: Comprehensive Master Budget

| October 22, 2018

[The
following information applies to the questions displayed below.]

“We
really need to get this new material-handling equipment in operation just
after the new year begins. I hope we can finance it largely with cash and
marketable securities, but if necessary we can get a short-term loan down at
MetroBank.” This statement by Beth Davies-Lowry, president of Intercoastal
Electronics Company, concluded a meeting she had called with the firm’s top
management. Intercoastal is a small, rapidly growing wholesaler of consumer
electronic products. The firm’s main product lines are small kitchen
appliances and power tools. Marcia Wilcox, Intercoastal’s General Manager of
Marketing, has recently completed a sales forecast. She believes the
company’s sales during the first quarter of 20×1 will increase by 10 percent
each month over the previous month’s sales. Then Wilcox expects sales to
remain constant for several months. Intercoastal’s projected balance sheet as
of December 31, 20×0, is as follows:

Cash

$

40000

Accounts receivable

168000

Marketable securities

15000

Inventory

115500

Buildings and
equipment (net of accumulated depreciation)

631000

Total assets

$

969500

Accounts payable

$

154350

Bond interest payable

15000

Property taxes payable

2400

Bonds payable (12%;
due in 20×6)

300000

Common stock

450000

Retained earnings

47750

Total liabilities and
stockholders’ equity

$

969500

Jack
Hanson, the assistant controller, is now preparing a monthly budget for the
first quarter of 20×1. In the process, the following information has been
accumulated:

1.

Projected sales for December of 20×0 are
$300000. Credit sales typically are 70 percent of total sales. Intercoastal’s
credit experience indicates that 20 percent of the credit sales are collected
during the month of sale, and the remainder are collected during the
following month.

2.

Intercoastal’s cost of goods sold generally
runs at 70 percent of sales. Inventory is purchased on account, and 30
percent of each month’s purchases are paid during the month of purchase. The
remainder is paid during the following month. In order to have adequate
stocks of inventory on hand, the firm attempts to have inventory at the end
of each month equal to half of the next month’s projected cost of goods sold.

3.

Hanson
has estimated that Intercoastal’s other monthly expenses will be as follows:

Sales salaries

$

18000

Advertising and
promotion

10000

Administrative
salaries

18000

Depreciation

20000

Interest on bonds

3000

Property taxes

600

In addition, sales commissions run
at the rate of 2 percent of sales.

4.

Intercoastal’s
president, Davies-Lowry, has indicated that the firm should invest $115000 in
an automated inventory-handling system to control the movement of inventory
in the firm’s warehouse just after the new year begins. These equipment
purchases will be financed primarily from the firm’s cash and marketable
securities. However, Davies-Lowry believes that Intercoastal needs to keep a
minimum cash balance of $20000. If necessary, the remainder of the equipment
purchases will be financed using short-term credit from a local bank. The
minimum period for such a loan is three months. Hanson believes short-term
interest rates will be 10 percent per year at the time of the equipment
purchases. If a loan is necessary, Davies-Lowry has decided it should be paid
off by the end of the first quarter if possible.

5.

Intercoastal’s
board of directors has indicated an intention to declare and pay dividends of
$20000 on the last day of each quarter.

6.

The
interest on any short-term borrowing will be paid when the loan is repaid.
Interest on Intercoastal’s bonds is paid semiannually on January 31 and July
31 for the preceding six-month period.

7.

Property taxes are paid
semiannually on February 28 and August 31 for the preceding six-month period.

1.
value:
4 points

Required:

Prepare
Intercoastal Electronics Company’s master budget for the first quarter of
20×1 by completing the following schedules and statements.

1.

Sales budget (Round your answers to the nearest dollar amount.):

20×0

20×1

December

January

February

March

1st Quarter

Total sales

$

$

$

$

$

Cash sales

Sales on account

2.
value:
4 points

2.

Cash receipts budget:

20×1

January

February

March

1st Quarter

Cash sales

$

$

$

$

Cash collections from
credit sales
made during current month

Cash collections from
credit sales
made during preceding month

Total cash receipts

$

$

$

$

3.
value:
4 points

3.

Purchases budget:

20×0

20×1

December

January

February

March

1st Quarter

Budgeted cost of
goods sold

$

$

$

$

$

Add: Desired
ending inventory

Total goods needed

$

$

$

$

$

Less: Expected
beginning inventory

Purchases

$

$

$

$

$

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4.value:
5 points

The following data are the actual
results for Marvelous Marshmallow Company for October.

Actual output

9000

cases

Actual variable
overhead

$

418000

Actual fixed overhead

$

124000

Actual machine time

39400

machine hours

Standard cost and budget
information for Marvelous Marshmallow Company follows:

Standard
variable-overhead rate

$

10.00

per
machine hour

Standard quantity of
machine hours

4

hours per case of
marshmallows

Budgeted fixed
overhead

$

120000

per month

Budgeted output

10000

cases per month

Required:

Use the variance formulas to compute the
following variances. Indicate whether each variance is favourable or
unfavourable.(Select
“None” for no effect (i.e., zero variance). Do not round your
intermediate calculations. Input all amounts as positive values.)

Variable-overhead
spending variance

$

Variable-overhead
efficiency variance

$

Fixed-overhead budget
variance

$

Fixed-overhead volume
variance

$

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