Cash Payments First Third Second Quarter Fourth Quarter Quarter Quarter Total Total direct materials purchases First Quarter Second Quarter Third Quarter Fourth Quarter Total Cash Payments Direct Materials: Accounts Payable balance, December 31, 2018 1st Qtr.—Qtr. 1 direct material purchases paid in Qtr. 1 1st Qtr. —Qtr. 1 direct material purchases paid in Qtr. 2 2nd Qtr.-Qtr. 2 direct material purchases paid in Qtr. 2 2nd Qtr. Qtr. 2 direct material purchases paid in Qtr. 3 3rd Qtr.-Qtr. 3 direct material purchases paid in Qtr. 3 3rd Qtr. Qtr. 3 direct material purchases paid in Qtr. 4 4th Qtr.-Qtr. 4 direct material purchases paid in Qtr. 4 . Total payments for direct materials Direct Labor: Total payments for direct labor Tinted Toy Company Direct Materials Budget For the Year Ended December 31, 2019 First Second Quarter Quarter Third Fourth Quarter Quarter Total 995 1,195 1,345 1,495 5,030 3,980 478 4,780 538 5,380 598 5,980 1,400 20,120 1,400 Budgeted sets to be produced Direct materials per set (pounds) Direct materials needed for production Plus: Desired direct materials in ending inventory Total direct materials needed Less: Direct materials in beginning inventory Budgeted purchases of direct materials X Direct materials cost per pound 5,318 5,978 7,380 4,458 1,400 21,520 1,400 478 538 598 3,058 5,440 4,840 1 6,782 20,120 $ 3,058 $ 4,840 5,440 6,782 $ 20,120 Budgeted cost of direct materials purchases Fourth Quarter Total Tinted Toy Company Direct Labor Budget For the Year Ended December 31, 2019 First Second Third Quarter Quarter | Quarter Budgeted sets to be produced 995 1,195 1,345 Direct labor hours per unit 0.40 0.40 0.40 Direct labor hours needed for production 14 Direct labor cost per hour $ 5,572 $ 6,692 7,532 $ Budgeted direct labor cost 1,495 0.40 5,030 0.40 538 598 2,012 14 S 14 || $ 14 8,372|$ 28,168 Fourth Tinted Toy Company Manufacturing Overhead Budget For the Year Ended December 31, 2019 First Second Third Quarter Quarter Quarter 995 1,195 1,345 5.60 $ 5.60 $ 5.60 $ 5,572 $ 6,692 $ 7,532 $ Quarter Total Budgeted sets to be produced 5,030 1,495 5.60|| $ 5.60 8,372 $ 28,168 VOH cost per set Budgeted VOH Budgeted FOH Depreciation 6,000 4,060 6,000 4,060 24,000 16,240 Utilities, insurance, property taxes Total budgeted FOH 6,000 4,060 10,060 15,632 $ 6,000 4,060 10,060 16,752 $ 10,060 17,592 $ 10,060 18,432 $ 40,240 68,408 $ Budgeted manufacturing overhead costs 398 478 538 598 Direct labor hours Budgeted manufacturing overhead costs 2,012 68,408 34 | Predetermined overhead allocation rate Fourth Quarter Total Tinted Toy Company Selling and Administrative Expense Budget For the Year Ended December 31, 2019 First Second Third Quarter Quarter Quarter Salaries Expense 8,500 $ 8,500 $ 8,500 $ Rent Expense 5,400 5,400 5,400 Insurance Expense 600 600 600 Depreciation Expense 1,500 1,500 1,500 1,400 1,610 1,820 Supplies Expense $ 17,400 $ 17,610 $ 17,820 $ Total budgeted selling and administrative expense 8,500 $ 5,400 600 1,500 34.000 21,600 2,400 6,000 6,860 2,030 18,030|| $ 70,860 Tinted Toy Company Balance Sheet December 31, 2018 Assets Current Assets: Cash $ 35,000 Accounts Receivable 50,000 Raw Materials Inventory 1,400 Finished Goods Inventory 11,900 Total Current Assets Property, Plant, and Equipment: Equipment 194,000 Less: Accumulated Depreciation (32,000) $ 98,300 162,000 260,300 Total Assets Liabilities Current Liabilities: Accounts Payable $ 12,000 Stockholders' Equity $ Common Stock, no par 100,000 148,300 Retained Earnings Total Stockholders' Equity 248,300 260,300 $ Total Liabilities and Stockholders' Equity c. f. Fab (Unless otherwise noted, assume all of the following events occurred during 2018 and that any balances given are stated as of December 31, 2018.) a. Budgeted sales are 1,000 sets for the first quarter and expected to increase by 150 sets per quarter. Cash sales are expected to be 30% of total sales, with the remaining 70% of sales on account. Sets are budgeted to sell for $70 per set. b. Finished Goods Inventory on December 31, 2018, consists of 350 sets at $34 each. Desired ending Finished Goods Inventory is 30% of the next quarter's sales; first quarter sales for 2020 are expected to be 1,600 sets. FIFO inventory costing method is used. d. Raw Materials Inventory on December 31, 2018, consists of 1,400 pounds. Direct materials requirement is 4 pounds per set. The cost is $1 per pound. e. Desired ending Raw Materials Inventory is 10% of the next quarter's direct materials needed for production; desired ending inventory for December 31, 2019, is 1,400 pounds; indirect materials are insignificant and not considered for budgeting purposes. Each set requires 0.40 hours of direct labor; direct labor costs average $14 per hour. g. Variable manufacturing overhead is $5.60 per set. h. Fixed manufacturing overhead includes $6,000 per quarter in depreciation and $4,060 per quarter for other costs, such as utilities, insurance, and property taxes. i. Fixed selling and administrative expenses include $8,500 per quarter for salaries; $5,400 per quarter for rent; $600 per quarter for insurance; and $1,500 per quarter for depreciation. Variable selling and administrative expenses include supplies at 2% of sales. Capital expenditures include $25,000 for new manufacturing equipment, to be purchased and paid for in the first quarter. Cash receipts for sales on account are 70% in the quarter of the sale and 30% in the quarter following the sale; Accounts Receivable balance on December 31, 2018, is expected to be received in the first quarter of 2019; uncollectible accounts are considered insignificant and not considered for budgeting purposes. m. Direct materials purchases are paid 80% in the quarter purchased and 20% in the following quarter; Accounts Payable balance on December 31, 2018, is expected to be paid in the first quarter of 2019. n. Direct labor, manufacturing overhead, and selling and administrative costs are paid in the quarter incurred. Income tax expense is projected at $1,500 per quarter and is paid in the quarter incurred. p. Tinted desires to maintain a minimum cash balance of $20,000 and borrows from the local bank as needed in increments of $1,000 at the beginning of the quarter; principal repayments are made at the beginning of the quarter when excess funds are available and in increments of $1,000; interest is 5% per year and paid at the beginning of the quarter based on the amount outstanding from the previous quarter. i. Va k. 1. Prepare Tinted's operating budget and cash budget for 2019 by quarter. Required schedules and budgets include: sales budget, production budget, direct materials budget, direct labor budget, manufacturing overhead budget, cost of goods sold budget, selling and administrative expense budget, schedule of cash receipts, schedule of cash payments, and cash budget. Manufacturing overhead costs are allocated based on direct labor hours. (Round all calculations to the nearest dollar.) 2. Prepare Tinted's annual financial budget for 2019, including budgeted income statement and budgeted balance sheet. 3. Tinted sold 5,600 sets in 2019, and its actual operating income was as follows: (Click the icon to view the actual income statement.) Prepare a flexible budget performance report through operating income for 2019. Show product costs separately from selling and administrative costs. To simplify the calculations due to sets in beginning inventory having a different cost than those produced and sold in 2019, assume the following product costs: B (Click the icon to view the product costs.) 4. What was the effect on Tinted's operating income of selling 700 sets more than the static budget level of sales? 5. What is Tinted's static budget variance for operating income? 6. Explain why the flexible budget performance report provides more useful information to Tinted's managers than the static budget performance report. What insights can Tinted's managers draw from this performance report? 7. During 2019, Tinted recorded the following cost data: E (Click the icon to view the standard cost data.) (Click the icon to view the actual cost data.) Compute the cost and efficiency variances for direct materials and direct labor. 8. For manufacturing overhead, compute the variable overhead cost and efficiency variances and the fixed overhead cost and volume variances. 9. Prepare the standard cost income statement for 2019. 10. Calculate Tinted's ROI for 2019. To calculate average total assets, use the December 31, 2018, balance sheet for the beginning balance and the budgeted balance sheet for December 31, 2019, for the ending balance. Round all of your answers to four decimal places. 11. Calculate Tinted's profit margin ratio for 2019. Interpret your results. 12. Calculate Tinted's asset turnover ratio for 2019. Interpret your results. 13. Use the expanded ROI formula to confirm your results from Requirement 10. Interpret your results. 14. Tinted's management has specified a 30% target rate of return. Calculate Tinted's RI for 2019. Interpret your results.
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