GNOMES INC.
You are the assistant controller for Gnomes Incorporated. After the abysmal failure of their original business plan, Gnomes has found success by selling various styles of terracotta garden gnomes. You have been asked to prepare the master budget for the quarter ended June 30th, 2016. You have assembled the following information:
The garden gnomes sell for $40 each. Recent and forecasted sales (in units) are as follows:
|
January (actual)
|
800
|
|
February (actual)
|
900
|
|
March (actual)
|
1,800
|
|
April
|
2,800
|
|
May
|
3,500
|
|
June
|
4,900
|
|
July
|
3,600
|
|
August
|
2,200
|
|
September
|
1,400
|
Inventories of finished goods on hand at the end of each month are to be equal to 50% of the following months budgeted sales. As of March 31st the company had 1,400 statuettes in inventory.
Each statuette requires two kilograms of clay, which the company purchases for $3 per kilogram. Gnomes keeps an ending inventory of clay at the end of each month equal to 60% of the next month's production needs. As of March 31st the company had 3,780 kilos of clay on hand.
Purchases of raw materials are paid for as follows: 50% in the month of purchase and the remaining 50% in the following month. All sales are on credit, with no discount, and payable within 15 days. The company has found, however, that only 30% of a month's sales are collected by month-end. An additional 50% is collected in the month following, and the remaining 20% is collected in the second month following. Bad debts have been negligible.
Each statuette requires 30 minutes to cast and paint. Employees who make the statuettes are paid $12 per hour and never work overtime (i.e. the company has enough casual workers that they can call in if additional work is required).
Manufacturing overhead includes all the costs of production other than direct materials and direct labour. The variable component is $4 per statuette in production and the fixed component is $10,000 per month (this amount includes depreciation of $3,000 per month on the kilns and moulds). Direct labour hours is used as an allocation base for assigning manufacturing overhead to units produced.
Gnomes' monthly operating expenses are given below:
Variable:
Shipping costs $5 per statuette sold
Fixed:
Wages & salaries $8,000
Utilities 3,000
Insurance expired 1,500
Depreciation 750
Miscellaneous 2,000
All operating expenses are paid during the month in cash, with the exception of the depreciation and insurance expenses. Management has decided to release a new line of zombie themed gnomes. To accommodate the expected increase in demand the company will be purchasing a new kiln in April for $20,000 and some new moulds in May for $10,000. Gnomes declares a dividend of $5,000 on the last day of each quarter which is then paid in the first month of the next quarter.
The balance sheet at March 31st is given below:
|
Assets
|
|
|
Cash
|
|
$ 12,000
|
|
Accounts receivable
|
|
57,600
|
|
Inventory, raw materials
|
|
11,340
|
|
Inventory, finished goods
|
|
26,020
|
|
Unexpired insurance
|
|
13,500
|
|
Fixed assets
|
163,500
|
|
|
Accumulated depreciation
|
(47,000)
|
116,500
|
| Total Assets |
|
$ 236,960 |
|
Liabilities and Shareholders' Equity
|
|
|
Accounts payable, purchases
|
$ 8,430
|
|
Dividends payable
|
5,000
|
|
Capital stock, no par
|
60,000
|
|
Retained earnings
|
163,530
|
|
Total liabilities and shareholders' equity
|
$ 236,960
|
Management of Gnomes requires a minimum ending cash balance each month of $10,000. The company can borrow money from its bank at 12% annual interest. All borrowing must be done at the beginning of a month, and repayments must be made at the end of a month. Repayments of principal must be in round $1,000 amounts. Borrowing is also in round $1,000 amounts. Interest is computed and paid at the end of each quarter on all loans outstanding during the quarter. Round all interest payments to the nearest whole dollar. Compute interest using whole months. The company wishes to use any excess cash to pay loans off as rapidly as possible.
REQUIRED:
1. Prepare a Sales Budget; Production Budget, Direct Materials Budget; Direct Labour Budget; Manufacturing Overhead Budget; and Sales and Administration Budget.
2. Prepare Schedules of Expected Cash Collections and Expected Cash Disbursements for Material as well as a Cash Budget.
3. Prepare a Budgeted Income Statement for the quarter ending June 30th 4.Prepare a Budgeted Balance Sheet at June 30th.
This is an individual assignment. Sharing spreadsheets is cheating and will be reported to the Dean's office.
All schedules and statements should be formatted professionally.
Use excel to do the work. Use cell references and formulas in your schedules.
If you're having difficulty you can always email me a copy of your excel file and I'll point you in the right direction.
Upload your excel file to the dropbox in the Ch 7 Budget Project folder on Moodle prior to midnight on Friday November 4th.
Check Figures:
|
Total cash collections for the quarter
|
$340,400
|
(Expected cash collections)
|
|
Total required production for the quarter (units)
|
11,600
|
(Production)
|
|
Raw materials to be purchased for the quarter (kilos)
|
22,900
|
(Direct materials)
|
|
Ending cash balance
|
$17,610
|
(Cash budget)
|
|
Total cost of goods manufactured for the quarter
|
$215,600
|
|
|
Total assets
|
$370,955
|
(Balance sheet)
|