ACC 311 Master Budget Project Innovate Company General Instructions

ACC 311

Master Budget Problem

Spring Semester - 2016

Innovate Company is a highly-progressive organization that produces Netbook computers. The design of Innovate’s system is unique and represents the latest breakthrough in touch-screen portable computers. The company is preparing to build its master budget for the coming year (20XX). The annual budget is segmented into detail for each quarter’s activity and for the year in total. The master budget will be based on the following information:

1. Fourth quarter sales from the prior year are 5,500 units.
2. Unit sales by quarter (for 20XX) are projected as follows:

First quarter 6,000

Second quarter 8,000

Third quarter 8,000

Fourth quarter 9,000

The selling price is $650 per unit. All sales are on credit. Innovate collects 85 percent of all sales within the quarter in which they are realized; the other 15 percent are collected in the following quarter. Innovate will start recording bad debt expense this year. The company estimates that 1 percent of the balance of accounts receivable will be uncollected and will make an adjustment entry at the end of the year (it will not affect the cash account for the current year, but it will affect certain income statement and balance sheet accounts).

1. There is no beginning inventory of finished goods. Innovate is planning the following ending finished goods inventories for the quarter

REQUIRED: Prepare a master budget for Electra Company for each quarter of 20XX and for the year in total. The following component budgets must be included:

1. Sales budget
2. Production budget
3. Direct materials purchases budget
4. Direct labor budget
5. Overhead budget
6. Selling and administration expense budget
7. Ending finished goods inventory budget
8. Costs of goods sold budget
9. Cash budget
10. Pro forma income statement (using absorption costing)
11. Pro forma balance sheet