Fogle Inc.. sells a single product. which they call a Rattler and utilize a mont
ID: 2582256 • Letter: F
Question
Fogle Inc.. sells a single product. which they call a Rattler and utilize a monthly master budget, developed at least six months in advance of the budget year with the fiscal year ending December 31.
Sales forecast:
. For the year ended December 31, 2007: 475,000 unitS at $10.00 each*
. For the year ended December 31 , 2008: 500,000 unItS at $10.00 each
. For the year ended December 31 , 2009: 500,000 unitS at $10.00 each
*Based on actual sales to date and budgeted sales for the duration of the year.
The Company needing the budget completed, has approached you a management
accounting student and your communications of the company have revealed the
following information:
1. Sales correspond with gift-giving holidays. January, March, May and June are the
slowest months with only 1% of sales for each month. Sales pick up over the
summer with July, August and September each contributing 2% to the total. In
February boosts sales to 5%, and in April accounts for 10%. As the holidays
shopping picks up momentum, winter sales start at 20% in October, move to 25% in
November and then peak at 30% in December. This holiday, sales Is not expected
to change for the next two years.
2. From previous experience, it has been determined that an ending inventory equal to
25% of the next month’s sales is required to fit the buyer’s demands.
3. Because sales are seasonal, the company rents an additional storage facility from
September to December to house the additional inventory on hand with a cost of
$20,000 per month, payable at the beginning of the month.
4. There is only one type of raw material used in the production of Rattlers. Syon is a
very compact material that is purchased in powder form. Each Rattler requires 5
kilograms of Syon, at a cost of $0.45 per kilogram. The supplier of SYON tends to be
somewhat unpredictable so Fogle finds it necessary to preserve an inventory
balance equal to 40% of the following month’s production needs as a safeguard
against stock-outs. Fogle pays for 20% of a month’s purchases in the month of
purchase, 45% in the following month and the residual 35% two months after the
month of purchase. There is no early payment discount.
5. Beginning accounts payable will consist of $216,406.50 arising from the following
estimated direct material purchases for November and December of 2007: SYON purchases in November 2007: $232,875.00 SYON purchases in December 2007 $147563.50
6. FogIes manufacturing process is highly computerized, so their direct labor cost is
low. Employees are paid on a per unit basis. Their total pay each month is,
therefore, dependent on production volumes and averages $8.50 per hour. This rate
already includes the employer’s portion of employee benefits. All payroll costs are
paid in the period in which they are incurred.
Each unit spends a total of 16 minutes in production.
7. Due to the similarity of the equipment ¡n each of the production stages and the
company’s focus on a single manufactured good, manufacturing overhead is
allocated based on volume (i.e. the units produced). The unit variable overhead
manufacturing rate is $1.30, consisting of: Utilities--$0.70; Indirect Materials--$0.20;
Plant maintenance--$0.20; environmental fee--$0.14; and Other--$0.06.
8. The fixed MOH costs for the entire year are as follows
Training and development: $43,200
Property and business taxes: $39,000
Supervisor’s salary: $149,400
Amortization on equipment: $178,800
Insurance: $96,000
Other: $107,600
Total: $614,000
. The property and business taxes are paid on June 30 of each year. The
expected payment for next year is $46,600.
. The annual insurance is paid at the beginning of September each year. There
should be no change in the premium from last year.
. All other “cash-related” fixed manufacturing overhead costs are incurred evenly
over the year and paid as incurred.
. The company uses straight line method of amortization.
9. 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:
Lowest level of sales: 375,000 units Total Operating Expenses: $778,710
Highest level of sales: 750,000 units Total Operating Expenses: $1,022,460
These costs are paid in the month ¡n which they occur. Not included in the above
expenses is bad debt expense.
10. Sales are on a cash and credit basis, with 55% collected during the month of the
sale, 35% the following month, and 9.5% the month thereafter. 1/2 of 1% of sales are
considered uncollectible (bad debt expense).
11. Sales in November and December 2007 are expected to be $700,000 and
$1,500,000 respectively Based Off the above collection this will result in Accounts
Receivable of $734,000 at December 31 , 2007 which will be collected in January and
February, 2008.
12. During the fiscal year ended December 31 , 2008, Fogle will be required to make
monthly income tax installment payments of $5,000. Outstanding income taxes from
the year ended December 31 , 2007 must be paid in April 2008. Income tax expense
is estimated to be 25% of net income. Income taxes for the year ended December
31, 2008, in excess of installment payments, will be paid ¡n April, 2009.
13. Fogle is planning to acquire additional manufacturing equipment for $308,300 cash.
40% of this amount is to be paid in November 2008, the rest, in December 2008.
The manufacturing overhead costs shown above already include the amortization On
this equipment.
14. An arrangement has been made with the local bank that if Fogle maintains a
minimum balance of $22,000 in their bank account, they win be given a line of credit
at a preferred rate of 6% per annum. All borrowing is considered to happen on the
first day of the month, repayments are on the last day of the month. All borrowings
and repayments from the bank should be in multiples of $1,000 and interest must be
paid at the end of each month. Interest is calculated on the balance at the beginning
of the month, which includes any amounts borrowed that month.
15. Fogle 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 poilcy ot
declaring dividends of $48,000 per quarter.
16. A listing of the estimated balances in the company’s ledger accounts as of December
31 , 2007 is given below:
Assets:
Cash: $83,365
Accounts receivable: $734,000
Inventory-raw materials: $9,000
inventory-finished goods: $9,125
Prepaid Insurance: $64,000
Prepaid property and business taxes: $19,200
Capital assets (net): $724,000
Total assets: $1,642,690
Liabilities and Shareholders’ Equity:
Accounts payable: $208,407
Income taxes payable: $21,500
Capital stock: $1,000,000
Retained Earnings: $412,783
Total liabilities and shareholders’ equity: $1,642,690
Required:
Prepare a monthly master budget for Fogle for the year ended December 31 , 2008, including the following schedules:
-Sales Budget
-Production Budget
-Direct Materials Budget
-Direct Labor Budget
-Manufacturing Overhead Budget
-Selling and Administrative Expense Budget
-Create a budgeted income statement with a budgeted
statement of retained earnings, using absorption costing.
Explanation / Answer
Fogle Year : 2008 A Sales Budget Month Sales in % Sales in Units Selling Price Sales Value January 1 5000 10 50000 February 5 25000 10 250000 March 1 5000 10 50000 April 10 50000 10 500000 May 1 5000 10 50000 June 1 5000 10 50000 July 2 10000 10 100000 August 2 10000 10 100000 September 2 10000 10 100000 October 20 100000 10 1000000 November 25 125000 10 1250000 December 30 150000 10 1500000 Total 100 500000 10 5000000 B Production Budget Month Beginning Inventory Sales Ending Inventory Units to be produced January 1250 5000 6250 10000 February 6250 25000 1250 20000 March 1250 5000 12500 16250 April 12500 50000 1250 38750 May 1250 5000 1250 5000 June 1250 5000 2500 6250 July 2500 10000 2500 10000 August 2500 10000 2500 10000 September 2500 10000 25000 32500 October 25000 100000 31250 106250 November 31250 125000 37500 131250 December 37500 150000 1250 113750 Total 500000 500000 C Direct Material Budget Month Rattler to be produced Syon required to produce Rattler Beginning Inventory Ending Inventory Units to be purchased Cost per unit Direct Material cost January 10000 50000 20000 40000 70000 0.45 31500 February 20000 100000 40000 32500 92500 0.45 41625 March 16250 81250 32500 77500 126250 0.45 56812.5 April 38750 193750 77500 10000 126250 0.45 56812.5 May 5000 25000 10000 12500 27500 0.45 12375 June 6250 31250 12500 20000 38750 0.45 17437.5 July 10000 50000 20000 20000 50000 0.45 22500 August 10000 50000 20000 65000 95000 0.45 42750 September 32500 162500 65000 212500 310000 0.45 139500 October 106250 531250 212500 262500 581250 0.45 261562.5 November 131250 656250 262500 227500 621250 0.45 279562.5 December 113750 568750 227500 20000 361250 0.45 162562.5 Total 2500000 2500000 1125000 D Direct Labor Budget Month Rattler to be produced Hours required to produce Rattler Direct Labor Per hour Total Direct Labor Cost January 10000 2666.667 8.5 22666.667 February 20000 5333.333 8.5 45333.333 March 16250 4333.333 8.5 36833.333 April 38750 10333.33 8.5 87833.333 May 5000 1333.333 8.5 11333.333 June 6250 1666.667 8.5 14166.667 July 10000 2666.667 8.5 22666.667 August 10000 2666.667 8.5 22666.667 September 32500 8666.667 8.5 73666.667 October 106250 28333.33 8.5 240833.33 November 131250 35000 8.5 297500 December 113750 30333.33 8.5 257833.33 Total 500000 133333.3 8.5 1133333.33 As per policy of Chegg, we are supposed to answer maximum of four sub-parts of a question We appreciate the rating of our answers Thank You