10.38 Assumptions and Master Budget for Unique Sinks
INPUT SECTION–BUDGET ASSUMPTIONSRevenue Budget
Quarter
FirstSecondThirdFourth
Revenue Assumptions:Quarter
Forecasted housing starts (local area)6,00024,0007,0002,000First
Average number of sinks per house3.02.93.03.1Second
Market share35%35%35%35%Third
Average selling price per unit$85.00$85.00$85.00$85.00Fourth
Production Cost Assumptions:
Variable Production Costs:
Direct material-Pounds per unit40404040Production Budget (units)
Direct material-Cost per pound$0.50$0.50$0.50$0.50
Direct labor-Hours per unit3333
Direct labor-Cost per hour$12.00$12.00$12.00$12.00Quarter
Desired ending sink inventory as % of next quarter’s sales10%10%10%10%First
Desired ending DM inventory as % of next quarter’s DM requirement10%10%10%10%Second
Variable Production Costs Per Direct Labor Hour:Third
Indirect labor$0.3000$0.3000$0.3000$0.3000Fourth
Supplies$0.2667$0.2667$0.2667$0.2667
Other$0.1000$0.1000$0.1000$0.1000Assuming first quarter sales next year are the same as first quarter this year.
Fixed Production Cost:
Depreciation$9,000$9,000$9,000$9,000
Fixed overhead allocation base: Direct labor hours
Direct Material and Direct Labor Resource Requirements
Selling and Administration Cost Assumptions:
Variable Costs:
Commission as % of revenue10%10%10%10%Quarter
Bad debts as % of revenue2%2%2%2%First
Fixed Costs:Second
Salaries$40,000$40,000$40,000$40,000Third
Depreciation$2,400$2,400$2,400$2,400Fourth
Other$8,300$7,400$9,200$7,300Total
Cash Flow Assumptions:
Revenue Collections:Direct Materials Purchases Budget (Pounds)
During quarter sold66%66%66%66%
During next quarter32%32%32%32%
Direct Material Payments:Quarter
During quarter purchased66.6667%66.6667%66.6667%66.6667%First
During next quarter33.3333%33.3333%33.3333%33.3333%Second
Current Year Income Tax–Estimated Payments$0$80,000$40,000$40,000Third
All other costs paid as incurredFourth
Dividends Declared & Paid$0$0$0$50,000
Short-Term Financing Assumptions:Direct Materials and Direct Labor Budget
Minimum Cash Balance$30,000$30,000$30,000$300,000
Annual Interest Rate for Borrowing8%8%8%8%
Assume no interest earned on cash balancesQuarter
First
Income Statement Assumption:Second
Income Tax Rate30%30%30%30%Third
Fourth
Prior Year Balances Carried Over to Current Year:Total
Assets:
Cash$ 45,820
Raw materials inventory (cost)$ 10,00020,000PoundsManufacturing Overhead Budget
Finished goods inventory (Cost)$ 30,250600Sinks
Accounts receivable$ 118,000
Allowance for bad debts$ (7,378)Variable Overhead Costs
Land, building and equipment$ 912,000Indirect labor
Accumulated depreciation$ (114,000)Supplies
Other
Liabilities and Equity:Total variable costs
Accounts payable (purchases)$ 72,370Fixed Overhead Costs
Income taxes payable$ 7,000Depreciation
Credit Line Loan Payable$ -Total fixed costs
Common stock$ 750,000Total manufacturing overhead
Retained Earnings$ 165,322
Total Fixed Overhead Costs
Total Labor Hours Used in Production
Beginning Balance Sheet Math Check:Fixed Manufacturing Overhead Allocation Rate Per Direct Labor Hour
Total Assets$ 994,692
Total Liab & Equity$ 994,692
Total Production Cost Per Unit
Direct material
Direct labor
Variable overhead
Total Variable Cost Per Unit
Fixed overhead
Total Cost Per Unit
Budgeted Statement of Cost of Goods Manufactured and Sold
Beginning direct materials
Plus purchases
Less ending direct materials
Cost of direct materials used
Cost of direct labor used
Allocated manufacturing overhead
Cost of goods manufactured
Beginning finished goods
Goods available for sale
Less ending finished goods
Cost of goods sold
Selling and Administration Budget
Variable costs
Commissions
Bad debts
Total variable costs
Fixed costs
Salaries
Depreciation
Other
Total fixed costs
Total Selling and Administration Costs
Cash Receipts and Disbursements Budget
Receipts
From current quarter’s sales
From prior quarter (net of bad debts)
Total receipts
Disbursements
For current quarter’s purchases
For prior quarter’s purchases
Direct labor costs
Indirect labor
Supplies
Other production costs
Salaries
Commissions
Other selling & administration costs
Income taxes
Dividends
Total Disbursements
Excess Receipts (Disbursements)
Short-Term Financing Budget
Beginning cash balance
Excess receipts (disbursements)
Line of credit:
Borrowings
Repayments
Interest on borrowing
Ending Cash Balance
Beginning Line of Credit Balance
Ending Line of Credit Balance
Budgeted Statement of Income and Retained Earnings
Sales
Cost of Goods Sold
Gross Margin
Selling and Administration
Operating income
Interest expense
Pretax income
Income taxes
Net Income
Beginning Retained Earnings
Less Dividends
Ending Retained Earnings
Budgeted Balance Sheet
Assets
Cash
Raw materials inventory
Finished goods inventory
Accounts receivable, net
Total Current Assets
Land, building and equipment
Accumulated depreciation
Total Assets
Liabilities and Equity
Accounts payable (purchases)
Income taxes payable
Common stock
Retained Earnings
Total Liabilities and Equity