Assignment 2 comm 305

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School

Concordia University *

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COMM 305

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Accounting

Date

Apr 3, 2024

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docx

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Uploaded by SuperHumanMusic12261

0.23 Rachel Janet is preparing the 2024 budget for one of BestKayak’s roto-moulded kayaks. Extensive meetings with members of the sales department and executive team have resulted in the following unit sales projections for 2024. Ja n Fe b Ma r Ap r Ma y Jun Jul Au g Se p Oc t No v Dec 42 1 49 2 76 6 81 5 986 115 0 130 8 102 5 51 0 46 5 364 106 2 Selling price is $586. For promotion activities, BestKayak’s gives a 10% discount on selling price in September and December. All sales are on credit. The company expects that it can collect 20% of sales in the month of sales, 50% of sales in the next month, and the remaining 30% in second month. Sales in November 2023 totaled to 250 units at the selling price of $586 and in December 2023 to 1000 units at the 10% discount selling price. BestKayaks’ policy is to have finished goods ending inventory in a month equal to 20% of the next month’s anticipated sales. This policy also applied to ending inventory of finished goods on December 31, 2023. Preliminary sales projections for 2025 are 550 units for January and 420 for February. Production of each kayak requires 47 kg of polyethylene powder and one finishing kit (rope, seat, hardware, etc.). Company policy is that the ending inventory of polyethylene powder should be 23% of the amount needed for production in the next month. Further, BestKayaks’ policy is to always keep 46 finishing kits as ending inventory. This means for example that the ending inventory of finishing kits is 46 units on December 31, 2023. The polyethylene powder used in these kayaks cost $1 per kilogram, and the finishing kits cost $161 each. Production of a single kayak requires 2 hours of time by more experienced, type I employees and 3 hours of finishing time by type II employees. Direct labour costs for type I employees are $15 per hour and $12 per hour for type II employees. BestKayak expects variable manufacturing overhead costs to fluctuate with the production volume based on the following rates per type II employees direct labour hours:

 Indirect materials : $1 per type II employees direct labour hour  Indirect labour : $1.40 per type II employees direct labour hour  Utilities : $0.50 per type II employees direct labour hour  Maintenance : $0.20 per type II employees direct labour hour In addition, BestKayak expects the following fixed manufacturing overhead to occur each month:  Supervisory salaries: $18999  Depreciation: $3895  Property taxes and insurance: $7984  Maintenance: $5492 The Company uses machine hours of type II employees to allocate manufacturing overhead. The predetermined manufacturing overhead is calculated based on annual estimates. Variable selling and administrative expenses for this line are expected to be 4% of sales for sales commissions and $10 per unit for freight out. In addition, monthly fixed selling and administrative expenses are estimated to be as follows:  Advertising: $7500  Sales salaries: $17000  Office salaries: $7000  Depreciation: $729  Property taxes and insurance: $1000 BestKayak pays 70% of its direct materials purchases in the month purchased and the remaining 30% in the next month. All other cash-effective costs are paid in the months incurred . Include following additional assumptions in the preparation of the Master Budget: The beginning cash balance is 95000. Ignore income taxes. Assume that the direct materials prices, direct labour rates, variable manufacturing rates, and monthly fixed manufacturing costs remain constant in 2023 and 2024. This means, for example, that you can use the product unit cost

from 2024 to determine the beginning finished goods inventory or the direct materials prices from 2024 to calculate the beginning raw materials inventory. BALANCE SHEET The balance of Property, Plant, and Equipment, net of depreciation is $420000 as of December 31, 2023. Equity: BestKayak finances its operations with common share equity of $600000. It plans to pay out dividends of $120000 in October 2024. Use the following formula to determine the beginning retained earnings balance: Beginning retained earnings = $95000 beginning cash balance + Beginning accounts receivable balance + Beginning finished goods balance + Beginning raw materials balance + $420000 Property, Plant, and Equipment, net of depreciation – Beginning accounts payable balance - $200000 beginning long- term liabilities - $600000 beginning common shares balance. Note that the amount of retained earnings is most likely as decimal number – do not round it in your Excel sheet. Long-term liabilities : BestKayak finances its operations with an interest-bearing long-term loan of $200,000 . An interest expense of 8% per annum is expected for the long-term loan, which is paid monthly. Note that the interest expense for the long-term loan is included in the financing section of the cash budget. BestKayak plans to pay back 10% of its long-term loan in December , if the cash balance allows for it. Short-term financing: In case additional, short-term debt is needed, BestKayak has a line of credit available with its bank at an interest rate of 8% per annum . This potential short-term loan works as follows: The company will borrow and repay in multiples of $5000 from the line of credit. It makes all borrowings f rom the line of credit at the beginning of a month and makes all repayments at the end of a month. It pays interest only on the portion of the short-term loan (line of credit) that is repaid.

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