popular with outdoor recreation enthusiasts. The company sells its
product to retailers throughout the northeastern quadrant of the
United States. It is in the process of creating a master budget for
2022 and reports a balance sheet at December 31, 2021 as
follows:
- Endless Mountain Company Manufactures A Single Product That Is Popular With Outdoor Recreation Enthusiasts The Company 1 (47.51 KiB) Viewed 30 times
with various managers across the organization has developed the
following set of assumptions to help create the 2022 budget:
1. The budgeted unit sales are 12,000 units, 37,000 units,
15,000 units, and 25,000 units for quarters 1-4, respectively.
Notice that the company experiences peak sales in the second and
fourth quarters. The budgeted selling price for the year is $32 per
unit. The budgeted unit sales for the first quarter of 2023 is
13,000 units.
2. All sales are on credit. Uncollectible accounts are
negligible and can be ignored. Seventy-five percent of all
credit sales are collected in the quarter of the sale and 25% are
collected in the subsequent quarter.
3. Each quarter’s ending finished goods inventory should equal
15% of the next quarter’s unit sales.
4. Each unit of finished goods requires 3.5 yards of raw
material that costs $3.00 per yard. Each quarter’s ending raw
materials inventory should equal 10% of the next quarter’s
production needs. The estimated ending raw materials inventory on
December 31, 2022 is 5,000 yards.
5. Seventy percent of each quarter’s purchases are paid for in
the quarter of purchase. The remaining 30% of each quarter’s
purchases are paid in the following quarter.
6. Direct laborers are paid $18 an hour and each unit of
finished goods requires 0.25 direct labor-hours to complete. All
direct labor costs are paid in the quarter incurred.
7. The budgeted variable manufacturing overhead per direct
labor-hour is $3.00. The quarterly fixed manufacturing overhead is
$150,000 including $20,000 of depreciation on equipment. The number
of direct labor-hours is used as the allocation base for the
budgeted plantwide overhead rate. All overhead costs (excluding
depreciation) are paid in the quarter incurred.
8. The budgeted variable selling and administrative expense is
$1.25 per unit sold. The fixed selling and administrative expenses
per quarter include advertising ($25,000), executive salaries
($64,000), insurance ($12,000), property tax ($8,000), and
depreciation expense ($8,000). All selling and administrative
expenses (excluding depreciation) are paid in the quarter
incurred.
9. The company plans to maintain a minimum cash balance at the
end of each quarter of $30,000. Assume that any borrowings take
place on the first day of the quarter. To the extent possible, the
company will repay principal and interest on any borrowings on the
last day of the fourth quarter. The company’s lender imposes a
simple interest rate of 3% per quarter on any borrowings.
10. Dividends of $15,000 will be declared and paid in each
quarter.
11. The company uses a last-in, first-out (LIFO) inventory flow
assumption. This means that the most recently purchased raw
materials are the “first-out” to production and the most recently
completed finished goods are the “first-out” to customers.
Required: The company’s CFO has asked you to
prepare the 2022 master budget. To fulfill this request, prepare
the following budget schedules and financial statements.
1. Quarterly sales budget including a schedule of expected cash
collections.
2. Quarterly production budget.
3. Quarterly direct materials budget including a schedule of
expected cash disbursements for purchases of materials.
4. Quarterly direct labor budget.
5. Quarterly manufacturing overhead budget.
6. Ending finished goods inventory budget at December 31,
2022.
7. Quarterly selling and administrative expense budget.
8. Quarterly cash budget.
Endless Mountain Company Balance Sheet December 31, 2021 Assets Current assets: Cash Accounts receivable (net) Raw materials inventory (4,500 yards) Finished goods inventory (1,500 units) Total current assets Plant and equipment: Buildings and equipment Accumulated depreciation Plant and equipment, net Total assets Current liabilities: Accounts payable Stockholders' equity: Common stock Retained earnings Total stockholders' equity Total liabilities and stockholders' equity $ 46,200 260,000 11,250 32,250 900,000 (292,000) Liabilities and Stockholders' Equity $ 419,800 379,900 $ 349,700 608,000 $ 957,700 $ 158,000 799,700 $ 957,700