Mitchell Csuci Computer Project Accounting 300 Fall 2018

Mitchell Csuci Computer Project Accounting 300 Fall 2018

Mitchell CSUCI Computer Project Accounting 300 Fall 2018 Dolphin Corporation was established to manufacture two types of die casts, Gidgets and Widgets. The manufacturing process involves molding the fittings and then smoothing them. The firm was initially capitalized with $600,000 as an S Corporation. The firm purchased equipment for $450,000 with cash of $150,000 and a note payable of $300,000. It also acquired furniture for $150,000 with cash of $60,000 and a note payable of $90,000.

Management is now preparing the master budget for the first year of operations. Sales Budget Management expects to meet established market prices for its die casts of $50 for Gidgets and $40 for Widgets. Sales representatives have estimated that total sales of Gidgets casts will be 4,800 units and sales of Widgets will be 12,000 units. Production Budget Management has expressed a desire to have 1,000 units of Gidgets and 3,000 units of Widgets in ending inventory. Material Acquisition Budget The firm’s industrial engineer has prepared standards that call for 0.6 pounds of material per Gidgets casting and 0.4 pounds per Widgets casting. Both products require the same material. Management also desires to end the period with 1,000 pounds of material in raw materials inventory. The purchasing agent anticipates that the metal can be purchased at an average cost of $6 per pound. Direct Labor Budget The standards for a unit of Gidgets call for 0.5 hours of direct labor in Molding and 0.3 hours in Smoothing. The standards for a unit of Widgets call for 0.4 hours in Molding and 0.2 hours in Smoothing. Management’s anticipated average cost for labor is $16 per hour. Factory Overhead Budget Service Department 1 handles personnel matters. The firm anticipates having 12 factory employees and expects the variable costs to operate the personnel department to average $1,000 per employee. The cost of this department is allocated to other departments on the assumption that there will be three employees in the maintenance department, five employees in the molding department, and four employees in the smoothing department. The personnel department’s fixed costs are estimated to be $18,000 and will be allocated on a lump sum basis at $3,000 to maintenance, $7,000 to molding, and $8,000 to smoothing. The maintenance department is budgeted to make 100 service calls during the period, 60 calls for the molding department and 40 calls for the smoothing department. The maintenance manager estimates that it will cost an average of $150 in variable costs per service call. The fixed costs of $16,200 are thought to benefit the two production departments equally. The molding department is expected to incur $29,000 in variable overhead and $42,000 in fixed overhead. The smoothing department is expected to have $32,000 in variable overhead and $8,000 in fixed overhead. Management has decided to allocate 60% of the fixed overhead cost of molding to Gidgets and 40% to Widgets and split the fixed smoothing costs evenly between the two products. Variable costs will be allocated based on direct labor hours. Selling and Administration Expenses Budget Budgeted selling and administration expenses are $142,000. This includes sales commissions at 10% of sales or $72,000; administration salaries of $30,000; advertising of $6,000; supplies of $2,000, and interest of $32,000. Budgeting Cash Receipts and Disbursements Sales are presumed to be $100,000 in the first quarter; $160,000 in the second quarter; $240,000 in the third quarter; and $220,000 in the fourth quarter. Seventy percent of sales will be paid for in the quarter in which they are made and thirty percent will be paid in the quarter following the sale. Production will be spread uniformly over the year. The firm will pay for materials, supplies, and labor in the quarter the cost is incurred. Utilities will be paid one month after incurred. Half the property tax is paid in the first and third quarters. The first payment for a new company is not made until the third quarter. Sales commissions are paid in the quarter a sale is made. Other selling and administration costs are incurred and paid uniformly. Finally, the firm makes note payments of $30,000 per quarter which consists of $22,000 of principal repayment and $8,000 of interest. Total Costs include depreciation of $48,000; $34,000 for equipment and $14,000 for the furniture. Additional Information Factory Overhead Budget Personnel Maintenance Molding Smoothing Variable Overhead Items Indirect Labor $6,000 $8,000 $9,000 $18,000 Supplies 4,000 3,000 19,000 8,000 Utilities 2,000 1,000 1,000 6,000 Fixed Overhead Items Property Taxes 2,000 4,000 4,000 Utilities 6,000 4,800 10,000 1,600 Depreciation 10,000 4,400 27,800 5,800 Sales by Quarter 1st $100,000 2nd 160,000 3rd 240,000 4th 220,000 Budgeted Selling & Administration Expenses Sales Commissions $72,000 Administrative Salaries 30,000 Advertising 6,000 Supplies 2,000 Interest 32,000 Required prepare the following budgets: 1. Beginning balance sheet 2. Sales budget 3. Production budget in units 4. Materials acquisition budget 5. Direct labor budget 6. Factory overhead budget 7. Cost of goods sold and finished goods budget 8. Budgeted selling and administration expenses 9. Pro forma income statement 10. Budgeted quarterly cash receipts and disbursements 11. Pro forma balance sheet 12. Operating budget for the molding department 13. Operating budget for the smoothing department

Paper For Above instruction

The following paper provides a comprehensive financial planning overview for Dolphin Corporation, a newly established manufacturing firm specializing in die cast products, Gidgets and Widgets. This analysis encompasses the preparation of various budgets integral to effective management and control, including initial balance sheets, sales forecasts, production and materials budgets, labor and overhead allocations, and cash flow projections. These budgets are essential for ensuring that the company’s operational and financial goals are aligned with its strategic objectives.

1. Beginning Balance Sheet

The initial balance sheet reflects Dolphin Corporation’s initial capital structure and asset base. With an initial capital infusion of $600,000, the company purchased equipment valued at $450,000 and furniture worth $150,000. The equipment purchase involved $150,000 cash and a note payable of $300,000, while furniture was acquired through $60,000 cash and a note payable of $90,000. Consequently, total assets include equipment ($450,000), furniture ($150,000), and cash ($390,000), offset by liabilities of notes payable totaling $390,000 and equity of $600,000. The commencement of operations establishes a baseline for subsequent budgetary planning.

2. Sales Budget

Based on market expectations, the sales budget estimates revenue of $50 per Gidgets and $40 per Widgets, with projected unit sales of 4,800 and 12,000 respectively. This results in total sales of $240,000 for Gidgets and $480,000 for Widgets, summing to projected annual sales of $720,000. Seasonal distribution of sales is aligned with quarterly forecasts, emphasizing the importance of buffer stock and inventory management to meet demand fluctuations.

3. Production Budget in Units

The production plan considers anticipated sales, desired ending inventories (1,000 units of each product), and beginning inventories (assumed zero at start). For Gidgets, with expected sales of 4,800 units and ending inventory goals of 1,000 units, production will be 4,800 + 1,000 - beginning inventory, totaling 4,800 units. For Widgets, with projected sales of 12,000 units and ending inventory of 3,000 units, production will be 12,000 + 3,000 - beginning inventory, totaling 12,000 units. This ensures adequate stock levels to meet projected demand throughout the year.

4. Materials Acquisition Budget

The materials budget calculates raw material requirements based on the standard usage per unit (0.6 pounds for Gidgets and 0.4 pounds for Widgets). Total material needed for production is calculated as follows: Gidgets require 4,800 units x 0.6 pounds = 2,880 pounds; Widgets require 12,000 units x 0.4 pounds = 4,800 pounds; total gross requirements are 7,680 pounds. Considering desired ending inventory of 1,000 pounds and beginning inventory of zero, the total purchase requirements are 7,680 + 1,000 = 8,680 pounds. At the cost of $6 per pound, the total budget for materials purchase is $52,080.

5. Direct Labor Budget

The labor budget estimates total hours based on standard labor hours per unit: Gidgets require 0.5 hours in molding and 0.3 in smoothing; Widgets require 0.4 hours in molding and 0.2 in smoothing. Total hours are calculated for production units: Gidgets (4,800 units) and Widgets (12,000 units). Total labor hours are aggregated for each department, and multiplied by the average wage rate of $16 per hour, resulting in total direct labor costs. This confirms labor cost estimates for effective staffing and wage management.

6. Factory Overhead Budget

Factory overhead includes both fixed and variable components allocated to each department based on the number of employees, service calls, and direct labor hours. Variable overhead includes indirect labor, supplies, and utilities, while fixed overhead encompasses property taxes and depreciation. Overhead costs are distributed among departments proportionally, with a lump-sum allocation of personnel costs and specific estimates for maintenance and production overhead. Proper allocation ensures accurate product costing and profit analysis.

7. Cost of Goods Sold and Finished Goods Budget

Cost of goods sold (COGS) is derived from direct materials, labor, and allocated overheads. The production units and costs per unit established earlier feed into inventory and COGS calculations, helping determine gross profit margins. Budgeted finished goods inventory balances at the end of the period, maintaining stock levels aligned with sales projections.

8. Budgeted Selling and Administrative Expenses

Selling and administrative expenses are itemized into sales commissions (10% of sales), salaries, advertising, supplies, and interest payments, totaling $142,000. These expenses are allocated quarterly, reflecting seasonal sales fluctuations and operational expenses, facilitating cash flow management and profitability analysis.

9. Pro Forma Income Statement

The income statement integrates sales, COGS, gross profit, operating expenses, and other income and expenses. Deducting COGS and operating expenses from sales yields net income estimates, assisting management in assessing profitability and making strategic decisions.

10. Budgeted Quarterly Cash Receipts and Disbursements

Cash flow projections account for collections from sales (70% same quarter, 30% following quarter), payments for materials, labor, utilities, taxes, and interest. These projections ensure liquidity management aligns with operational needs, also capturing the impact of financing activities such as loan repayments.

11. Pro Forma Balance Sheet

The projected balance sheet reflects expected assets, liabilities, and equity balances based on operating results and financing activities. It provides a financial snapshot essential for assessing liquidity, solvency, and financial stability at year-end.

12. Operating Budget for the Molding Department

This budget details costs associated with molding operations, including direct labor, variable overhead, fixed overhead allocations, and supplies. It supports operational planning and cost control for the molding process.

13. Operating Budget for the Smoothing Department

Similarly, the smoothing department budget includes labor, overhead, and supplies, enabling managerial oversight of the finishing process and aiding in identifying efficiencies and cost-saving opportunities.

Conclusion

These budgets collectively facilitate comprehensive financial planning for Dolphin Corporation. They enable management to coordinate operations, control costs, forecast cash flows, and evaluate profitability. Properly prepared budgets are crucial for guiding the company's strategic growth and ensuring sustainable financial performance.

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