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Comprehensive Budget Project Comprehensive Budget Project 2a Hillary’s Handbags Manufacturing Co. Hillary’s Handbags Manufacturing Co. produces nylon handbags and larger bags to sell to tourists visiting the Western United States and other tourist areas. The design of the two products is unique and represents a breakthrough in the industry. The company is completing its ninth year of operations and is preparing to build its master budget for the coming year, 2021. The budget will detail each quarter’s activity and the activity for the year in total. The master budget will be based on the following information: A. Projected 2021 unit sales for each quarter and for the first two quarters of 2022 are as follows: Year 2021 2021 2022 2022 Produce Handbags Larger Handbags Handbags Larger Handbags First Quarter 10,395 9,240 11,550 10,395 Second Quarter 20,790 13,860 18,480 15,015 Third Quarter 16,170 6,930 Fourth Quarter 13,629 2,310 B. The selling price for the above quarters is projected at $75.00 per smaller bags and $195.00 per larger bag. C. Hillary’s carefully screens its customers and expects no uncollectable accounts. For budget purposes, each quarter has the following collection pattern: 50% of the total sales will be collected in the quarter of sale, 50% of the total will be collected in the quarter following the sale. D. Hillary’s ended the current year (2019) with a finished goods inventory of 12,705 smaller bags and 6,930 larger bags. Because of a discouraging economic forecast, it plans to budget an ending inventory of 20% of the next quarter’s unit sales. The company’s ending Work-in-Process inventory is expected to be $127,050 (this number will only be used in the Cost of Goods Manufactured Statement and Balance Sheet). E. The following are the budgeted standard costs to make 1 finished product. Handbags Larger Handbags Direct Material Nylon .330 sq. yd. @$10.396 yd. 1.375 sq. yd. @$10.396 yd. Lining .110 sq. yd. @$2.772 yd. .55 sq. yd. @$2.772 yd. Direct Labor: Cutting .110 hr. @$20.79 hr. .165 hr. @$20.79 hr. Sewing .275 hr. @$34.65 hr. .44 hr. @$34.65 hr. Overhead: Variable Per Travel Bag @$3.58 Per larger bag @$3.58 Fixed Per travel bag @$2.356 Per larger bag @$2.356 F. The fixed overhead rate is based on a four year average and will be used only to cost the projected finished goods inventory on the Income Statement and Balance Sheet. G. Hillary’s will start the budget year with 3,609.5 sq. yards of nylon and 4,344.5 Sq. yards of lining. For budgeting purposes, the plan is to always have an ending inventory of nylon equal to 30% of the next quarter’s needs and lining equal to 25% of next quarter’s needs. H. Hillary’s buys raw material on account and plans to pay for 25% in the quarter of purchase and the remaining 75% in the next quarter. The accounts payable account consists only of the unpaid portion of the purchase of raw materials. I. Wages and salaries are paid on the last day of the month. J. Fixed overhead is projected as follows and is paid for in the quarter incurred (except for depreciation). Depreciation $20,790 per qtr. Property tax $4,274 per qtr. Supervisory Salary $25,988 per qtr. Insurance $1,444 per qtr. K. Variable overhead is budgeted as follows and is paid for in the quarter incurred. It is based on total units produced (small backpacks + larger backpacks). Indirect Materials $0.4851 per unit produced Indirect Labor $1.9173 per unit produced Maintenance $0.3696 per unit produced Utilities $0.8085 per unit produced L. Marketing expenses are as follows and are paid for in the quarter incurred. Advertising $25,988 per qtr. Commissions 5.0% of dollar sales Salary $31,763 per qtr. M. Fixed administrative expenses are as follows and are paid for in the quarter incurred (except for depreciation). Depreciation - $1,444 per qtr. Officers’ Salaries - $25,988 per qtr Office Salaries - $18,625 per qtr Office Rent - $2,490.47 per qtr Miscellaneous - $1,804.69 per qtr N. The Balance Sheet (unclassified) for the year just ending (2019) is as follows: Assets: Cash $ 308,000 Accounts Receivable 407,000 Finished Goods Inventory-smaller 870,232 Finished Goods Inventory-larger 876,480 Work-in-process Inventory 235,840 Nylon Inventory 123,750 Lining Inventory 39,600 Property, plant, and equip. (net)$ 3,520,000 Total Assets$ 6,380,902 Liabilities: Accounts Payable $209,000 Income Tax Payable$ 1,210,000 Interest Payable 0 Dividends Payable 0 Short-term Debt 0 Stockholders Equity: Common Stock$ 3,300,000 Retained Earnings$ 1,661,902 Total liabilities and Stockholder’s Equity $ 6,380,902 O. In January Hillary’s expects to declare a $240,000 dividend. It will be paid ½ in the second quarter and ½ in the fourth quarter. P. Hillary’s also plans to purchase and pay for $125,000 of equipment during each quarter. Q. The income tax rate is 35% and is paid on April 15 of the next year. Required: Prepare the formal master budget schedules for each quarter of the coming year, 2020 and for the year in total. Prepare formal financial statements for the year only. The following components must be included: a. Sales budget b. Production budget c. Material purchases budget d. Direct Labor budget e. Variable Overhead budget f. Fixed Overhead budget g. Marketing budget h. General and Administration budget i. Cash budget j. Schedule of Cost of Goods Manufactured (annual only) k. Classified Income Statement (annual only) l. Retained Earnings Statement (annual only) m. Classified Balance Sheet (annual only) n. Statement of Cash Flows - indirect method (annual only) This budget will initially be prepared by hand and will later be prepared individually in Excel. Ten percent of the Excel grade will be based on extras that make the report look better, more informative, or perform additional functions. A printout of a list of these extras will be required to aid in grading. Part A (Due at the beginning of class on due date listed in the class schedule) submit a report with the formal budget printouts (A-N) and a list of extras. This part will be graded on format, documentation, and extras.