ASAP Inc. has been supplying an evolutionary stroller for babies and the item has been consistently profitable over the years. Its main consumers are new moms and despite management's attempt to diversify its operations to supply car seats, it is believed that continuing production with just one product gives them a competitive advantage.

 

The Chief Operating Officer has decided to upgrade its existing equipment to continue supplying the sophisticated stroller. Market research has indicated that the cost of the new equipment is $1,500,000 and management will attain a loan for 100% financing to acquire the equipment. The tenure of the loan is twelve months and it is expected that the money will be disbursed to ASAP Inc. on April 1, 2023 and repaid in four equal installments on the last day of each quarter. The interest rate will be 12 percent, and interest payments will be quarterly as well. The purchase of the equipment will take place in April 2023 for cash from the loan proceeds. Depreciation arising from the purchase is included in the manufacturing overhead table below (note 8).

 

Each finished product requires 2 feet of direct material. Other raw materials are insignificant in cost and are treated as indirect materials. Assuming that now is February 2023, the following information is also available:

 

a) Sales in the month of March are expected to be 50,000 units. The sales manager expects that sales will grow by 2,000 units each month. This trend is expected to continue for the next two (2) years.

 

b) The company's sales history indicates that 50 percent of all sales are on credit, with the remainder of the sales in cash. The company's collection experience shows that 85 percent of the credit sales are collected in the month of the sale, 13 percent in the month following the sale and 2 percent is uncollectable.

 

c) The stroller is sold for $4,500 per unit. Ending inventory on both raw material and finished goods are expected to be 15% of the following month's needs. Ending inventory for June is 17,490 ft for raw materials and 8,700 units for finished goods. Opening inventory of raw material was 15,690 ft and finished goods was 7,800 units.

 

d) All direct-material purchases are made on credit, 70 percent is paid in the month of the purchase and 30 percent is paid in the following month. Indirect materials are paid for by cash in the month of purchase. Balance from March amounted to $34,155,000.

 

e) The company anticipates that dividend of $6,000,000 will be declared and paid in cash at the end of each quarter. Opening cash balance at the beginning of the quarter was $3,000,000.

 

f) Projected manufacturing costs in 2023 and 2024 are as follows: Direct material 2 ft @ $1,125 per foot $2,250 Direct labour: 0.2 hour @ $2,000 per hour $ 400 Production overhead: 0.1 direct-labour hour x $1,000 per hour $ 100 Total manufacturing cost per unit $2,750

 

g) The following manufacturing overhead costs are budgeted for 2023. April May June July Indirect material 2,040,000, 1,920,000, 2,100,000, and 2,040,000 respectively.  Indirect labour 1,680,000, 1,800,000, 2,040,000, and 1,860,000 respectively. Other overhead 1,416,000, 1,560,000, 1,500,000, and 1,500,000 respectively. Depreciation 900,000, 900,000, 900,000, and 900,000 respectively. Total overhead costs 6,036,000, 6,180,000, 6,540,000, and 6,300,000 respectively.

 

h) Selling and administrative expenses is based on a fixed cost of $1,800,000 per month plus $2 per unit sold. The fixed portion of selling and administrative expenses will include $300,000 per month for depreciation.

 

Required: Prepare the master budget of ASAP Inc. for the second quarter of 2023 (April 2023 - June 2023) and in total by completing the following schedules and statements:

 

(a) Sales budget.

(b) Schedule of cash collected from customers.

(c) Production budget. (10 marks) (d) Direct-material budget.

(e) Schedule of cash disbursement to suppliers for direct material.

(f) Direct labour budget. (6 marks) (g) Selling and administrative budget.

(h) Cash budget.

Answer rating: 100% (QA)

a Sales Budget This budget outlines the expected sales revenue for each month It starts by estimating the number of units expected to be sold each mon... View the full answer