ABC produces Goods for resale at throughout America. The company is currently in the process of establishing a master budget on a quarterly basis for this coming fiscal year, which ends December 31. Prior year quarterly sales were as follows; First quarter 14,000 units Second quarter 6,000 units Third quarter 8,000 units Fourth quarter 4,000 units Unit sales are expected to increase 20 percent, and each unit is expected to sell for $1. The management prefers to maintain ending finished goods inventory equal to 10 percent of next quarter’s sales. Assume finished goods inventory at the end of the fourth quarter budget period is estimated to be 2,000 units. The beginning inventory was 1000 units. Direct Materials Purchases Budget Information Each unit of product requires 1.5 pounds of direct materials per unit, and the cost of direct materials is $1 per pound. Management prefers to maintain ending raw materials inventory equal to 30 percent of next quarter’s materials needed in production. Assume raw materials inventory at the end of the fourth quarter budget period is estimated to be 1,000 pounds. The beginning inventory was 2000 pounds Direct Labor Budget Information Each unit of product requires 0.1 direct Labor hours at a cost of $1 per hour. Manufacturing Overhead Budget Information Variable overhead costs are: Indirect materials $0.10 per unit Indirect Labor $0.5 per unit Other $0.15 per unit Fixed overhead costs each quarter are: Salaries $8,000 Rent $2,000 Depreciation $6,000 All sales are on credit. The company expects to collect 70 percent of sales in the quarter of sale, 25 percent of sales in the quarter following the sale, and 5 percent will not be collected (bad debt). Accounts receivable at the end of last year totalled $200,000, all of which will be collected in the first quarter of this coming year. All direct materials purchases are on credit. The company expects to pay 80 percent of purchases in the quarter of purchase and 20 percent the following quarter. Accounts payable at the end of last year totalled $50,000, all of which will be paid in the first quarter of this coming year. The cash balance at the end of last year totalled $20,000. Required: 1. Prepare a sales budget for ABC. 2. Prepare a production budget for ABC. 3. Prepare a direct materials purchases budget for ABC. 4. Prepare a direct Labor budget for ABC. 5. Prepare a manufacturing overhead budget for ABC 6. Prepare a cash budget for ABC.
Master Budget
A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.
Sales Budget and Selling
A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.
ABC produces Goods for resale at throughout America. The company is currently in the process of
establishing a
year quarterly sales were as follows;
First quarter 14,000 units
Second quarter 6,000 units
Third quarter 8,000 units
Fourth quarter 4,000 units
Unit sales are expected to increase 20 percent, and each unit is expected to sell for $1. The management prefers to
maintain ending finished goods inventory equal to 10 percent of next quarter’s sales. Assume finished goods
inventory at the end of the fourth quarter budget period is estimated to be 2,000 units. The beginning inventory was
1000 units.
Direct Materials Purchases Budget Information
Each unit of product requires 1.5 pounds of direct materials per unit, and the cost of direct materials is $1 per pound.
Management prefers to maintain ending raw materials inventory equal to 30 percent of next quarter’s materials
needed in production. Assume raw materials inventory at the end of the fourth quarter budget period is estimated to
be 1,000 pounds. The beginning inventory was 2000 pounds
Direct Labor Budget Information
Each unit of product requires 0.1 direct Labor hours at a cost of $1 per hour.
Manufacturing
Variable overhead costs are:
Indirect materials $0.10 per unit
Indirect Labor $0.5 per unit
Other $0.15 per unit
Fixed overhead costs each quarter are:
Salaries $8,000
Rent $2,000
All sales are on credit. The company expects to collect 70 percent of sales in the quarter of sale, 25 percent of sales
in the quarter following the sale, and 5 percent will not be collected (
last year totalled $200,000, all of which will be collected in the first quarter of this coming year.
All direct materials purchases are on credit. The company expects to pay 80 percent of purchases in the quarter of
purchase and 20 percent the following quarter. Accounts payable at the end of last year totalled $50,000, all of
which will be paid in the first quarter of this coming year.
The cash balance at the end of last year totalled $20,000.
Required:
1. Prepare a sales budget for ABC.
2. Prepare a production budget for ABC.
3. Prepare a direct materials purchases budget for ABC.
4. Prepare a direct Labor budget for ABC.
5. Prepare a manufacturing overhead budget for ABC
6. Prepare a cash budget for ABC.
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