Best Frames Ltd is a worldwide musical part manufacturing firm based in North America. After many years in the market, the Peterborough division, which produces one product called “Best Frames Stand,” reaches a spike on the sales level. The Management wants to have a significant investment to expand the facility and increase production, but it is requesting from the division to prepare a budget for the third quarter of 2021.

The actual sales from 2021 are:
May................................   82,000 units
June ................................110,000 units

The division manager projected the following sales:
July 2021 ..............................................      110,000 units
August 2021 ........................................      215,000 units
September 2021 ................................      132,000 units
October 2021 ......................................     157,000 units
November 2021 ................................      162,000 units
The selling price is..............................       $12 per unit

1. From previous experience, management has determined that finished goods ending inventory equal to 25% of the next month’s unit sales are required to fit the buyer’s demands.

2. The Best Frames Stand requires one types of raw materials: Plastic
• Each Best Frames Stand requires 1.6 kilograms of Plastic, at the cost of $1.75 per kilogram.
• The supplier of Plastic tends to be somewhat erratic, so Best Frames Ltd finds it necessary to maintain an inventory balance equal to 20% of the material needed for the next month as a precaution against stock-outs. The direct material on June 30 is 45,360 Kg.

3. The beginning accounts payable will consist of $151,704.

4. Best Frames Ltd pays for 60% of a month’s purchases in the month of purchase and 40% in the following month.

5. The manufacturing overhead is based on direct labour hours. The workers receive an average of $18.00 per hour, including employee benefits. Each Best Frames Stand takes 15 minutes to complete.

6. Best Frames Ltd allocate the manufacturing overhead based on direct labour hours; The variable manufacturing overhead is as follow: Maintenance $0.40; Utilities $0.60; Indirect Labor $0.60; Indirect materials $0.40

7. The Monthly Fixed manufacturing overhead costs are as follows: Janitorial $2,500 Insurance $1,750 Depreciation $15,200 Property Taxes $2,100 Salaries $44,800

8. Best Frames Ltd allocate the selling and administration expenses based on units sales; The variable selling and administration rate is $1.5 per unit sales.

9. The Monthly Selling and administrative expenses are: Salaries $62,100 Other fixed cost $4,600 Insurance $1,200 Depreciation $2,800 Advertising $12,000

10. Sales are on account (credit); 60% of the sales are collected during the month of sales and 40% the following month. This was the same collection pattern as in previous years.

11. The company wants to maintain at the end of each month a minimum bank balance of $500,000. In case the company has a deficiency of money or is not able to reach this minimum bank balance, the company can borrow from a line of credit at the rate of 12% per annum. All borrowing is considered to happen on the first day of the month, and repayments are on the last day of the month. All borrowings and repayments from the bank should be in multiples of $5,000. It pays interest monthly. The cash balance on June 30 is $184,000.

12. In August, $500,000 of new equipment to update operations will be purchased with cash.

13. Three months’ insurance is prepaid on the first day of the first month of the quarter. At the beginning of each quarter the company pays $5,250. In addition at the end of each quarter the company pays $250,000 in dividends.

14. The company has a Common Stock beginning balance of $285,774 and the Retained Earnings Beginning Balance $685,000. Property taxes are paid at the beginning of each quarter.

Prepare the 2021, Third Quarter Master Budget for Best Frames Ltd for the including the following schedules:
Prepare the following Schedules (in the same order):
a) Prepare the Sales Budget for the third quarter
b) Prepare the Schedule of Expected Collection from Customers for the third quarter
c) Prepare the Production Budget for the third quarter
d) Prepare the Direct Materials Budget for the third quarter
e) Prepare the Expected Direct Material Cash Disbursements for the third quarter
f) Prepare the Direct Labour Budget for the third quarter
g) Prepare the Manufacturing Overhead Budget for the third quarter
h) Prepare the Unit cost
i) Prepare the Selling and Administrative Expenses Budget for the third quarter
j) Prepare the Cash Budget for the third quarter
k) Prepare the income statement
l) Prepare the statement of financial position

Answer rating: 100% (QA)

a Sales Budget for the Third Quarter Month Units to be Sold Total Sales July 110000 1320000 August 215000 2580000 September 132000 1584000 Total 457000 5484000 b Schedule of Expected Collections from ... View the full answer