Shrek and Fiona Company, manufacturer of a single product, is preparing their annual budget for 2021:Requirements:1. Estimate manufacturing costs and operating expensesa. Selling and administrative budget The following are the assumptions to be used:Shrek & Fiona CompanyStatement of Financial PositionAs of December 31, 2020Current AssetsCurrent LiabilitiesCash18,000Accounts Payable (N2)240,000Taxes PayableDividends PayableAccounts Receivable (N1)1,192,00013,200Less: Uncollectible accounts(22,400) 1,169,600500,000753,200InventoriesTotal Current LiabilitiesRaw Materials (12,000 pounds)30,000Finished Goods (4,000 units)140,000170,000Total Current Assets1,357,600Stockholder's EquityCommon Stock (100,000 shares)Retained Earnings500,000Non-current Assets360,400Property, plant, and equipmentLess: Accumulated depreciation320,000Total Stockholder's Equity860,400(64,000)256,000Total Assets1,613,600Total Liabilities and SHE1,613,600N1 2020 3rd quarter sales P2,500,000200,0002020 4th quarter sales P3,100,000992,000P 1,192,000N2 2020 3rd quarter purchases P300,000P75,0002020 4th quarter purchases P330,000165,000240,0001. Estimated unit sales for the first quarter of 2021 is 40,000 units and expected to increase 10% quarterly. Sellingprice fluctuates as follows:Quarter1st2nd3rd4thUnit price64666262Assume that of each quarter's sales: 20% are cash sales while the remaining 80% are credit sales. Shrek & FionaCompany estimates that 60% of credit sales are collected in the quarter of sale with 2% discount, 30% in the quarterof following sale, 9% in the second quarter following sale and 1% are considered as uncollectible. 2. Finished product requires 3 pounds of direct materials at P2.50 per pound. Finished good ending inventory isequal to 10% of the next quarter sales while raw materials ending inventory is equal to 10% of the next quarterproduction needs of materials. First quarter of 2022 sales is expected to be at 50,000 units while raw materialsending is at 13,500 pounds. (Units are rounded to the nearest ones.)3. Each quarter's purchase are paid 50% in that quarter with 5% purchase discount, 25% in the following quarterand the remainder in the second quarter following the purchase.Each finished goods requires 5 direct labor hours with an hourly rate of P4.00 payable on the end of eachmonth.4.5. For Factory overhead budget, use the following cost formula:Indirect laborPO.02 per direct labor worked (same payment scheme with direct labor)P2 per unit producedP48,000 annually, paid at the beginning of the yearIndirect materialInsuranceFactory rentP6,500 per monthUtilitiesP500 per quarter plus PO.50 per unit producedP300 per quarter plus PO.30 per unit produced10% of the PPE cost, annuallyMaintenanceDepreciationAll overhead costs involve cash outlays are paid in the period which they are incurred, insurance cost. Worthy tonote, the company assumes that all indirect materials are used and paid in the month it was purchased.6. Selling and administrative expensesP65,000 annually, paid at the beginning of the year5% of total sales, paid quarterlyAdvertisingCommissionP100,000 per quarter (same payment scheme with direct labor)P5,000 per monthAdmin salariesOffice rent7. Income tax is 30%, paid on the first quarter of the following year.8. For cash budget, assume the following:The company desires to maintain P15,000 minimum cash balanceb. Dividend is declared every end of the 4th quarter of the year P15 per issued and outstanding share and paidevery 2nd quarter of the following yearAt the end of the 2nd quarter, the company plans to purchase P100,000 worth of equipment.d. Any excess cash at the end of the 1t quarter of the year is used to buy long term investments P10,000increments. 3% interest rate is credited to the company's bank account at the quarter's end based onoriginal cost of investmentIn case of deficit, the company borrow from the bank P10,000 increments, payable in one year, 10% interestrate is automatically debited to the company's bank account at the end of every quarter.a.С.е.

Budget: Budget is the future financial plans established by the business entity that reflect the…

Answered: Estimate manufacturing costs and…

Business

Accounting

Estimate manufacturing costs and operating expenses a. Selling and administrative budget

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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