Question Details

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


Please see attached file.

Required:?


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.

 

Months

 

Jan, Feb, Mar

 

Apr, Aug, Sept

 

May, Jun, Jul & Oct

 

Nov

 

Dec

 


 

Percentage of sales

 

4% each

 

5% each

 

8% each

 

16%

 

25%

 


 

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

 

benefits.

 

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

 

Insurance

 

Other

 


 

?

 

?

 


 

?

 

?

 


 

$ 43,200

 

39,000

 

269,400

 

178,800

 

96,000

 

117,600

 

$ 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

 

2015.

 

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

 

expense.

 

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.

 

Notes:

 

? 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

 

month.

 

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:

 

Assets

 

Cash

 

$ 83,365

 

Accounts receivable

 

490,438

 

Inventory-raw materials (WON)

 

15,000

 

Inventory-finished goods

 

31,950

 

Prepaid Insurance

 

64,000

 

Prepaid property and business taxes

 

19,200

 

Capital assets (net)

 

724,000

 

Total assets

 

$1,427,953

 

Liabilities and Shareholders? Equity

 

Accounts payable

 

$ 112,481

 

Income taxes payable

 

22,500

 


 

BUS 122A ? Term Project

 

Capital stock

 

Retained Earnings

 

Total liabilities and shareholders? equity

 


 

1,000,000

 

292,971

 

$1,427,953

 


 

Required:

 

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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