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Create master budget, projected financial statements

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PROJECT ONE HARRISON COMPANY BUDGET INSTRUCTIONS

Below you will find the data for Project One. You will be completing budgets and schedules for the firm's first quarter of operations in the year 20XY. Do all schedules and budgets showing the three months of January-March and a Total column, except for the balance sheet. Your budgets and schedules should include the following:

1. Sales budget and Schedule of Sales Cash Collections (Note - for Sales, Production and Direct Materials budgets you may need projections for April and May.)
2. Production budget
3. Direct Materials budget and Schedule of Cash Disbursements for Materials
4. Ending Raw Materials Inventory budget
5. Direct Labor budget and Schedule of Cash Disbursements for Direct Labor
6. Total Fixed and Variable Manufacturing Overhead budget and Schedule of Cash Disbursements for Overhead, and Unit Costs for Overhead
7. Ending Finished Goods Inventory budget
8. Cost Goods Manufactured and Cost of Goods Sold budgets
9. Fixed and Variable Selling and Administrative Expense budget and Schedule of Cash Disbursements for S & A Expenses
10. Schedule of Other Collections and Disbursements not included in budgets or schedules above, or other data in additional data (see below)
11. Cash budget
I suggest you do one month at a time to figure financing needs, repayments of principal, interest and ending cash balance; if financing is needed see additional data on financing.
12. Budgeted Income Statement
You will need to go back and forth between the cash budget and income statement to figure interest expense.
13. Budgeted Balance Sheet for March 31, 20XY
Just show the balance sheet for the end of the quarter not for each month.

Additional Data:
PROJECT ONE HARRISON COMPANY BUDGET INSTRUCTIONS

Below you will find the data for Project One. You will be completing budgets and schedules for the firm's first quarter of operations in the year 20XY. Do all schedules and budgets showing the three months of January-March and a Total column, except for the balance sheet. Your budgets and schedules should include the following:

1. Sales budget and Schedule of Sales Cash Collections (Note - for Sales, Production and Direct Materials budgets you may need projections for April and May.)
2. Production budget
3. Direct Materials budget and Schedule of Cash Disbursements for Materials
4. Ending Raw Materials Inventory budget
5. Direct Labor budget and Schedule of Cash Disbursements for Direct Labor
6. Total Fixed and Variable Manufacturing Overhead budget and Schedule of Cash Disbursements for Overhead, and Unit Costs for Overhead
7. Ending Finished Goods Inventory budget
8. Cost Goods Manufactured and Cost of Goods Sold budgets
9. Fixed and Variable Selling and Administrative Expense budget and Schedule of Cash Disbursements for S & A Expenses
10. Schedule of Other Collections and Disbursements not included in budgets or schedules above, or other data in additional data (see below)
11. Cash budget
I suggest you do one month at a time to figure financing needs, repayments of principal, interest and ending cash balance; if financing is needed see additional data on financing.
12. Budgeted Income Statement
You will need to go back and forth between the cash budget and income statement to figure interest expense.
13. Budgeted Balance Sheet for March 31, 20XY
Just show the balance sheet for the end of the quarter not for each month.

Additional Data:

? The firm will sell fully depreciated equipment for a $5,000 (thus a gain of $5,000 as well as a cash flow); the equipment originally cost $50,000.
? The firm will acquire new equipment at the end of March for $100,000.00.
? The firm has a line of credit with the bank to finance deficits in cash flow. It can borrow in increments of $10,000. Borrowing is always made at the end of the month in which money is needed. It must pay any interest due at the end of each month. The bank accrues 12% annual interest (1% interest per month). Repayments of any loans are made at the end of the month and can be any amount for which the firm has excess cash; but the firm must maintain a minimum cash balance of $50,000.00.
? Note - interest and income tax expense will have to be computed each month, before moving to the next month. Interest will have to be computed in doing the cash budget, and taxes when doing the income statement.

? The firm will sell fully depreciated equipment for a $5,000 (thus a gain of $5,000 as well as a cash flow); the equipment originally cost $50,000.
? The firm will acquire new equipment at the end of March for $100,000.00.
? The firm has a line of credit with the bank to finance deficits in cash flow. It can borrow in increments of $10,000. Borrowing is always made at the end of the month in which money is needed. It must pay any interest due at the end of each month. The bank accrues 12% annual interest (1% interest per month). Repayments of any loans are made at the end of the month and can be any amount for which the firm has excess cash; but the firm must maintain a minimum cash balance of $50,000.00.
? Note - interest and income tax expense will have to be computed each month, before moving to the next month. Interest will have to be computed in doing the cash budget, and taxes when doing the income statement.

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Solution Summary

This solution has a tab in excel for each of the part of a master budget (sales, production, labor, overhead, SG&A) and then creates expected financial statements. The activity is also posted to the trial balance to show where the financial statement amounts came from.

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1. Williams, Inc. currently sells 20,000 units of its product per year for $200 each. Variable costs total $75 per unit. Williams' manager believes that if a new machine is leased for $250,000 per year, modifications can be made to the product that will increase its retail value. These modifications will increase variable costs by $50 per unit, but Williams is hoping to sell the modified units for $275 each.
a. Should Williams modify the units or sell them as is? How much will the decision affect profit?
b. What is the least Williams could charge for the modified units to make it worthwhile to modify them?
c. The leasing company is willing to negotiate the price of the machine lease. What is the most Williams would be willing to pay to lease the machine if they plan to charge $275 for the modified units?

2. Minner Corp produces three products, and is currently short on machine hours since one of its two machines is down - only 360 hours are available this month. The selling price, costs, labor requirements, and demand of the three products are as follows:

a. In what order should Minner prioritize production of the products?
b. How many of each product should be sold while the machine is down to maximize profit?
c. What is the total contribution margin if Minner prioritizes production according to its limited resources?

3. Pulam, Inc. prepared the following master budget items for July:

During July, Pulam actually sold 30,000 units.

Prepare a flexible budget for Pulam based on actual sales.

4. Irwin Inc. has provided the following information:
Budgeted production = 5,000 units

Calculate the following variances:
a. direct materials price variance
b. direct materials quantity variance
c. direct labor rate variance
d. direct labor efficiency variance
e. variable overhead rate variance
f. variable overhead efficiency variance
g. fixed overhead spending variance

5. Arnold Company has two divisions with the following results:

Arnold Company has a hurdle rate of 12%.
a. Calculate the return on investment for each division.
b. Break each division's return on investment down into its component parts using the DuPont method.
c. Calculate the residual income for each division.

6. Makinen Division of the Palo Company has an opportunity to invest in a new project. The project will yield an incremental operating income of $73,350 on average invested assets of $900,000. Makinen Division currently has operating income of $425,000 on average invested assets of $4,325,000. Palo Company has a 7% hurdle rate for new projects.
a. What is Makinen Division's ROI before making an investment in the project?
b. What is Makinen Division's residual income before making an investment in the project?
c. What is Makinen Division's ROI after making the investment in the project?
d. What is Makinen Division's residual income after making the investment in the project?

7. A firm had the following financial statement items:

1. Calculate the year-to-year percentage change (trend analysis) for each financial statement item.
2. What observations do you note from the results?

8. The following partial income statement is available for the Jennings Corporation:

Prepare a partial common size income statement.

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