We would like you to prepare the Softball Bat Division’s Master Budget for 2016
ID: 2457127 • Letter: W
Question
We would like you to prepare the Softball Bat Division’s Master Budget for 2016
The deliverables are as follows:
1. Sales budget, including a schedule of expected cash collections.
2. Production budget.
3. Direct materials budget, including a schedule of expected cash disbursements for materials.
4. Direct labor budget.
5. Manufacturing overhead budget, with a calculation of a pre-determined overhead rate.
6. Ending finished goods inventory budget as of December 31, 2016* with the calculated production cost of each bat.
7. Selling and administrative expense budget.
8. Cash budget.
9. Budgeted income statement for the year ended December 31, 2016.*
10. Budgeted balance sheet for December 31, 2016.*
All the Master Budget schedules (except those marked with an asterisk) for the Softball Bat Division should include a column for each quarter and a total column for the fiscal year. We only need annual totals for the budgeted financial statements (schedules 9 and 10) and we only need a year-end total for the value of finished goods inventory (schedule 6).
Bamboo Bat Company
Baseball bats have been traditionally made from hardwoods – primarily Northern White Ash, and more recently, Rock and Sugar Maple. These trees take 40-45 years to grow to the point where they can be harvested for lumber suitable for bats. Once established, bamboo is one of the fastest growing plants in the world. The chutes can be continually harvested without damaging the underlying root structure, which will keep sending up additional chutes. Bamboo can be grown on land not suitable for other crops, or as a natural fence with its roots holding the soil and preventing erosion. Thus bamboo is an environmentally friendly alternative to traditional hardwoods as a material source for baseball bats. Bamboo also has a tensile strength greater than steel. A bamboo bat delivers superior performance and resistance to breakage, while retaining the feel of a hardwood bat.
Since bamboo chutes are hollow, bamboo bats are made by pressing bamboo "strips" into billets, and then turning these billets into bats. The Softball Bat Division specializes in making softball bats. All the softball bats have a two-tone finish with a clear lacquer handle and a colored barrel. Two examples are shown in the photos to the right. Lacquer is treated as an indirect material and included as part of variable overhead because the cost per bat is so small. Bamboo is the only direct material.
During 2016, the selling price will be $80 per bat. The Softball Bat Division expects to sell the following number of bats during 2016.
Quarter First Second Third Fourth
Bats sold 82,000 75,000 90,000 81,000
The collection pattern for Accounts Receivable is as follows:
o 55 percent of all sales are collected within the quarter in which they are sold
o 45 percent of all sales are collected in the following quarter.
o There are no bad debts/uncollectible.
Due to higher than expected demand this year the Softball Bat Division expects to have no finished bats in inventory. To avoid having that problem in the coming fiscal year, the Softball Bat Division would like to have the ending inventory of bats at the end of each quarter equal 25 percent of the budgeted sales for the next quarter. They would like to have 20,000 bats on hand at the end of 2016.
Quarter First Second Third Fourth
Ending FG inventory in bats
as a percentage of the next
quarter’s budgeted sales 25% 25% 25% ?
Ending FG inventory in bats ? ? ? 20,000
Each bat requires 40 ounces of bamboo strips. The Softball Bat Division buys bamboo for $0.90 per ounce and expects the price to remain constant throughout the year. They expect to have to have 409,000 ounces of bamboo strips on hand at the beginning of 2016. At the end of each of the first three quarters, the Softball Bat Division would like to have their direct materials inventory
Bamboo Bat Company
quantity to equal 10 percent of the amount required for the following quarter’s planned production. At the end of the year, Softball Bat Division would like to have 360,000 ounces of bamboo on hand.
Quarter First Second Third Fourth
Ending DM inventory as a %
of the next quarter’s
production requirement 10% 10% 10% ?
Ending DM inventory in ounces ? ? ? 360,000
The Softball Bat Division buys its bamboo on account. It pays for 60% of its purchases of direct materials in the quarter in which they were purchased and 40% in the quarter after they were purchased.
Each bat requires .80 hours (48 minutes) of direct labor. Employees engaged in direct labor will be paid an estimated $16.00 per labor hour. Wages and salaries are paid on the 15th and 30th of each month.
Variable manufacturing overhead is estimated to be $14.00 per direct labor hour for the coming fiscal year. All variable manufacturing overhead expenses are paid for in the quarter incurred.
Fixed manufacturing overhead is estimated to total $540,000 each quarter, with $360,000 of the total amount each quarter representing depreciation on machinery, equipment and the factory. All other fixed manufacturing overhead expenses are paid in cash in the quarter incurred. Display the pre-determined overhead rate to the nearest penny, but do not round the underlying calculation.
Variable selling and administrative expenses are estimated to be $8.00 per bat sold. Fixed selling and administrative expenses are expected to total $280,000 each quarter, with $48,000 of the total amount each quarter representing depreciation on the office space, furniture and equipment. Other than depreciation, all selling and administrative expenses are paid for in the quarter incurred.
At the end of the fourth quarter of 2016 the Softball Bat Division plans to buy new machinery and equipment for $1,500,000. The new machinery and equipment will be acquired at the very end of the year, so it will not be used in production and sales during the coming year and it will not be depreciated until the following year. The Softball Bat Division expects to pay 30% down and finance the remaining 70% of the equipment cost with a note payable secured by the new equipment. No interest payable will accrue on the note payable until after December 31, 2016.
Softball Bat Division will pay quarterly dividends of $40,000 to its corporate parent, Bamboo Bat Company.
Bamboo Bat Company would like the Softball Bat Division to maintain a minimum cash balance of $100,000. If after accounting for cash receipts and disbursements (including dividends) in the cash budget, the budgeted cash available cash falls below $100,000 in any quarter, the Softball Division will need to borrow additional cash. The Softball Division has arranged a line of credit (a “revolver”) allowing it to borrow in $10,000 increments. Assume borrowing will take place at the beginning of any quarter in which the available cash would otherwise be below $100,000 so that at no time during the quarter will the cash balance fall below $100,000. The bank charges the Softball Division interest at the rate of 1.25% per quarter (paid at the end of each quarter). If there is excess cash available, it should be used to pay down the revolver (again, in $10,000 increments).
Bamboo Bat Company
The budgeted balance sheet for the Softball Bat Division on December 31, 2015 (which is the same as the budgeted balance sheet at the beginning of business January 1, 2016) is presented below. The Bamboo Bat Company owns 100% of the Capital Stock of the Softball Bat Division.
SOFTBALL BAT DIVISION – BAMBOO BAT COMPANY
BUDGETED BALANCE SHEET
DECEMBER 31, 2015
ASSETS
LIABILITIES & EQUITY
Cash
$ 120,000
Accounts Payable
$ 424,000
Accounts Receivable
2,000,000
Notes Payable
0
Raw Material Inventory
368,100
Capital Stock
13,700,000
Plant and Equipment
13,500,000
Retained Earnings
1,864,100
TOTAL ASSETS
$15,988,100
TTL LIAB. & SE
$15,988,100
The budgeted balance sheet for the Softball Bat Division on December 31, 2015 (which is the same as the budgeted balance sheet at the beginning of business January 1, 2016) is presented below. The Bamboo Bat Company owns 100% of the Capital Stock of the Softball Bat Division.
SOFTBALL BAT DIVISION – BAMBOO BAT COMPANY
BUDGETED BALANCE SHEET
DECEMBER 31, 2015
ASSETS
LIABILITIES & EQUITY
Cash
$ 120,000
Accounts Payable
$ 424,000
Accounts Receivable
2,000,000
Notes Payable
0
Raw Material Inventory
368,100
Capital Stock
13,700,000
Plant and Equipment
13,500,000
Retained Earnings
1,864,100
TOTAL ASSETS
$15,988,100
TTL LIAB. & SE
$15,988,100
Explanation / Answer
Direct material Requirement Budget
Direct labour cost budget
Fixed Selling and administrative budget
Sales Budget and Collection from sales First second third fourth Total Quarterly sales (number of bats) 82000 75000 90000 81000 328000 Selling price per bat ($) 80 80 80 80 Sales Revenue ($) 6560000 6000000 7200000 6480000 26240000 Collection from debtors ($) 5608000 6252000 6660000 6804000 25324000 First second third fourth total Quarterly sales 82000 75000 90000 81000 328000 Ending Finished goods as a % of sales of the next quarter 25% 25% 25% Ending Finished goods in number of bats 20500 18750 22500 20000 Production Budget First second third fourth total ending inventory 20500 18750 22500 20000 add: sales 82000 75000 90000 81000 102500 93750 112500 101000 less: beginning inventory 0 -20500 -18750 -22500 Production (number of bats) 102500 73250 93750 78500 348000Direct material Requirement Budget
Production (number of bats) 102500 73250 93750 78500 348000 wood required per bat (ounces) 40 40 40 40 Total quantity of woods required for production (ounces) 4100000 2930000 3750000 3140000 13920000 Direct material Purchase Budget First second third fourth total planned ending inventory of wood (10% of next quarter's production requirement) 293000 375000 314000 360000 1342000 Beginning inventory 409000 293000 375000 314000 Add: required for production 4100000 2930000 3750000 3140000 13920000 4509000 3223000 4125000 3454000 less: ending inventory -293000 -375000 -314000 -360000 Quantity of woods required to purchase (ounces) 4216000 2848000 3811000 3094000 13969000 Cost per ounce ($) 0.90 0.90 0.90 0.90 Total purchase cost ($) 3794400 2563200 3429900 2784600 12572100 Payment of the purchase expenses ($) 2700640 3055680 3083220 3042720 11882260Direct labour cost budget
First second third fourth total Number of bats produced during the quarter 102500 73250 93750 78500 348000 direct labour required to produce one bat 0.80 0.80 0.80 0.80 Total number of DLH required for production 82000 58600 75000 62800 278400 Hourly rate ($) 16 16 16 16 Total direct labour cost incurred and paid in each quarter $) 1312000 937600 1200000 1004800 4454400 Variable Overhead Budget First second third fourth total Total number of DLH required for production 82000 58600 75000 62800 278400 Variable over head cost per DLH ($) 14 14 14 14 Variable Overhead cost incurred and paid ($) 1148000 820400 1050000 879200 3897600 Fixed Manufacturing Overhead First second third fourth total Fixed manufacturing overhead per quarter ($) 540000 540000 540000 540000 2160000 Less: Depreciation ($) -360000 -360000 -360000 -360000 -1440000 Cash Cost of Fixed manufacturing overhead incurred and paid 180000 180000 180000 180000 720000 Predetermined overhead rate for fixed manufacturing overhead (a) Total fixed overhead for the year ($) 2160000 (b) Total direct labour hours required 278400 Predetermined overhead rate(a / b) ($/hour) 7.758621 Variable Selling and administrative expense budget First second third fourth total Number of bats sold 82000 75000 90000 81000 328000 Variable Selling and administrative expense per bat ($) 8 8 8 8 total variable S&A expenses incurred and paid ($) 656000 600000 720000 648000 2624000Fixed Selling and administrative budget
First second third fourth total Fixed Selling and administrative expenses per quarter ($) 280000 280000 280000 280000 1120000 Less: Depreciation ($) -48000 -48000 -48000 -48000 Cash cost of fixed selling and distribution overhead incurred and paid ($) 232000 232000 232000 232000 928000Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.