Master Budget Assignment

Master Budget Assignment      

Metal Parts Inc. is preparing its monthly budget for 2019.  The following estimates and information are available.

  • Each unit requires 5 hours of direct labour and 16 pounds of metal to make.
  • They have 5920 pounds of metal already in inventory.  To prepare for supply disruptions of metal, the company likes to keep monthly ending inventory of metal high enough to meet the next two month’s production requirements.  In practice, their attempts at this might not always work out.
  • Direct labour costs $23 per hour. 
  • Accounts payable are paid 60% in the month of purchase and 40% in the following month.
  • Each pound of metal costs $10.50
  • In December 2018, 6000 pounds of metal were purchased and 1,050 hours of Direct Labour worked.
  • Sales are estimated as follows:
MonthAmount
November 2018 actual$270,000
December actual$240,000
Jan 2019$330,000
Feb$180,000
Mar$510,000
Apr$600,000
May$1,110,000
June$1,770,000
July$1,830,000
Aug$1,110,000
Sept$1,020,000
Oct$660,000
Nov$240,000
Dec$180,000
Jan 2020$450,000
Feb$480,000
Mar$600,000
  • Metal Parts Inc. keeps a minimum amount of the following:
CashA minimum of $2,000,000
Finished unitsEnding inventory equal to 25% of next month’s sales requirements
  • Inventory of finished units from December 2018 is equal to the targeted inventory policy.
  • All sales are on account.
  • Selling and Administration expenses are $8 per unit and $40,000 per month.  There is no depreciation included in this figure.
  • Dividends of $500,000 will be paid in December.
  • Customer collections are received 45% in the month of sale, 40% in the next month, and 13% in the second month following the sale.  No further collections are received.
  • The company uses the absorption method of costing finished goods inventory and cost of goods sold.  The allocate manufacturing overhead on the basis of direct labour hours.
  • Where these instructions are not specific, use the same approach as the in-class example.
  • Due to payroll processing times, half of the wages earned by workers is paid in the month of production, and the other half is paid in the following month. 
  • Metal Parts Inc. has a very flexible work force that allows them to scale up or down without cost each month.
  • The selling price per unit is $1,500
  • Overhead is $500,000 per month plus $2 per direct labour hour.  Overhead costs are all paid in the month they occur, and there is $100,000 per month in depreciation included.
  • The balance sheet as at December 31, 2018 is below:
  • $750,000 of the equipment will be sold in March.  This will have no effect on monthly depreciation because it was no longer a depreciable asset.
  • Another $400,000 of equipment will be purchased in June and will not be in service until 2020.
  • The company has a line of credit at the bank for up to $10 million at an interest rate of 4%.  Borrowing happens on the first day of the month and repayments are made as soon as cash is available, at the end of each month.  Interest is calculated and deducted from the bank account at the end of each month based on the loan balance outstanding.
  • Since the interest deducted from the bank account, it is ok to allow the ending bank balance to be below the minimum by the amount of interest expense in the month.  For example, if interest expense on the line of credit is $5,000 in a month, the ending balance can be left as $1,995,000 after the interest is deducted.  That is close enough to the minimum for our purposes.

Required:

Using the Excel template provided, complete the master budget including cash projections, balance sheet and income statement.  A template has been provided for you to work with.  All formulas should be linked to the data input area or other cells.  Direct input of numbers in the body of the document should be avoided.  Note:  You must use the Excel file provided.

Submit file to dropbox by 11:59 February 6th.  Feel free to work together, but keep your work separate and submit only your own work.  Late files are not accepted for any reason.

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