SelfKlin Company is a high-technology organisation that produces Robotic Vacuum. The company is completing its tenth year of operations and is preparing to build its master budget for the coming year (2019). The budget will detail each quarter’s activity and the activity for the year in total. The master budget will be based on the following information: a Fourth-quarter sales for 2018 are 65 000 units. b Unit sales by quarter (for 2019) are projected as follows: First quarter 65 000 Second quarter 70 000 Third quarter 75 000 Fourth quarter 90 000 The selling price is $500 per unit. All sales are credit sales. SelfKlin collects 85% of all sales within the quarter in which they are realised; the other 13% is collected in the following quarter. Allowance for bad debts is 2% of sales. There is no beginning inventory of finished goods. SelfKlin is planning the following ending finished goods inventories for each quarter: First quarter 13 000 units Second quarter 15 000 units Third quarter 20 000 units Fourth quarter 10 000 units c Each vaccum unit uses four hours of direct labour and three units of direct materials. Workers are paid $25 per hour, and one unit of direct materials costs $80. d There are 65 700 units of direct materials in beginning inventory as at 1 January 2019. At the end of each quarter, SelfKlin plans to have 30% of the direct materials needed for next quarter’s unit sales. SelfKlin will end the year with the same amount of direct materials found in this year’s beginning inventory. e SelfKlin buys direct materials on account. Half of the purchases are paid for in the quarter of acquisition and the remaining half are paid for in the following quarter. Wages and salaries are paid on the 15th and 30th of each month. f Fixed overhead totals $1 million each quarter. Of this total, $350 000 represents depreciation. All other fixed expenses are paid for in cash in the quarter incurred. The fixed overhead rate is computed by dividing the year’s total fixed overhead by the year’s budgeted production in units. g Variable overhead is budgeted at $8 per direct labour hour. All variable overhead expenses are paid for in the quarter incurred. h Fixed selling and administrative expenses total $250 000 per quarter, including $50 000 depreciation. i Variable selling and administrative expenses are budgeted at $10 per unit sold. All selling and administrative expenses are paid for in the quarter incurred. j The balance sheet as at 31 December 2018 is as follows: ASSETS Cash $ 250 000 Direct materials inventory 5 256 000 Accounts receivable, net 4 225 000 Plant and equipment, net 33 500 000 Total assets $43 231 000 LIABILITIES AND SHAREHOLDERS’ EQUITY Accounts payable $ 7 248 000* Capital share 27 925 000 Retained earnings 8 058 000 Total liabilities and shareholders’ equity $43 231 000 * For purchase of direct materials only. k SelfKlin will pay quarterly dividends of $300 000. At the end of the fourth quarter, $2 million of equipment will be purchased.
Prepare cash budget, income statement and balance sheet statement