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Answered: - BUS 122A - Term Project Tyler Ltd. Tyler Ltd. is a company

Please see attached file.


1.?Prepare a?monthlymaster budget for?Tylerforthe year ended December 31,?2016,including the following schedules:

Sales Budget & Schedule of Cash ReceiptsProduction BudgetDirect Materials Budget & Schedule of Cash DisbursementsDirect Labour BudgetManufacturing Overhead BudgetEnding Finished Goods Inventory Budget?Selling and Administrative Expense BudgetCash Budget

2.?Prepare a?monthly?budgeted income statementfor the year ended December 31,?2016.Include a total column that gives the total budgeted income statement for the yearended December 31,?2016.

BUS 122A ? Term Project



Tyler Ltd.


Tyler Ltd. is a company that manufactures and sells a single product, called a Gadget.


For planning and control purposes they utilize a monthly master budget, which is usually


developed at least six months in advance of the budget year. Their fiscal year end is


December 31.


Senior management and department leaders have met and gathered data on the plans for


the future of the company.


The company has recently had to fire its Controller. The CEO, needing the budget


completed, has approached you, a management accounting student, for help in preparing


the budget for the coming fiscal year. Your conversations with the CEO and your


investigations of the company?s records have revealed the following information:


1. Their sales forecast:


? For the year ended December 31, 2015: 190,000 units at $25.00 each*


? For the year ended December 31, 2016: 200,000 units at $25.00 each


? For the year ended December 31, 2017: 210,000 units at $25.00 each


*Expected sales for the year ended December 31, 2015 are based on actual sales to


date and budgeted sales for the duration of the year.


2. Sales are seasonal with the peak months being the summer months and Christmas


season. The following table shows expected distribution of sales for each month


based on percentage of the total budgeted sales.




Jan, Feb, Mar


Apr, Aug, Sept


May, Jun, Jul & Oct







Percentage of sales


4% each


5% each


8% each







3. Sales are on a cash and credit basis, with 55% collected during the month of the sale,


35% the following month, and 9.5% the month thereafter. ? of 1% of sales are


considered uncollectible (bad debt expense).


4. From previous experience, management has determined that an ending inventory


equal to 30% of the next month?s sales is required to meet the buyer?s demands.


5. Because sales are seasonal, Tyler must rent an additional storage facility for October


and November to house the additional finished goods inventory on hand. The only


related cost is a flat $15,000 per month, payable at the beginning of the month.



BUS 122A ? Term Project


6. There are three types of raw material used in the production of Gadgets.


? Material #1 (Won) is a material purchased in powder form. Each Gadget requires


0.75 kilograms of Won, at a cost of $10.00 per kilogram. The supplier of Won


tends to be somewhat erratic so Tyler finds it necessary to maintain an inventory


balance equal to 50% of the following month?s production needs as a precaution


against stock-outs.


? Material #2 (Too) is purchased from an outside supplier. It is attached during the


assembly process. For a small premium, Tyler has made a JIT agreement with the


supplier which includes on-time and quality assurances. Each Gadget uses three


(3) units of Too, which cost $0.50 each. The supplier of Too is paid in the month


the product is supplied.


? The final component for the toy is a length of rope which is used to pull the


Gadget. The rope is supplied by a student entrepreneur, who must be paid in


cash. On the first day of every month she delivers exactly the right amount to


manufacture the budgeted number of units for that month. It costs $1.60 per


meter and Tyler uses one-quarter meter for each Gadget.


7. Accounts payable consists of WON purchases only. Tyler pays for 30% of a month?s


purchases in the month of purchase, 35% in the following month and the remaining


35% two months after the month of purchase. There is no early payment discount.


8. The manufacturing process for Gadgets is divided into three separate activities;


forming, assembly and finishing.


a. The forming process is where WON is formed into several shapes that snap


together to make the Gadget.


b. During the assembly stage, the shapes are fused together. The forming and


assembly stages of the manufacturing process are highly automated, so the only


employees are three supervisors, who are trained to operate the equipment and


make repairs as required. The supervisors work shifts, allowing the plant to


operate for longer hours during the busier months. They are also responsible for


managing the employees who work in the finishing department


c. The finishing stage is where the wheel and the pull rope are attached and the


Gadget is prepared for shipping. This is the only part of the manufacturing


process that employs direct labour. Most of the staff work on a part-time basis, so


their hours can be set based on production requirements. This also eliminates the


need for overtime. These employees are paid based on the number of units


produced. They receive an average of $18.00 per hour including employee




Each Gadget spends 12 minutes in the finishing department



BUS 122A ? Term Project


9. Because of the large difference in the manufacturing stages, Tyler uses two separate


variable manufacturing overhead rates. The forming and assembly departments use


similar equipment and with the company?s concentration on a single product, the


manufacturing overhead is allocated based on volume (i.e. the units produced). The


combined unit variable overhead manufacturing rate for forming and assembly is


$3.25, consisting of: Utilities--$1.50; Indirect Materials--$0.50; Plant maintenance-$0.75; environmental fee--$0.35; and Other--$0.15.


The best cost driver for the finishing department is considered to be direct labour


hours. Here the predetermined variable manufacturing overhead is expected to be


$2.05 per hour.


10. Fixed manufacturing overhead costs are not separated between departments. The


total costs for the entire year are as follows:


Training and development


Property and business taxes


Supervisor?s salary


Amortization on equipment

















$ 43,200












$ 744,000


The property and business taxes are paid in one lump sum on June 30 of each


year. The expected payment for next year (2016) is $39,600.


The annual insurance premium is paid at the beginning of September each year.


There should be no change in the premium for 2016, it should be the same as




All other ?cash-related? fixed manufacturing overhead costs are incurred evenly


over the year and paid as incurred.


Tyler uses the straight line method of amortization.



11. Selling and administrative expenses are known to be a mixed cost; however, there is a


lot of uncertainty about the portion that is fixed. Previous year?s experience has


provided the following information (rounded):


Lowest level of sales:


Highest level of sales:



140,000 units


220,000 units



Total Operating Expenses: $778,200


Total Operating Expenses: $1,023,000



The annual amount of amortization on office furniture and equipment is only


$24,000?and this amount is not included in the fixed portion of the selling and


administration expenses. Also not included in the above expenses is bad debt




Payments for selling and administrative expenses occur in the month in which they


are incurred.


12. During the fiscal year ended December 31, 2016, Tyler will be required to make


monthly income tax instalment payments of $5,000. Outstanding income taxes from


the year ended December 31, 2015 must be paid in April 2016. Income tax expense



BUS 122A ? Term Project


is estimated to be 25% of net income. Income taxes for the year ended December 31,


2016, in excess of instalment payments, will be paid in April, 2017.




? Income tax instalments are required of corporations that owed tax to IRS in the


prior year (just like how as a ?personal? tax payer you pay tax with each


paycheque, companies are required to remit an amount monthly if they paid tax in


the prior year).


? Instalments are calculated based on the amount owed from the prior year. When


paid, companies usually put the amount into a balance sheet account called


?income tax receivable/payable?.


? Once the amount of income tax owed for the year is calculated (usually after year


end) the company is able to calculate any remaining amount owed to or receivable


from IRS as this should be the remaining balance in the ?income tax


receivable/payable? account.


13. Tyler is planning to acquire additional manufacturing equipment for $306,000 in


February, 2016. They have a special agreement to pay the supplier in three equal


instalments: in May, July and September. The manufacturing overhead costs shown


above already include the amortization on this equipment.


14. An arrangement has been made with the local bank to have a line of credit at an


interest rate of 8% per annum. All borrowing is considered to happen on the first day


of the month, repayments are on the last day of the month. Interest must be paid at


the beginning of the following month. Interest is calculated on the balance on the 2nd


last day of the month, which includes any amounts borrowed but not repaid that




15. Tyler Ltd. requires a minimum cash balance on hand at all times of $5,000.


16. Tyler Ltd. has a policy of paying dividends at the end of each calendar quarter. The


CEO tells you that the board of directors is planning on continuing their policy of


declaring dividends of $50,000 per quarter.


17. A listing of the estimated balances in the company?s ledger accounts as of


December 31, 2015 is given below:






$ 83,365


Accounts receivable




Inventory-raw materials (WON)




Inventory-finished goods




Prepaid Insurance




Prepaid property and business taxes




Capital assets (net)




Total assets




Liabilities and Shareholders? Equity


Accounts payable


$ 112,481


Income taxes payable





BUS 122A ? Term Project


Capital stock


Retained Earnings


Total liabilities and shareholders? equity












1. Prepare a monthly master budget for Tyler for the year ended December 31, 2016,


including the following schedules:


Sales Budget & Schedule of Cash Receipts


Production Budget


Direct Materials Budget & Schedule of Cash Disbursements


Direct Labour Budget


Manufacturing Overhead Budget


Ending Finished Goods Inventory Budget


Selling and Administrative Expense Budget


Cash Budget


2. Prepare a monthly budgeted income statement for the year ended December 31, 2016.


Include a total column that gives the total budgeted income statement for the year


ended December 31, 2016.




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