lOMoAR cPSD| 47720040

A Manufacturing Firm manufactures and sells a product whose peak sales occur in the third quarter.
Management is now preparing detailed budgets for 20x4, the coming year, and has assembled the following
information to assist in the budget preparation:
1) The company’s product selling price is L.E 20 per unit. The marketing department has estimated sales as
follows for the next six quarters.

20x4 Quarters 20x5 Quarters

1 2 3 4 1 2
Budgeted sales in units 10,000 30,000 40,000 20,000 15,000 15,000

2) Sales are collected in the following pattern; 70% of sales are collected in the quarters in which the sales are
made and the remaining 30% are collected in the following quarter. On January 1, 20x4, the company’s
balance sheet showed L.E 90,000 in account receivable, all of which will be collected in the first quarter of
the year. Bad debts are negligible and can be ignored.
3) The company maintains an ending inventory of finished units equal to 20% of the next quarter’s sales. The
requirement was met on December 31,20x3, in that the company had 2,000 units on hand to start the new
year.
4) Fifteen pounds of raw materials are needed to complete one unit of product. The company requires an
ending inventory of raw materials on hand at the end of each quarter equal to 10% of the following quarter’s
production needs of raw materials. This requirement was met on December 31,20x3 in that the company
had 21,000 pounds of raw materials to start the new year.
5) The raw material costs L.E 0.20 per pound. Raw materials purchased are paid for in the following pattern:
50% paid in the quarter the purchases are made, and the remainder is paid in the following quarter. On
January 1, 20x4, the company’s balance sheet showed L.E 25,800 in accounts payable for raw material
purchases, all of which be paid for in the first quarter of the year.
6) Each unit of product requires 0.8 hours of labor time. Estimated direct labor cost per hour is L.E 7.50.
7) Variable overhead is allocated to production using labor hours as the allocation base as follows:
Indirect materials L.E 0.40
Indirect labor L.E 0.75
Fringe benefits L.E 0.25
Payroll taxes L.E 0.10
Utilities L.E 0.15
Maintenance L.E 0.35
Total L.E 2.00
Fixed overhead for each quarter was budgeted at L.E 60,000. Of the fixed overhead amount, L.E 15,000
of each quarter is depreciation. Overhead expenses are paid as incurred.
8) The company’s quarterly budgeted fixed selling and administrative expense are as follows:
Fixed Selling & adm. 20x4 Quarters
OMoARcPSD| 47720040

Expense 1 2 3 4 Total
Advertising L.E20,000 L.E20,000 L.E 20,000 L.E 20,000 L.E 80,000
Executive salaries L.E 55,000 L.E 55,000 L.E 55,000 L.E 55,000 L.E 220,000
Insurance - L.E 1,900 L.E 37,750 - L.E 39,650
Property taxes - - - L.E 18,150 L.E 18,150
Depreciation L.E 10,000 L.E 10,000 L.E 10,000 L.E 10,000 L.E 40,000
Total L.E 85,000 L.E 86,900 L.E 122,750 L.E 103,150 L.E 397,800

9) The only variable selling and administrative expense is sales commission and budgeted at L.E 1.80 per
unit of the budgeted sales. All selling and administrative expenses are paid during the quarter, in cash,
with exception of depreciation.
10) New equipment purchases will be made during each quarter of the budget year for L.E 50,000,
L.E40,000 and L.E 20,000 each for the last two quarters in cash, respectively.
11) The company declares and pays dividends of L.E 8,000 cash each quarter.
12) The company’s balance sheet as of December 31, 20x3 is presented below:
Great Company
Balance sheet
For the year ended December 31, 20x3
Assets
Current Assets:
Cash 42,500
Accounts Receivable 90,000
Raw materials inventory (21,000 pounds) 4,200
Finished Goods inventory (2,000 units) 26,000
Total current assets 162,700
Plant and Equipment:
Land 80,000
Building and Equipment 700,000
Accumulated dep. (292,000)
Plant and Equipment, net 488,000
Total Assets 650,700
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable (Raw Materials 25,800
Stockholders’ Equity:
Common stock, no par 175,000
Retained earnings 449,900
Total Stockholders’ Equity 624,900
Total liabilities & Stockholders’ equity 650,700
13) The company can borrow money from bank at 10% annual interest. All borrowings and all payments are
in multiple of L.E 1,000.
14) The company requires a minimum cash balance of L.E 40,000 at the end of each quarter. Interest is
computed and paid on the principal being repaid only at the time of repayment of principal. The
company wishes to use any excess cash to pay loans off as rapidly as possible.
Required:
Prepare a master budget for the four quarter period ending December 31, including the following
budget and schedules;
1. Operating budget of the company
a. A sales budget by quarter and in total.
b. A schedule of budgeted cash collections by quarter and in total.
c. A production budget
d. A direct material purchase budget.
e. A schedule of budgeted cash payments for purchases by quarter and in total.
f. A direct labor budget.
g. A manufacturing overhead budget.
h. Ending finished goods inventory budget.
i. A selling and administrative budget
j. A budgeted income statement for the four quarter ending December 31, 20x4.
2. Financial budget of the company
a. A cash budget by quarter and in total.
b. A budgeted balance sheet as of December 31, 20x4.