Make ‘Em Happy Inc. is a toy company that manufactures and sells a single product, the kadoodle. For planning and control purposes they utilize a quarterly master budget, which is usually developed at least six months in advance of the budget year. Their fiscal year end is October 31.
Early in 2013, Katrina Kyle, the Make ‘Em Happy controller, spent some time putting together a sales forecast for the next budget year (Nov. 1, 2013 to Oct. 31, 2014). In April, however, Katrina decided to follow her dream and sail around the world. She left Make ‘Em Happy with minimal notice.
Susan Alexander, the president of Make ‘Em Happy, desperately needing the budget completed, has approached you, a management accounting student, for help in preparing the budget for the coming fiscal year. Your conversations with Susan and your investigations of the company’s records have revealed the following information:
1. Katrina’s sales forecast consisted of these few lines:
For the year ended Oct. 31, 2013: 125,000 units at $19.00 each
For the year ended Oct. 31, 2014: 140,000 units at $19.00 each
For the year ended Oct. 31, 2015: 145,000 units at $19.00 each
2. Because the product is a toy, sales are very seasonal, with 65% of sales taking place in the last quarter of their fiscal year (Aug-Oct) as their customers, primarily retail stores, ramp up for the holiday season. 20% of sales take place in their first quarter, 10% in the second quarter, and 5% in their third quarter.
3. Because sales are seasonal, Make ‘Em Happy must rent an additional storage facility from August to November to house the additional finished toys on hand. The only related cost is a flat $1,500 per month, payable at the beginning of the month.
4. Sales are on a cash and credit basis, with 85% collected during the quarter of the sale, and 15% the following quarter.
5. From previous experience, management has determined that an ending finished goods inventory equal to 10% of the next quarter’s sales is required to meet customer demand. Opening finished goods inventory consists of 2,800 kadoodles.
6. The primary raw material used is a newly designed plastic. Each kadoodle requires 200 g (.2 kg) of plastic (including a wastage allowance), which the company purchases for $25.00 per kg. Make ‘Em Happy finds it necessary to maintain an inventory balance equal to 15% of the following quarter’s production needs of plastic as a precaution against stock-outs. Opening raw materials inventory consists of 798 kg of plastic. Make ‘Em Happy pays for 80% of a quarter’s purchases in the quarter of purchase and 20% in the following quarter.
7. Much of the manufacturing process is done by hand. Employees are paid an average of $27 per hour, including the employer’s portion of employee benefits. All payroll costs are paid in the period in which they are incurred.
Each kadoodle spends a total of 20 minutes in production.
8. Due to the company’s concentration on a single product, manufacturing overhead is allocated based on volume (i.e. the units produced). The variable overhead manufacturing rate is $1.25 per unit, consisting of: Utilities--$0.50; Indirect Materials--$0.25; Plant maintenance--$0.40; and Other--$0.10
9. The fixed manufacturing overhead costs for the entire year are as follows:
Supervisor’s salary 98,400
Depreciation on equipment 80,000
Insurance 28,000
Other 15,000
$ 221,400
• The annual insurance premium is paid at the beginning of October each year.
• All other “cash-related” fixed manufacturing overhead costs are incurred evenly over the year and paid as incurred.
• Make ‘Em Happy uses the straight line method of depreciation.
10. Selling and administrative expenses are known to be a mixed cost; however, there is a lot of uncertainty about the portion that is fixed. Previous year’s experience has provided the following information:
Unit Sales Selling and Admin Cost
Q1 25,000 54,000
Q2 12,500 29,000
Q3 6,250 16,500
Q4 81,250 166,500
These costs are paid in the quarter in which they occur.
11. During the fiscal year ended Oct. 31, 2014, Make ‘Em Happy will be required to make quarterly income tax installment payments of $12,500. Outstanding income taxes from the year ended Oct. 31, 2013 must be paid in January, 2014. Income tax expense is estimated to be 25% of net income. Income taxes for the year ended October 31, 2014, in excess of installment payments, will be paid in January, 2015.
12. Make ‘Em Happy is planning to acquire additional manufacturing equipment for $154,600 cash. 60% of this amount is to be paid in April, 2014, the rest, in May, 2014. The manufacturing overhead costs shown above already include the depreciation on this equipment.
13. Make ‘Em Happy Inc. has a policy of paying dividends at the end of each quarter. The president tells you that the board of directors is planning on continuing their policy of declaring dividends of $8,000 per quarter.
14. Make ‘Em Happy has negotiated with the bank for a line of credit. Amounts can be borrowed in increments of $1,000 at a rate of 6%.
15. A listing of the estimated balances in the company’s ledger accounts as of October 31, 2013.
Cash $ 31,625
Accounts receivable 231,563
Inventory-raw materials 19,950
Inventory-finished goods 40,825
Prepaid insurance 14,000
Capital assets (net) 1,050,000
$ 1,387,963
Accounts payable $ 68,526
Income tax payable 26,200
Capital stock 800,000
Retained earnings 493,237
$ 1,387,963
Hi everyone, I'm doing a master budget for my assignment and all I'm stuck on his the selling and administrative expense budget.
from 15). would prepaid insurance fall into the category? 14,000 a year which is 3,500 quarterly or would it be paid in full for the first quarter of 14,000?
and from 3). rent is 1,500 per month = 4,500 quarterly
I don't know what other information to draw out to do the budget, #10 gives me the previous years selling and admin cost, but I don't know if I'm supposed to use that information to get something else out of it (I'm thinking of using the high-low method to get the selling and admin. variable cost per unit?). Can anyone help? Much appreciated.
Note: everything is quarterly
Early in 2013, Katrina Kyle, the Make ‘Em Happy controller, spent some time putting together a sales forecast for the next budget year (Nov. 1, 2013 to Oct. 31, 2014). In April, however, Katrina decided to follow her dream and sail around the world. She left Make ‘Em Happy with minimal notice.
Susan Alexander, the president of Make ‘Em Happy, desperately needing the budget completed, has approached you, a management accounting student, for help in preparing the budget for the coming fiscal year. Your conversations with Susan and your investigations of the company’s records have revealed the following information:
1. Katrina’s sales forecast consisted of these few lines:
For the year ended Oct. 31, 2013: 125,000 units at $19.00 each
For the year ended Oct. 31, 2014: 140,000 units at $19.00 each
For the year ended Oct. 31, 2015: 145,000 units at $19.00 each
2. Because the product is a toy, sales are very seasonal, with 65% of sales taking place in the last quarter of their fiscal year (Aug-Oct) as their customers, primarily retail stores, ramp up for the holiday season. 20% of sales take place in their first quarter, 10% in the second quarter, and 5% in their third quarter.
3. Because sales are seasonal, Make ‘Em Happy must rent an additional storage facility from August to November to house the additional finished toys on hand. The only related cost is a flat $1,500 per month, payable at the beginning of the month.
4. Sales are on a cash and credit basis, with 85% collected during the quarter of the sale, and 15% the following quarter.
5. From previous experience, management has determined that an ending finished goods inventory equal to 10% of the next quarter’s sales is required to meet customer demand. Opening finished goods inventory consists of 2,800 kadoodles.
6. The primary raw material used is a newly designed plastic. Each kadoodle requires 200 g (.2 kg) of plastic (including a wastage allowance), which the company purchases for $25.00 per kg. Make ‘Em Happy finds it necessary to maintain an inventory balance equal to 15% of the following quarter’s production needs of plastic as a precaution against stock-outs. Opening raw materials inventory consists of 798 kg of plastic. Make ‘Em Happy pays for 80% of a quarter’s purchases in the quarter of purchase and 20% in the following quarter.
7. Much of the manufacturing process is done by hand. Employees are paid an average of $27 per hour, including the employer’s portion of employee benefits. All payroll costs are paid in the period in which they are incurred.
Each kadoodle spends a total of 20 minutes in production.
8. Due to the company’s concentration on a single product, manufacturing overhead is allocated based on volume (i.e. the units produced). The variable overhead manufacturing rate is $1.25 per unit, consisting of: Utilities--$0.50; Indirect Materials--$0.25; Plant maintenance--$0.40; and Other--$0.10
9. The fixed manufacturing overhead costs for the entire year are as follows:
Supervisor’s salary 98,400
Depreciation on equipment 80,000
Insurance 28,000
Other 15,000
$ 221,400
• The annual insurance premium is paid at the beginning of October each year.
• All other “cash-related” fixed manufacturing overhead costs are incurred evenly over the year and paid as incurred.
• Make ‘Em Happy uses the straight line method of depreciation.
10. Selling and administrative expenses are known to be a mixed cost; however, there is a lot of uncertainty about the portion that is fixed. Previous year’s experience has provided the following information:
Unit Sales Selling and Admin Cost
Q1 25,000 54,000
Q2 12,500 29,000
Q3 6,250 16,500
Q4 81,250 166,500
These costs are paid in the quarter in which they occur.
11. During the fiscal year ended Oct. 31, 2014, Make ‘Em Happy will be required to make quarterly income tax installment payments of $12,500. Outstanding income taxes from the year ended Oct. 31, 2013 must be paid in January, 2014. Income tax expense is estimated to be 25% of net income. Income taxes for the year ended October 31, 2014, in excess of installment payments, will be paid in January, 2015.
12. Make ‘Em Happy is planning to acquire additional manufacturing equipment for $154,600 cash. 60% of this amount is to be paid in April, 2014, the rest, in May, 2014. The manufacturing overhead costs shown above already include the depreciation on this equipment.
13. Make ‘Em Happy Inc. has a policy of paying dividends at the end of each quarter. The president tells you that the board of directors is planning on continuing their policy of declaring dividends of $8,000 per quarter.
14. Make ‘Em Happy has negotiated with the bank for a line of credit. Amounts can be borrowed in increments of $1,000 at a rate of 6%.
15. A listing of the estimated balances in the company’s ledger accounts as of October 31, 2013.
Cash $ 31,625
Accounts receivable 231,563
Inventory-raw materials 19,950
Inventory-finished goods 40,825
Prepaid insurance 14,000
Capital assets (net) 1,050,000
$ 1,387,963
Accounts payable $ 68,526
Income tax payable 26,200
Capital stock 800,000
Retained earnings 493,237
$ 1,387,963
Hi everyone, I'm doing a master budget for my assignment and all I'm stuck on his the selling and administrative expense budget.
from 15). would prepaid insurance fall into the category? 14,000 a year which is 3,500 quarterly or would it be paid in full for the first quarter of 14,000?
and from 3). rent is 1,500 per month = 4,500 quarterly
I don't know what other information to draw out to do the budget, #10 gives me the previous years selling and admin cost, but I don't know if I'm supposed to use that information to get something else out of it (I'm thinking of using the high-low method to get the selling and admin. variable cost per unit?). Can anyone help? Much appreciated.
Note: everything is quarterly
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