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. 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
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
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
? 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
Amortization on equipment
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:
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
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
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:
Inventory-raw materials (WON)
Prepaid property and business taxes
Capital assets (net)
Liabilities and Shareholders? Equity
Income taxes payable
BUS 122A ? Term Project
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
Direct Materials Budget & Schedule of Cash Disbursements
Direct Labour Budget
Manufacturing Overhead Budget
Ending Finished Goods Inventory Budget
Selling and Administrative Expense 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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