Best Frames Ltd is a worldwide musical part manufacturing firm based in North America. After
many years in the market, the Peterborough division, which produces one product called "Best
Frames Stand," reaches a spike on the sales level. The Management wants to have a significant
investment to expand the facility and increase production, but it is requesting from the division to
prepare a budget for the third quarter of 2021.
The actual sales from 2021 are
May 82,000 units
June 110,000 units
The division manager projected the following sales:
July 2021 110,000 units
August 2021 215,000 units
September 2021 132,000 units
October 2021 157,000 units
November 2021 162,000 units
The selling price is $12 per uni
1. From previous experience, management has determined that finished goods ending
inventory equal to 25% of the next month’s unit sales are required to fit the buyer’s
demands.
2. The Best Frames Stand requires one types of raw materials: Plastic
• Each Best Frames Stand requires 1.6 kilograms of Plastic, at the cost of $1.75 per
kilogram.
• The supplier of Plastic tends to be somewhat erratic, so Best Frames Ltd finds it
necessary to maintain an inventory balance equal to 20% of the material needed for the
next month as a precaution against stock-outs. The direct material on June 30 is 43,600
Kg.
3. The beginning accounts payable will consist of $151,704.
4. Best Frames Ltd pays for 60% of a month’s purchases in the month of purchase and 40% in
the following month.
5. The manufacturing overhead is based on direct labour hours. The workers receive an
average of $18.00 per hour, including employee benefits. Each Best Frames Stand takes 15
minutes to complete.
6. Best Frames Ltd allocate the manufacturing overhead based on direct labour hours; The
variable manufacturing overhead is as follow: Maintenance $0.40; Utilities $0.60; Indirect
Labor $0.60; Indirect materials $0.40
7. The Monthly Fixed manufacturing overhead costs are as follows:
Janitorial $2,500
Insurance $1,750
Depreciation $15,200
Property Taxes $2,100
Salaries $44,800
8. Best Frames Ltd allocate the selling and administration expenses based on units sales; The
variable selling and administration rate is $1.5 per unit sales.
9. The Monthly Selling and administrative expenses are
Salaries $62,100
Other fixed cost $4,600
Insurance $1,200
Depreciation $2,800
Advertising $12,000
10. Sales are on account (credit); 60% of the sales are collected during the month of sales and
40% the following month. This was the same collection pattern as in previous years.
11. The company wants to maintain at the end of each month a minimum bank balance of
$500,000. In case the company has a deficiency of money or is not able to reach this
minimum bank balance, the company can borrow from a line of credit at the rate of 12%
per annum. All borrowing is considered to happen on the first day of the month, and
repayments are on the last day of the month. All borrowings and repayments from the
bank should be in multiples of $5,000. It pays interest monthly. The cash balance on June 30
is $184,000.
12. In August, $500,000 of new equipment to update operations will be purchased with cash.
13. Three months’ insurance is prepaid on the first day of the first month of the quarter. At the
beginning of each quarter the company pays $5,250. In addition at the end of each quarter
the company pays $250,000 in dividends.
14. The company has a Common Stock beginning balance of $177,774 and the Retained Earnings
Beginning Balance $685,000. Property taxes are paid at the beginning of each quarter.
Prepare the 2021, Third Quarter Master Budget for Best Frames Ltd for July, August, September
REQUIRED
l) Prepare the statement of financial position