The Candy Company, LLC (TCC) is the largest manufacturer of Salt Water Taffy (SWT) in the country. SWT is shipped to all major grocery stores and candy outlets. You have been asked to create a Master Budget on a quarterly basis for next year.

Sales for this current year were as follows:

Qtr 1 65,000 pounds

Qtr 2 76,000 pounds

Qtr 3 90,000 pounds

Qtr 4 85,000 pounds

The sales department tells you that sales are planned to increase by 20% next year, and 15% the year after that. The sell price is $10 per pound.

As they have always done, Production will ensure that they maintain finished goods equal to 10% of the next quarter’s sales.

The Credit Department reminds you that all sales are on credit. 80% of sales are collected in the quarter of sale, with 18% in the next quarter. For those customers that pay in the quarter of sale, TCC offers a 1% discount on their credit terms. 2% have been historically written off as bad debt. This is written off in the quarter after the sale has been made (same quarter that we collect the remaining 18%).

Prepare a Sales Budget

Prepare a Cash Collection Budget

Prepare a Production Budget

Now that you have a Production Budget, you are ready for the next steps of your Master Budget project.

You can see from the Bill of Materials that it takes 1.5 pounds of raw materials to produce every pound of Salt Water Taffy. The cost of the raw materials is $2 per pound. Because of the fluctuating nature of the raw materials, the Materials Management group maintains 30% of the next quarter’s materials needed in production.

TCC pays for 90% of the material that it purchases in the same quarter. The remaining 10% is paid during the next quarter. TCC always pays within the terms of the invoice and receives a 1% cash discount on all of the raw material purchases. The Account Payable at the end of this current fiscal year was $50,000.

Assume that at the end of the budgeted year, the raw materials inventory will be 44,000 pounds.

Each pound of SWT requires 0.10 direct labor hours at a cost of $15 per labor hour.

The variable overhead costs are:

Indirect materials: $0.20 per pound

Indirect labor: $0.25 per pound

Other variable: $0.30 per pound

The fixed overhead costs each quarter are:

Salaries: $35,000

Building costs: $50,000

Equip depr: $15,000

Prepare a Direct Materials Purchase Budget

Prepare a Direct Materials Purchase Cash Disbursement Budget

Prepare a Direct Labor Budget

Prepare a Manufacturing Overhead Budget

Prepare a Finished Goods Inventory Budget

The Candy Company (TCC) pays a sales commission of 5% on all sales at the time of the sale. In addition to this variable selling expense, TCC has budgeted the following fixed Selling & Administrative Expense for next year:

Administrative Salaries: $15,000 per month

Admin Office Rent: $ 7,000 per month

Advertising: $40,000 per quarter

Office Equip Depr: $15,000 per quarter

Other fixed expenses: $ 5,000 per month

TCC has recently signed a contract for a significant advertising campaign during the 2^nd quarter. It is believed that this advertising expense will provide significant benefits for the next several years. The cost of this campaign will be $300,000.

TCC started the year with $5,500,000 on the Balance Sheet in Equipment. There was also a balance of Accumulated Depreciation of $400,000. There are plans to upgrade their office and manufacturing equipment at the end of next year. The estimate for this equipment is:

Office: $ 50,000

Manufacturing: $1,500,000

The Controller has stated that he will have a minimum of $50,000 cash on hand at the end of each quarter.

TCC has a Line of Credit of $1,000,000 with an interest rate of 12% APR on the outstanding balance from the previous quarter. The outstanding balance at the end of the current year was $250,000.

TCC has an excellent credit rating and can borrow funds on a secured basis at 6% APR, but has not done so up to this point.

TCC currently has $1,000,000 in LLC Member Equity.

Prepare a Selling and Administrative Budget

Prepare a Capital Expenditure Budget*

Prepare a Cash Budget*

Prepare a Pro Forma Income Statement for next year*

Prepare a Proforma Balance Sheet for next year*

* Management is thinking of using their good credit to purchase the new equipment at the end of next year. What is your recommendation? Prepare the Cash Budget and the remaining statements based on your recommendation.