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Tommy's Box Cars SDATE: June 1, 2021 TO: CCSU Consulting FROM: Mark Swain, President, Tommy's Box Cars SUBJECT: Master Budget for the fiscal year July 1, 2021 June 30, 2022 Our controller, Tommy Swain is negotiating with potential new Wood suppliers in Kentucky. We need the Large Box Car Division's Master Budget for the fiscal year ended June 30, 2022 for our corporate strategic planning process, and we cannot wait for Tommy's return from Kentucky. We would like you to prepare the Large Box Car Division's Master Budget for the fiscal year ended June 30, 2022. The deliverables are as follows: 1. Sales budget, including a schedule of expected cash collections. 2. Production budget. 3. Direct materials budget, including a schedule of expected cash disbursements for materials. 4. Direct labor budget. 5. Manufacturing overhead budget. 6. Ending finished goods inventory budget calculating the expected value of the finished goods inventory as of June 30, 2022. * 7. Selling and administrative expense budget. 8. Cash budget. 9. Budgeted income statement for the year ended June 30, 2022. * 10. Budgeted balance sheet for June 30, 2022. * All the Master Budget schedules except those marked with an asterisk for the Large Box Car Division should include a column for each quarter and a total column for the fiscal year. We only need annual totals for the budgeted financial statements (schedules 9 and 10) and we only need a year-end total for the value of finished goods inventory (schedule 6). The electronic copy of the budgets are due 11/9/21 prior to 9:25 a.m. for all sections (on ground and online). On ground sections (9:25 and 10:50 classes) must turn in a paper copy of the project at the start of class on INI. All the Master Budget schedules except those marked with an asterisk for the Large Box Car Division should include a column for each quarter and a total column for the fiscal year. We only need annual totals for the budgeted financial statements (schedules 9 and 10) and we only need a year-end total for the value of finished goods inventory (schedule 6). The electronic copy of the budgets are due 11/9/21 prior to 9:25 a.m. for all sections (on ground and online). On ground sections (9:25 and 10:50 classes) must turn in a paper copy of the project at the start of class on 11/9/21). You may work on this in groups of 2. Both names must be typed on the electronic & paper versions. No credit for late submissions. You can print more than one schedule per page, but do not have a page break in the middle of a budget schedule. I like to be able to view an entire budget schedule without flipping back and forth between pages. Please also use a type font of between 10-12 points for printing. I've attached a brief description of the Large Box Car Division to the budget data Tommy gave me before he left for Kentucky. We eagerly await your results. Attached on Black Board you'll see a solution template to assist you in completing the project. Sincerely, Mark Mark Swain Tommy's Box Cars During 2021-2022 fiscal year, the average selling price for large box cars is expected to be $120 per car. The Large Box Car Division forecasts the following units of sales. Quarter Third Fourth First 65,000 Second 67,000 Box Car UNIT Sales 64,000 70,000 The collection pattern for Accounts Receivable is as follows: O o 40 percent of all sales are collected within the quarter in which they are sold 60 percent of all sales are collected in the following quarter. There are no bad debts/uncollectible accounts. o Due to high demand last year, the Large Box Car Division expects to have zero finished box cars in inventory on July 1, 2021, the beginning of the first quarter of the new fiscal year (i.e. Beginning Finished Goods Inventory is Zero). To avoid having that problem in the coming fiscal year, the Large Box Car Division would like to have the ending inventory of Box Car at the end of each of the first three quarters equal to 25% of the budgeted sales for the next quarter. They would like to have 15,000 finished Box Cars on hand on June 30, 2022. First Second Third Fourth Quarter Ending FG inventory of Box Cars as a % of the next quarter's budgeted sales Ending FG inventory of Box Cars 25% 25% 25% ? ? ? 15,000 Each large box car requires an average of 6.0 feet of wood. The Large Box Car Division buys wood for $3.00 per foot and they expect the price to remain constant throughout the year. They expect to have 50,000 feet of wood (RAW MATERIALS) on hand as of July 1, 2021 (50,000 * $3.00 = $150,000 - This is beginning Direct Material Inventory), the beginning of the first quarter of the fiscal year. At the end of each of the first three quarters, the Large Box Car Division would like to have their direct materials inventory quantity to equal 25 percent of the amount required for the following quarter's planned production. On June 30, 2022, the end of the fiscal year, Large Box Car Division would like to have 60,000 feet of wood on hand (This is ending Direct Material Inventory).. Quarter First Second Third Fourth 25% 25% 25% ? Ending DM inventory as a % of the next quarter's production requirement Ending DM inventory in feet ? ? ? 60,000 The Large Box Car Division buys its wood on account. It pays for 25% of its purchases of direct materials in the quarter in which they were purchased and 75% in the quarter after they were purchased. Each large box car requires 4 hours of direct labor. Employees engaged in direct labor will be paid an estimated $13.00 per labor hour. Wages and salaries are paid on the 15th and 30th of each month. Variable manufacturing overhead is estimated to be $4.00 per direct labor hour for the coming fiscal year. All variable manufacturing overhead expenses are paid for in the quarter incurred. Fixed manufacturing overhead is estimated to total $110,000 each quarter, with $40,000 out of the total amount of $110,000 representing depreciation on machinery, equipment and the factory. All other fixed manufacturing overhead expenses are paid in cash in the quarter they occur. The fixed manufacturing 3 Tommy's Box Cars overhead rate will be computed by dividing the year's total fixed manufacturing overhead by the year's budgeted direct labor hours. Round the fixed overhead rate to the nearest penny. Variable selling and administrative expenses are estimated to be $15.00 per box car sold. Fixed selling and administrative expenses are expected to total $90,000 each quarter, with $40,000 out of the total amount of $90,000 representing depreciation on the office space, furniture and equipment. Other than depreciation, all selling and administrative expenses are paid for in the quarter they occur. On June 30, 2022, the last day of the 4th quarter, the Large Box Car Division plans to buy new machinery and equipment for $500,000. The new machinery and equipment will be acquired at the very end of the fiscal year, so it will not be used in production and sales during the coming year and it will not be depreciated until the following year. The Large Box Car Division expects to pay 30% down in cash and finance the remaining 70% of the equipment cost with a note payable from a local bank with whom they do business with. No interest payable will accrue on the equipment note payable until after June 30, 2022. The Division must maintain a minimum cash balance of $100,000. If after accounting for cash receipts and disbursements including dividends) in the cash budget, the budgeted cash available cash falls below $100,000 in any quarter, the Division will need to borrow cash. They have arranged a line of credit allowing it to borrow in $10,000 increments (ie, they can borrow $10,000 or $20,000 etc. but not an odd amount). Assume borrowing will take place at the beginning of any quarter in which the available cash would otherwise be below $100,000 so that at no time during the quarter will the cash balance fall below $100,000 (after payment of interest). If there is extra cash at the end of the quarter and there is borrowing outstanding, the division should pay down principal (also in increments of $10,000). The bank charges the Division interest at the rate of 3% per quarter. Interest accrued in the quarter will be paid the first day of the next quarter (eg. Qi's interest is not paid in cash until Q2 and Q2's Interest will be paid in Q3). As a fully owned subsidiary, the Large Box Car Division does not pay income taxes. All income taxes are charged to Tommy's Box Car's, the parent company. Large Box Car Division will pay dividends of $50,000 each quarter to its corporate parent, Tommy's Box Car's. The dividends must be paid, even if the Large Box Car Division has to borrow on its line of credit to make the payment The budgeted balance sheet for the Large Box Car Division on June 30, 2021 (which is the same as the budgeted balance sheet at the beginning of business July 1, 2021) is presented below. Tommy's Box Cars owns 100% of the Capital Stock of the Large Box Car Division. LARGE BOX CAR DIVISION - TOMMY'S BOX CARS BUDGETED BALANCE SHEET JUNE 30, 2021 ASSETS Cash Accounts Receivable Raw Material Inventory Plant and Equipment $1,850,000 2,900,000 150,000 9,600,000 LIABILITIES & EQUITY Accounts Payable $800,000 Notes Payable 0 Capital Stock 3,500,000 Retained Earnings 10,200,000 TOTAL ASSETS $14.500.000 TOTAL LIAB. & SE $14,500,000 Sales Budget (July 1, 2021 - June 30, 2022) Q2 Q3 Q1 Q4 Year Total Item Units Sold Selling Price Per Unit Total Budgeted Sales Revenues Production Budget Q1 Q2 Q3 Q4 Year Total Direct Materials Budget Q1 Q2 Q3 Q4 Year Total Item Budgeted Sales in Units Add: Desired Ending Invtory 1 =Total Needed Less: Beginning Inventory 3=Units to be produced 4 5 5 Item 7 Total Production of Box Cars Wood Feet per Car Total Wood Required (feet) Add: Desired Ending Wood (feet) 1 Total Needs (feet) Less: Beginning Inventory 3 Total DM to be purchased (feet) Cost per foot Total cost of direct materials purchases Q4 Year Total 04 Year Total 26 27 Direct Labor Budget 28 Item Q1 Q2 Q3 29 Total Production in Units 30 X Direct Labor Hours per Unit 31 = Total Direct Labor Hous Required 32 X Labor Wage Rate 33 = Total Direct Labor Costs 34 35 Manufacturing Overhead Budget (MOH) 36 Item Q1 Q2 Q3 87 Variable MFG Overhead: 38 Total direct labor hours 39 x Variable overhead rate per DL Hour 40 = Total Variable MFG Overhead 41 + Total Fixed Manufacturing Overhead 42 = Total Manufacturing Overhead 43 Less: Depreciation (non-cash expense) 44 Cash Disbursements for MFG Overhead 45 46 47 Pre-Determined Overhead Rate Calculation 48 Hint: Recall from Chapter 2 how you calculated your Pre-Determined Overhead Rate 49 Total Budgeting MOH 50 - "Cost Driver" 51 = MOH to be "Applied" Per Driver Unit Schedule of Cash Collections (Receipts) Q1 Q2 2,900,000 Q3 Q4 Year Total 4 -5 6 -7 Item 8 Accts Rec Balance Forward -9 First quarter sales o Second quarter sales 1 Third quarter sales 2 Fourth quarter sales 3 Total Cash Collections 4 5 6 Item 7 Accts Payable Balance Forward 8 First quarter Purchases 9 Second quarter Purchases 0 Third quarter Purchases 1 Fourth quarter Purchases 2 Total Cash Payments Schedule of Cash Disbursements Q1 Q2 800,000 Q3 Q4 Year Total Q3 04 Year Total 33 34 Cash Budget 85 Item Q1 Q2 36 Beginning Cash Balance 87 Add: Cash Collections 38 = Total Cash Available 39 Less: Cash Disbursements BO Direct Materials 31 Direct Labor 32 Manufacturing Overhead 33 Selling & Administrative 34 Equipment Purchases 35 Dividends 36 Total Disbursements 97 Excess (Deficiency) of cash available over disbursements 38 39 Cash Budget (Financing & Repayment) 00 Item Q1 Q2 Excess (deficiency) of cash available over 01 disbursements 02 - Interest Payments 03 + Borrowing (at Beginning of QUARTER) 04 - Repayments (at the End of QUARTER) 05 + Equip loan (at the end of the year) 06 = Total Financing 07 Ending Cash Balance Q3 Q4 Year Total no Q3 Q4 Year Total 83 84 Cash Budget 85 Item Q1 Q2 86 Beginning Cash Balance 87 Add: Cash Collections 88 = Total Cash Available 89 Less: Cash Disbursements 90 Direct Materials 91 Direct Labor 92 Manufacturing Overhead 93 Selling & Administrative 94 Equipment Purchases 95 Dividends 96 Total Disbursements 97 Excess (Deficiency) of cash available over disbursements 98 99 Cash Budget (Financing & Repayment) 100 Item Q1 Q2 Excess (deficiency) of cash available over 101 disbursements 102 - Interest Payments 103 + Borrowing (at Beginning of QUARTER) 104 - Repayments (at the End of QUARTER) 105 + Equip loan (at the end of the year) 106 = Total Financing 107 Ending Cash Balance 108 Q3 4 Year Total Q4 Year Total 04 Year Total 26 27 Direct Labor Budget 28 Item Q1 Q2 Q3 29 Total Production in Units 30 X Direct Labor Hours per Unit 31 = Total Direct Labor Hous Required 32 X Labor Wage Rate 33 = Total Direct Labor Costs 34 35 Manufacturing Overhead Budget (MOH) 36 Item Q1 Q2 Q3 87 Variable MFG Overhead: 38 Total direct labor hours 39 x Variable overhead rate per DL Hour 40 = Total Variable MFG Overhead 41 + Total Fixed Manufacturing Overhead 42 = Total Manufacturing Overhead 43 Less: Depreciation (non-cash expense) 44 Cash Disbursements for MFG Overhead 45 46 47 Pre-Determined Overhead Rate Calculation 48 Hint: Recall from Chapter 2 how you calculated your Pre-Determined Overhead Rate 49 Total Budgeting MOH 50 - "Cost Driver" 51 = MOH to be "Applied" Per Driver Unit Pre-Determined Overhead Rate Calculation Hint: Recall from Chapter 2 how you calculated your Pre-Determined Overhead Rate Total Budgeting MOH "Cost Driver" = MOH to be "Applied" Per Driver Unit 1 Selling and Admin Budget (S & A) Q1 Q2 Q3 Q4 Year Total Item Variable Sales & Admin Expenses: Sales in Units X Variable Sales & Admin Rate per unit = Variable Sales & Admin Expense + Total Fixed Sales & Admin Expense = Total Sales & Admin Expenses Less: Depreciation (non-cash expense) = Cash Disbisbursements for S & A Exp's Al $$ 136 Tommy's Box Cars - Large 137 Pro Forma Balance Sheet 138 As of June 30, 2022 AND June 30, 2021 139 Assets June 30, 2022 June 30, 2021 140 Cash $ 1,850,000 141 Accounts receivable $ 2,900,000 142 Direct materials inventory $ 150,000 143 Finished Goods inventory (box cars) 144 Plant and equipment 9,600,000 145 Total assets $ 14,500,000 146 Liabilities and Stockholders' Equity June 30, 2022 June 30, 2021 147 Accounts payable $ 800,000 148 Notes payable - equipment $ 149 Letter of Credit outstanding $ 150 Capital stock $ 3,500,000 151 Retained Earnings $ 10,200,000 152 Total liabilities and stockholders equity $ 14,500,000 153 154 ACCOUNTING EQUATION OUT OF BALANCE $0 $0 155 156 157 158 Al

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