OPQ Co\'s management asks you to prepare its master budget using the following i

Question

OPQ Co's management asks you to prepare its master budget using the following information. The budget is to cover the months of July, August, and September of 2016. Assets Liabilities and Equity Cash $50,000 Accounts Payable $63,818 Accounts Receivable 175,000 Short-Term Notes Payable 12,000 Raw Materials Inventory 30,798 * Total Current Liabilities $75,818 Finished Goods Inventory 96,600 ** Long-Term Notes Payable 200,000 Total Current Assets $352,398 Total Liabilities 275,818 Equipment 480,000 Common Stock 435,000 Less: Accumulated Depreciation 90,000 Retained Earnings 31,580 Equipment, Net 390,000 Total Stockholder's Equity 466,580 Total Assets $742,398 Total Liabilities and Equity $742,398 *2,425 pounds @$12.70, rounded to nearest whole dollar. **8,400 units @ $11.50 per unit.

Additional Information: a. Sales for June total 10,000 units, Expected sales (in units) are: 10,500 in July, 9,500 in August, 10,000 in September, and 10,500 in October. The product's selling price is $25 per unit. b. Company policy calls for a given month's ending Finished Goods Inventory to equal 80% of the next month's expected unit sales. The June 30's Finished Goods Inventory is 8,400 units, which complies with the policy. The product's manufacturing cost is $11.50 per unit, including per unit cost of $6.35 for materials (0.5lbs @ $12.70 per lb.), $3.75 for Direct Labor (1/4 hr. * $15per Direct Labor rate per hour), $0.90 per Variable Overhead, and $0.50 for Fixed Overhead. Fixed Overhead consists entirely of $5,000 of monthly Depreciation Expense. OPQ policy also calls for a given month's ending Raw Materials Inventory to equal 50% of next month's expected materials needed for production. The June 30 inventory is 2,425 units of materials, which complies with the policy. The company expects to have 2,100 units of materials inventory on September 30. c. Sales representatives' commissions are 12% of sales and are paid in the month of the sales. The sales manager's monthly salary will be $3,500 in July and $4,000 per month thereafter. d. Monthly General and Administrative Expenses include $8,000 Administrative Salaries and 0.9% monthly interest on the Long-Term Notes Payable. e. The company expects 30% of sales to be for cash and the remaining 70% on credit. Receivables are collected in full in the month following the sale (none is collected in the month of the sale). f. All Direct Materials purchases are on credit, and no payables arise from any other transactions. One month's purchases are fully paid in the next month. Materials cost $12.70 per pound. g. The minimum ending Cash balance for all months is $50,000. If necessary, the company borrows enough cash using Short-Term Note to reach the minimum. Short-Term Notes require an interest payment of 1% at each month-end (before any repayment). If the ending Cash balance exceeds the minimum, the excess will be applied to repaying the Short-Term Notes Payable balance. h. Dividends of $100,000 are to be declared and paid in August. OPQ Company Balance Sheet June 30, 2016 Page 1 of 7 Chapter 23 Group Project 40 Points i. No Cash payments for Income Taxes are to be made during July - September. Income Taxes will be assessed at 35% in the said quarter. j. Equipment purchases of $55,000 are scheduled for September Required: Prepare the following budgets and other financial information as required: 1. Sales budget,, including budgeted sales for October. 2. Production budget. 3. Direct Materials Budget. Round costs of materials purchases to the nearest dollar. 4. Direct Labor Budget. 5. Factory Overhead Budget. 6. Selling Expense Budget. 7. General and Administrative Expense Budget. 8. Expected Cash Receipts from customers and the expected September 30 balance of Accounts Receivable. 9. Expected Cash Payments for purchases and the expected September 30 balance of Accounts Payable. 10. Cash Budget. 11. Budgeted Income Statement, Budgeted Statement of Retained Earnings, and Budgeted Balance Sheet.

Explanation / Answer

1) Sales Budget Month July August September October Total forecasted Sale units 10500 9500 10000 10500 40500 Selling price = 25 per unit 262500 237500 250000 262500 1012500 2) Production Budget Month July August September October forecasted Sale units 10500 9500 10000 10500 Add: Ending inventory of finshed goods 7600 8000 8400 = 80 % of next month sales Required units 18100 17500 18400 Less: Beginning Inventory of finished goods 8400 7600 8000 Units to be produced 9700 9900 10400 beginning inventory for July is given at 8400 units ( = closing inventory at june 30) 3) Raw material purchase budget Month July August September Units to be produced 9700 9900 10400 Raw material required = 0.50 lbs per finished unit 4850 4950 5200 Add: Ending Raw material inventory 2475 2600 2100 Required units 7325 7550 7300 Less: Beginning Inventory of raw material 2425 2475 2600 Raw material Units to be purchased 4900 5075 4700 purchase cost = 12.70 per lbs 62230 64453 59690 beginning inventory for July is given at 2425 units ( = closing inventory at june 30) Inventory at end of september has been given at 2100 units 9) Expected cash payments for purchases Month July August September Raw material Units to be purchased 4900 5075 4700 purchase cost = 12.70 per lbs 62230 64453 59690 Amount paid on raw material purchased 63818 62230 64453 = 1 month credit Accounts payable as on end of June will be paid in July Septrmber 30 acounts payable will be reflected by september months purchase amount of 59690

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