2362 ACC Managerial Accounting – Master Budget Project Optima Company is a high-technology organization that produces a mass-storage system.

2362 ACC Managerial Accounting – Master Budget Project Optima Company is a high-technology organization that produces a mass-storage system. The design of Optimas system is unique and represents a breakthrough in the industry. The mass-storage systems Optima produces combine positive features of both floppy and hard disks. The company is completing its fifth year of operations and is preparing to build its master budget for the coming year (2011). The budget will detail each quarters activity and the activity for the year end in total. The master budget will be based on the following information: a. Fourth-quarter sales for 2010 are 48,000 units. b. Unit sales per quarter for 2011 are projected by sales staff as follows: First quarter 48,000 Second quarter 50,000 Third quarter 47,000 Fourth quarter 51,000 The selling price is $275 per unit. All sales are credit sales. Optima collects 70% of credit sales in the same quarter the sale is made and the remaining 30% is collected in the following quarter. There are no bad debts. c. Optimas finished goods ending inventory policy is to have 15% of next quarters sales on hand at the end of each quarter. This policy was met on January 1, 2011. First quarter sales projections for 2012 are 49,000 units. d. Each mass-storage unit uses three pieces of plastic, the raw material needed to produce each mass-storage system, and three and a half hours of direct labor. Each piece of plastic cost $40 and direct laborers are paid $23 per hour. e. At the end of each quarter, Optima plans to have 10% of the direct materials needed for the current quarters production. This policy was met on January 1, 2011. f. Optima buys direct materials on account. Sixty-five percent of the purchases are paid for in the quarter of acquisition and the remaining thirty-five percent are paid for in the following quarter. Wages and salaries are paid the on 15th and 30th of each month. 1 g. Fixed overhead totals $1,550,000 each quarter, including $250,000 of depreciation per quarter. All other fixed expenses are paid in cash in the quarter incurred. Round the fixed overhead rate to the nearest two decimal points using the Excel rounding function. h. Variable overhead is budgeted at $5 per direct labor hour. All variable overhead expenses are paid in the quarter incurred. i. Fixed selling and administrative expenses total $500,000 per quarter, including $125,000 of depreciation per quarter. j. Variable selling and administrative expenses are budgeted at $8 per unit sold. All selling and administrative expenses are paid in the quarter incurred. k. The balance sheet as of December 31, 2010, is as follows: Assets Cash Accounts Receivable Direct Materials Inventory Finished Goods Inventory Plant and Equipment Total assets December 31, 2010 $ 2,284,908 3,960,000 576,000 1,797,192 21,500,000 $ 30,118,100 Liabilities & Equity Accounts Payable * Capital Stock Retained Earnings Total liabilities & equity $ 2,217,600 15,400,000 12,500,500 $ 30,118,100 * For purchases of direct materials only. l. Optima will pay quarterly dividends of $325,000. Each quarter Optima will purchase $525,000 worth of equipment plus Optima will purchase additional equipment worth $775,000 in the fourth quarter. Required: Prepare a master budget for Optima Company for each quarter of 2011 and for the year in total. The following component budgets must be included: 1. Sales budget 2. Production budget 2 3. Direct materials purchases budget 4. Direct labor budget 5. Overhead budget 6. Selling and administrative budget 7. Ending finished goods budget 8. Cost of goods sold budget. (Assume that there is no work-in-process inventory at the end of each qtr.) 9. Cash budget 10. Budgeted Income Statement 11. Budgeted Balance Sheet

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