credit for the assignment, income for the year should change from $1,862,651 to $1,367,651 and assets 12/31/15 from $8,810,008 to $8,315,008.

Make other changes to your input data and check to see if the appropriate numbers change in the respective worksheets.

Explanation / Answer

The following assignment is a take-home portion of Exam 2. It is worth 30 points

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