Fourth quarter sales for 2017 are 55,000 units Unit sales by quarter for 2018 ar

Question

Fourth quarter sales for 2017 are 55,000 units Unit sales by quarter for 2018 are projected as follows: First quarter 65,000 Second quarter 70,000 Third quarter 75,000 Fourth quarter 90,000 The selling price is $400 per unit. All sales are credit sales. Cutting Edge collects 85 percent of all sales within the quarter in which they are realized; the other 15 percent are collected in the following quarter. There are no bad debts. There is no beginning inventory of finished goods. Cutting Edge is planning the following ending finished goods inventories (in units) for each quarter: First quarter 13,000 Second quarter 15,000 Third quarter 20,000 Fourth quarter 10,000 Each mass storage unit uses five hours of direct labor and three units of direct materials. Laborers are paid $10 per hour, and one unit of direct materials costs $80. There are 65,700 units of direct materials in beginning inventory as of January 1, 2018. at the end of each quarter, Cutting Edge plans to have 30 percent of the direct materials needed for next quarter’s unit sales. Cutting Edge will end the year with the same level of direct materials found in this year’s beginning inventory. Cutting Edge buys direct materials on account. Half of the purchases are paid for in the quarter. Wages and salaries are paid on the 15th and 30th of each month. Fixed overhead totals $1 million each quarter. Of this total, $350,000 represents depreciation. All other fixed expenses are paid for in cash in the quarter incurred. The fixed overhead rate is computed by dividing the year’s total fixed overhead by the year’s expected actual units produced. Variable overhead is budgeted at $6 per direct labor hour. All variable overhead expenses are paid for in the quarter incurred. Fixed selling and administrative expenses total $250,000 per quarter, including $50,000 depreciation. Variable selling and administrative expenses are budgeted at $10 per unit sold. All selling and administrative expenses are paid for in the quarter incurred. Cutting Edge will pay quarterly dividends of $300,000. At the end of the fourth quarter, $2,000,000 of equipment will be purchased. Management has set a policy requiring a minimum cash balance of $5,000. An open line of credit is available at a local bank for any borrowing that may be needed during the quarter. All borrowing is done at the beginning of the quarter and all repayments are made at the end of the quarter. Borrowings and repayments must be in multiples of $1,000. Interest is due and paid at the end of each quarter. Cutting Edge makes principle payments when the cash balance exceeds the minimum by at least $1,000. The annual interest rate is 12%.

Selling and Administrative Budget

Ending Finished Goods Budget

Cost of Goods Budget

Cash Budget

Explanation / Answer

Sales Budget 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Total Sales units 65000 70000 75000 90000 300000 Unit selling price 400 400 400 400 400 Total sales 26000000 28000000 30000000 36000000 120000000 Sales Collections 85% collections 22100000 23800000 25500000 30600000 102000000 15% collections 3300000 3900000 4200000 4500000 15900000 Total collections 25400000 27700000 29700000 35100000 117900000 Production Budget(Units) Sales budgeted 65000 70000 75000 90000 300000 Desired Ending finished goods 13000 15000 20000 10000 10000 Total Needed 78000 85000 95000 100000 310000 Less: Beginning finished goods available 0 13000 15000 20000 0 Production reqd. 78000 72000 80000 80000 310000 Direct materials reqd. per unit 3 3 3 3 3 Total direct materials reqd. 234000 216000 240000 240000 930000 Material purchases budget Total direct materials reqd. for prodn. 234000 216000 240000 240000 930000 Desired Ending inventory of direct materials 64800 72000 72000 65700 65700 Total needed 298800 288000 312000 305700 995700 Less: Beginning inv.of materials available 65700 64800 72000 72000 65700 Material purchases reqd. 233100 223200 240000 233700 930000 Cost of materials at $ 80 18648000 17856000 19200000 18696000 74400000 Payment for purchases 1st 50% payment 9324000 8928000 9600000 9348000 37200000 2nd 50% payment 4662000 4464000 4800000 13926000 Total payment for purchases 9324000 13590000 14064000 14148000 51126000 Direct Labor Production budgeted 78000 72000 80000 80000 310000 Direct Labor hrs./unit 5 5 5 5 5 Total Labor hrs. 390000 360000 400000 400000 1550000 Direct labor cost/hr. 10 10 10 10 10 Total direct labor cost 3900000 3600000 4000000 4000000 15500000 Selling & Administrative OH Budget Fixed S&A expenses 250000 250000 250000 250000 1000000 Variable S& A($ 10*sales units) 650000 700000 750000 900000 3000000 Total S& A expenses 900000 950000 1000000 1150000 4000000 Cash Budget Opening Balance 8036000 14536000 21872000 0 Add: Sales collections 25400000 27700000 29700000 35100000 117900000 Total cash available 25400000 35736000 44236000 56972000 117900000 Less: Disbursements: Payment for: Purchases 9324000 13590000 14064000 14148000 51126000 Direct labor 3900000 3600000 4000000 4000000 15500000 Cash S&A expenses 850000 900000 950000 1100000 3800000 Cash Fixed OH 650000 650000 650000 650000 2600000 Cash VOH$ 6*D/L hr. 2340000 2160000 2400000 2400000 9300000 Dividends 300000 300000 300000 300000 1200000 Equipment purchase 2000000 2000000 Total disbursements 17364000 21200000 22364000 24598000 85526000 Surplus/Deficits 8036000 14536000 21872000 32374000 32374000 Add: Borrowings Less: Repayments Less: interest Ending balance 8036000 14536000 21872000 32374000 32374000 Note: Opening balance is not available Cost of Goods Sold Budget Beginning raw materials 5256000 Add: Purchases 74400000 79656000 Less: Ending raw materials 5256000 Raw materials used 74400000 Direct labor 15500000 Fixed OH (incl.Depn.)(4000000/310000*300000) 3870968 VOH 9300000 Cost of goods manufactured 103070968 Less: Cost of finished goods Direct materials 10000*3 30000 Direct labor 10000*5*10 500000 Fixed OH (incl.Depn.)(4000000/310000*10000) 129032 VOH 10000*5*6 300000 959032 Manufacturing Cost of Goods sold 102111935 Add: S& A OH 4000000 Total Cost of Goods sold 106111935

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