Question

Bobcat Paws produces maroon foam #1 hands to wave at athletic events. The company has asked you to prepare its 2010 master budget and has given you the following information.
• Following is the company’s estimated December 31, 2009 balance sheet.
• The selling price per ‘‘hand’’ is $12. Estimated sales of foam hands follow.
January.......................................... 8,000
February......................................... 10,000
March............................................ 15,000
April.............................................. 12,000
May............................................... 11,000
• Seventy percent of sales are for cash. Of the remaining sales on credit, 25 percent is collected in the month of sale, and the remainder is collected in the month after the sale. Bobcat Paws expects no bad debts.
• Each foam hand has the following direct material and direct labor standard quantities and costs:
Foam.................................................................... $1.25 per sheet
1/10 hour of direct labor...................................... $6.00 per hour
• Variable overhead is applied to production at the rate of $12 per machine hour. It takes five minutes of machine time to make one foam hand. All variable overhead costs are paid in cash. Total annual fixed overhead of $360,000 is applied to production based on an expected annual capacity of 450,000 ‘‘hands.’’ Fixed overhead is incurred evenly throughout the year and is paid in cash, except for $48,000 of depreciation.
• All work in process is completed during the period.
• Accounts Payable is only for raw material purchases. Sixty percent of purchases (rounded to the nearest dollar) are paid in the month of purchase, and the remainder are paid in the next month.
• The dividend payable will be paid in February 2010.
• A new piece of equipment costing $12,000 will be purchased on February 1, 2010. Eighty percent of the cost will be paid in February and 20 percent in March. The equipment will have no salvage value and has a useful life of three years. The equipment will not be put into use, and thus not be depreciated, until April 2010.
• The note payable (due in 2011) has a 12 percent interest rate, and interest is paid at the end of each month. Because of a large prepayment penalty, the note cannot be paid early.
• Bobcat Paws’s management has set a minimum cash balance of $10,000. Investments and borrowings are made in even $1,000 amounts at the end of the month. Investments will earn one-half percent per month, deposited to the company’s checking account at the end of each month.
• The ending inventories of raw material and finished goods should be, respectively, 5 percent and 10 percent of the next month’s needs. This situation is not true at the end of 2009, due to sales and production miscalculation.
• Selling and administrative costs per month are as follows: salaries, $14,000; rent, $10,000; and utilities, $1,800. These costs are paid in cash as they are incurred.
• The company’s tax rate is 40 percent.
Required:
(a) What is the standard cost per foam hand? How many foam hands are in the beginning Finished Goods Inventory?
(b) How many sheets of foam are in the beginning Raw Material Inventory?
(c) Prepare a master budget for each month of the first quarter of 2010 and pro forma financial statements for the first quarter of 2010. Note that, in reference to fixed overhead, actual production for the quarter is not the same as expected production for the quarter.


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  • CreatedMarch 27, 2015
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