Optima Company is a high-technology organization that produces a mass-storage system. The design of Optima’s system is unique and represents a breakthrough in theindustry. The units Optima produces combine positive features of both compact andhard disks. The company is completing its fifth year of operations and is preparing tobuild its master budget for the coming year (2019). The budget will detail each quarter’sactivity and the activity for the year in total. The master budget will be based on thefollowing information:a. Fourth-quarter sales for 2018 are 55,000 units.b. Unit sales by quarter (for 2018) are projected as follows:First quarter 65,000Second quarter 70,000Third quarter 75,000Fourth quarter 90,000The selling price is $400 per unit. All sales are credit sales. Optima collects 85 percent of all sales within the quarter in which they are realized; the other 15 percent iscollected in the following quarter. There are no bad debts.c. There is no beginning inventory of finished goods. Optima is planning the following ending finished goods inventories for each quarter:First quarter 13,000 unitsSecond quarter 15,000 unitsThird quarter 20,000 unitsFourth quarter 10,000 unitsd. Each mass-storage unit uses five hours of direct labor and three units of direct materials. Laborers are paid $10 per hour, and one unit of direct materials costs $80.e. There are 65,700 units of direct materials in beginning inventory as of January 1,2010. At the end of each quarter, Optima plans to have 30 percent of the directmaterials needed for next quarter’s unit sales. Optima will end the year with thesame level of direct materials found in this year’s beginning inventory.f. Optima buys direct materials on account. Half of the purchases are paid for in thequarter of acquisition, and the remaining half are paid for in the following quarter.Wages and salaries are paid on the 15th and 30th of each month.g. Fixed overhead totals $1 million each quarter. Of this total, $350,000 representsdepreciation. All other fixed expenses are paid for in cash in the quarter incurred.The fixed overhead rate is computed by dividing the year’s total fixed overhead bythe year’s expected actual units produced.h. Variable overhead is budgeted at $6 per direct labor hour. All variable overheadexpenses are paid for in the quarter incurred.i. Fixed selling and administrative expenses total $250,000 per quarter, including$50,000 depreciation.j. Variable selling and administrative expenses are budgeted at $10 per unit sold. Allselling and administrative expenses are paid for in the quarter incurred.k. The balance sheet as of December 31, 2009, is as follows:AssetsCash $ 250,000Direct materials inventory 5,256,000Accounts receivable 3,300,000Plant and equipment 33,500,000Total assets $42,306,000Liabilities and Stockholders’ EquityAccounts payable $ 7,248,000*Capital stock 27,000,000Retained earnings 8,058,000Total liabilities and stockholders’ equity $42,306,000*For purchase of direct materials only.l. Optima will pay quarterly dividends of $300,000. At the end of the fourth quarter,$2 million of equipment will be purchased.Required:Prepare a master budget for Optima Company for each quarter of 2010 and for the yearin total. The following component budgets must be included:1. Sales budget2. Production budget3. Direct materials purchases budget4. Direct labor budget5. Overhead budget6. Selling and administrative expenses budget7. Ending finished goods inventory budget8. Cost of goods sold budget (Assume that there is no change in work-in-processinventories.)9. Cash budget10. Pro forma income statement (using absorption costing)11. Pro forma balance sheet

Question
Asked Nov 6, 2019
22 views

Optima Company is a high-technology organization that produces a mass-storage system. The design of Optima’s system is unique and represents a breakthrough in the

industry. The units Optima produces combine positive features of both compact and

hard disks. The company is completing its fifth year of operations and is preparing to

build its master budget for the coming year (2019). The budget will detail each quarter’s

activity and the activity for the year in total. The master budget will be based on the

following information:

a. Fourth-quarter sales for 2018 are 55,000 units.

b. Unit sales by quarter (for 2018) are projected as follows:

First quarter 65,000

Second quarter 70,000

Third quarter 75,000

Fourth quarter 90,000

The selling price is $400 per unit. All sales are credit sales. Optima collects 85 percent of all sales within the quarter in which they are realized; the other 15 percent is

collected in the following quarter. There are no bad debts.

c. There is no beginning inventory of finished goods. Optima is planning the following ending finished goods inventories for each quarter:

First quarter 13,000 units

Second quarter 15,000 units

Third quarter 20,000 units

Fourth quarter 10,000 units

d. Each mass-storage unit uses five hours of direct labor and three units of direct materials. Laborers are paid $10 per hour, and one unit of direct materials costs $80.

e. There are 65,700 units of direct materials in beginning inventory as of January 1,

2010. At the end of each quarter, Optima plans to have 30 percent of the direct

materials needed for next quarter’s unit sales. Optima will end the year with the

same level of direct materials found in this year’s beginning inventory.

f. Optima buys direct materials on account. Half of the purchases are paid for in the

quarter of acquisition, and the remaining half are paid for in the following quarter.

Wages and salaries are paid on the 15th and 30th of each month.

g. Fixed overhead totals $1 million each quarter. Of this total, $350,000 represents

depreciation. All other fixed expenses are paid for in cash in the quarter incurred.

The fixed overhead rate is computed by dividing the year’s total fixed overhead by

the year’s expected actual units produced.

h. Variable overhead is budgeted at $6 per direct labor hour. All variable overhead

expenses are paid for in the quarter incurred.

i. Fixed selling and administrative expenses total $250,000 per quarter, including

$50,000 depreciation.

j. Variable selling and administrative expenses are budgeted at $10 per unit sold. All

selling and administrative expenses are paid for in the quarter incurred.

k. The balance sheet as of December 31, 2009, is as follows:

Assets

Cash $ 250,000

Direct materials inventory 5,256,000

Accounts receivable 3,300,000

Plant and equipment 33,500,000

Total assets $42,306,000

Liabilities and Stockholders’ Equity

Accounts payable $ 7,248,000*

Capital stock 27,000,000

Retained earnings 8,058,000

Total liabilities and stockholders’ equity $42,306,000

*For purchase of direct materials only.

l. Optima will pay quarterly dividends of $300,000. At the end of the fourth quarter,

$2 million of equipment will be purchased.

Required:

Prepare a master budget for Optima Company for each quarter of 2010 and for the year

in total. The following component budgets must be included:

1. Sales budget

2. Production budget

3. Direct materials purchases budget

4. Direct labor budget

5. Overhead budget

6. Selling and administrative expenses budget

7. Ending finished goods inventory budget

8. Cost of goods sold budget (Assume that there is no change in work-in-process

inventories.)

9. Cash budget

10. Pro forma income statement (using absorption costing)

11. Pro forma balance sheet

check_circle

Expert Answer

Step 1

Hey, since there are multiple questions posted, we will answer first three questions. If you want any specific question(s) to be answered then please submit that question only or specify the question number in your message.

Step 2

Budgets:

Budgets are prepared for the planning and controlling purposes. Budgets facilitate planning and making decisions to achieve the desired objectives and are prepared to enable comparison between actual and expected outcomes.

 

Step 3

1. Prepare a sales budget for Optima Company for each quart...

help_outline

Image Transcriptionclose

Q1 Q2 Q4 Total Q3 Particulars (S) (S) (S) (S) (S) Sales units (A) Selling price (B) Sales (Ax B 65,000 70,000 75,000 90,000 300,000 400 400 400 400 26,000,000 28,000,000 30,000,000 36,000,000 120.000,000

fullscreen

Want to see the full answer?

See Solution

Check out a sample Q&A here.

Want to see this answer and more?

Solutions are written by subject experts who are available 24/7. Questions are typically answered within 1 hour.*

See Solution
*Response times may vary by subject and question.
Tagged in

Business

Accounting

Related Accounting Q&A

Find answers to questions asked by student like you
Show more Q&A
add
question_answer

Q: Break-Even Sales and Sales Mix for a Service Company Zero Turbulence Airline provides air transporta...

A: a.Compute the break-even number of seats sold on a single round-trip flight for the overall enterpri...

question_answer

Q: Blue Spruce Corp. purchased a new machine on October 1, 2020, at a cost of $134,000. The company est...

A: 1. Compute the depreciation expense under straight-line method for 2020- Please see attached Answer ...

question_answer

Q: What is the unit volume increase ? What is the x contribution margin per unit ? what is the Increase...

A: Contribution Margin:Contribution margin defined as selling price minus variable cost, is a measure o...

question_answer

Q: The following transactions were completed by Irvine Company during the current fiscal year ended Dec...

A: An allowance for doubtful debt account is prepared to record the amount which have less chances to b...

question_answer

Q: Record the January 1 credit balance of $54,200 in a T account for Allowance for Doubtful Accounts.

A: Allowance for Doubtful Accounts:This is a contra asset account to the Accounts Receivables account t...

question_answer

Q: Novak Company’s record of transactions for the month of April was as follows. Purchases   Sale...

A: Inventory Valuation:"LIFO" stands for last-in, first-out, meaning that the recently purchased invent...

question_answer

Q: [The following information applies to the questions displayed below.]   Stephanie is 12 years old an...

A: The rule of standard deduction for the year 2019 is as follows: $1,100 or$350 + Income earned;Whiche...

question_answer

Q: Question: Akers Company invests its excess cash in marketable securities. At the beginning of 2019,...

A: Available for sale securities are reported at their fair value in the Balance sheet at the end of th...

question_answer

Q: Identify Cost Graphs The following cost graphs illustrate various types of cost behavior: Cost Graph...

A:  a. Total direct material cost- It will be Cost graph four as per the question, because with each ad...