Budgeting Assignment(2).docx
Grant Ltd Grant Ltd operates at capacity and makes glass-topped dining tables. At the end of 2018, Grant Ltd.’s management accountant gathered the following data to prepare budgets for the first six months 2019: 1. Units sales per quarter and the selling price per unit are estimated as follows: Unit sales Price per unit January 2,500 $450 February 2,800 $450 March 2,750 $480 April 2,750 $480 May 2,800 $500 June 2,800 $500 July 3,000 $500 August 3,000 $500 Sales on November 2018 were 2,200 units and on December 2,400 units at a selling price of $450. 20% of sales are cash sales and 80% are credit sales. From past experience, Grant Ltd collected 40% of credit sales within the month of sale, 30% in the following month and 25% in two months after the month of sale. Allowance for doubtful debts is 5% of credit sales (uncollectible). 2. The beginning inventories (BI) on 1 January 2019 and the desired ending inventories (EI) at the end of each month are as follows: BI (1/1/19) EI (end of each month) Tables:500 (at $210/unit) 20% of following month estimated sales Wood: 1,400 b.m. 25% b.m. needed for next month’s budgeted production (units) Glass 500 sheets 20% sheets needed for next month’s budgeted production (units) 3. Materials and labour requirements Direct materials: Wood: 2 board meters (b.m.) per table Glass: 1 sheet per table Direct manufacturing labour: 4 hours per table 4. Costs of direct materials and labour: Wood: $16 per b.m. Glass: $22 per sheet Direct labour: $20 per labour-hour 5. Direct materials are purchased in the month of production and are paid 50% in the month of purchase and 50% in the following month. Wages and salaries are paid monthly. 6. Variable manufacturing overhead is $28 per direct manufacturing labour-hour. There is also $209,000 in fixed manufacturing overhead costs per month. Fixed costs include $40,000 depreciation of factory equipment. The fixed manufacturing overhead rate is based on the number of units produced budgeted every six months, at the beginning of each semester, calculated dividing the budgeted fixed overhead costs by the budgeted number of units produced for the semester. Variable and fixed costs are paid in the month incurred. 7. Sales commissions are paid monthly at the rate of 10% of month’s sales revenue. There is $160,000 in fixed non-manufacturing costs (administrative expenses) budgeted per month including $20,000 depreciation costs of office equipment. Variable and fixed non-manufacturing costs are paid in the month incurred. 8. Grant Ltd has estimated the following payments in the first semester 2019: January: Loan for $40,000 plus interest payable at 31 December 2018 for $2,000 were paid on 2 January 2019. March: Dividends $100,000 May: Purchase of land $200,000 June: Purchase of equipment for $300,000 9. Grant Ltd maintain a 18% open line of credit for $80,000. Interests are paid at the end of each month. Grant Ltd maintains a minimum cash balance of $20,000. The company borrows on the first day of the month and repays loans on the last day of the month, both in multiples of $1,000. 10. Grant Ltd’s balance sheet at 31 December 2018 is as follows: ASSETS LIABILITIES Cash 32,000 Accounts payable (*) 64,000 Accounts receivable, net 673,200 Interest payable 2,000 Inventory: Wood 22,400 Loan payable 40,000 Inventory: Glass 11,000 SHAREHOLDER’S EQUITY Inventory: Finished goods 150,000 Share capital 846,600 Plant and equipment, net 450,000 Retained earnings 386,000 Total assets 1,338,600 Total Liabilities and Shareholder’s equity 1,338,600 (*): Accounts payable are 50% of direct materials purchased on December 2018. Required: Prepare a monthly master budget for Grant Ltd.’s for the first semester 2019. The following component budgets must be included: 1. Sales revenue budget 2. Production budget (in units) 3. Direct materials usage and purchases budget for each direct materials and total direct materials (in units and dollars) 4. Direct manufacturing labour budget 5. Manufacturing overhead budget 6. Manufacturing overhead rate for the semester 7. Ending finished goods inventory budget (unit cost and total cost) at June 2019. 8. Selling and administrative expenses budget 9. Cash budget 10. Cost of goods sold at 30 June 2019 11. Budgeted income statement for the first semester 2019 12. Budgeted balance sheet as of 30 June 2019 (including separately the two direct materials inventory) Note. There is no beginning and ending balance of WIP in each month. END OF ASSIGNMENT 1