Randy’s Kayaks, Inc. manufactures and sells one person fiberglass kayaks. Randy’s balance sheet at the end of 2011was as follows:
RANDY’S KAYAKS, INC.
Balance Sheet
December 31, 2011
ASSETS
Cash $ 52,000
Accounts receivable 1,200,000
Raw materials inventory* 120,000
Finished goods inventory** 287,500
Plant assets, net of accumulated
Depreciation 2,135,000
Total Assets $ 3,794,500
LIABILITIES
Accounts payable $ 131,000
STOCKHOLDERS’EQUITY Common Stock 1,600,000
Retained Earnings 2,063,500
Total Liabilities & SE $ 3,794,500
use in preparing the budget for 2012:
*40,000 pounds **1,000 kayaks
The following additional data is available for use in preparing the budget for 2012:
Cash collections (all sales are on account):
Collected in the quarter of sale 40%
Collected in the quarter after sale 60%
(Bad debts are negligible and can be ignored)
Cash disbursements for raw materials (all purchases are on account):
Cash paid in the quarter of purchase 70%
Cash paid in the quarter after purchase 30%
Desired quarterly ending Raw materials inventory 40% of next quarter’s production needs.
Desired quarterly ending Finished goods inventory 10% of next quarter’s sales
Budgeted sales:
1st quarter 2012 10,000 kayaks
2nd quarter 2012 15,000 kayaks
3rd quarter 2012 16,000 kayaks
4th quarter 2012 14,000 kayaks
1st quarter 2013 10,000 kayaks
2nd quarter 2013 12,000 kayaks
Anticipated equipment purchases:
1st quarter 2012 $30,000
2nd quarter 2012 $0
3rd quarter 2012 $0
4th quarter 2012 $150,000
Quarterly dividends to be paid each quarter in 2012 $4,000
Expected sales price per unit $400
Standard cost data:
Direct materials 10 pounds per kayak @ $3 per pound
Direct labor 10 hours per kayak @ $20 per hour
Variable manufacturing overhead $5 per direct labor hour
Fixed manufacturing overhead (includes $9,000 depreciation) $103,125 per quarter
Variable selling expenses $25 per kayak
Fixed selling and administrative expenses:
Insurance $45,000 per quarter
Sales salaries $30,000 per quarter
Depreciation $6,000 per quarter
Income tax rate 30%
Estimated income tax payments planned in 2012:
1st quarter $0
2nd quarter $50,000
3rd quarter $400,000
4th quarter $500,000
Randy’s desires to have a minimum cash balance at the end of each quarter of $50,000. In order to maintain this minimum balance, Randy’s may borrow from its bank in $10,000 increments with an interest rate of 6%. Money is borrowed at the beginning of the quarter in which a shortage is expected. Repayments of all or a portion of the principle (plus accrued interest on the amount being repaid) are made at the end of any quarter in which the cash balance exceeds the required minimum.
Requirements:
1.Use the above information to prepare the following components of the master budget:
a. Sales budget with a schedule of expected cash collections for each quarter and the year as a whole
b. Production budget for each quarter and the year as a whole
c. Direct materials purchases budget with a schedule of expected cash disbursements for materials for
i. each quarter and the year as a whole
d. Direct labor budget for each quarter and the year as a whole
e. Manufacturing overhead budget with expected cash disbursements for each quarter and the year as
i. a whole
f. Ending finished goods inventory budget for the year
g. Selling and administrative expense budget with expected cash disbursements for each quarter and
i. the year as a whole
h. Cash budget for each quarter and the year as a whole
i. Budgeted income statement for the year
j. Budgeted balance sheet for the end of the year
2.Prepare a brief memo to management with specific comments and/or recommendations relating to the budget.