2010 CMA Part 1 Section A Budgeting Bee-Line Toys

Estimated time 35 minutes Bee-Line Toys manufactures inexpensive skateboards for distribution to national discount chains. The company has a comprehensive annual budgeting process that ends with the preparation of a pro forma income statement and a pro forma statement of financial position. All of the underlying budget schedules have been completed for the year ending December 31, 2011, and selected data from these schedules are presented in the next column. Also shown on the next page are Bee-Line's pro forma Statement of Cash Receipts and Disbursements for the year ending December31, 2011, and pro forma Statement of Financial Position as of December 31, 2010. Bee-Line uses the accrual basis of accounting. In order to facilitate the budgeting process, Bee-Line accumulates all raw material, direct labor, manufacturing overhead (with the exception of depreciation), selling, and administrative costs in an account called Expenses Payable. The company's income tax rate is 40 percent, and income tax expense is classified as current income taxes payable. 2011 Selected Data Sales Unit Sales Unit Price 9,500,000 $5.50 The majority of sales are on account Production Unit Cost $4.75 Cost $.80 .30

Total Revenue $52,250,000

Production Units 9,640,000

Total Manufacturing Cost $45,790,000 Total Cost $7,680,000 5,640,000

Raw Material Purchases Item Quantity Board 9,600,000 Wheel Assembly* 18,800,000 *Each unit requires two wheel assemblies.

Direct Labor Cost Production Hours Cost per Hour Total Cost 2,410,000 $9.00 $21,690,000 Each unit of production requires 15 minutes of direct labor. Manufacturing Overhead Variable overhead $ 5,790,000 Supervisory salaries 1,250,000 Depreciation 724,000 Other fixed costs __2,840,000 Total manufacturing overhead $10,604,000 The manufacturing overhead rate is $4.40 per direct labor hour ($10,604,000 2,410,000 hours). Selling and Administrative Expense Selling expense Administrative expense Total expense $1,875,000 3,080,000 $4,955,000

Mortgage Payable Each semi-annual payment consists of interest plus an even principal reduction of $100,000. Interest payments for 2011 are $250,000.

2010 CMA Part 1 Section A Budgeting Bee-Line Toys

Bee-Line Toys Pro Forma Statement of Cash Receipts and Disbursements For the Year Ending December 31, 2011 (in thousands) Cash balance 1/1/2011 (estimated) $ Cash receipts Cash sales Collection of accounts receivable Proceeds from sale of additional common stock (20,000 shares) Total cash available Cash disbursements Raw material Direct labor Manufacturing overhead Selling/administrative expense Income taxes Purchase of equipment Cash dividends Mortgage payment Total disbursements Projected cash balance 12/31/2011

565

5,300 46,600 ____420 _52,885 13,380 21,640 9,650 4,980 860 1,200 320 ____450 _52,480 $ 405

2010 CMA Part 1 Section A Budgeting Bee-Line Toys

Bee-Line Toys Pro Forma Statement of Financial Position as of December 31, 2010 (in thousands) Assets Cash Accounts receivable Raw material inventory* Finished goods inventory ** Total current assets Land Plant and equipment Less accumulated depreciation Total long-term assets Total assets Liabilities and Shareholders' Equity Expenses payable Mortgage payable Income taxes payable Total current liabilities Long-term mortgage payable Total liabilities Common stock (500,000 shares authorized, 300,000 shares outstanding, $10 par value) Paid-in capital in excess of par Retained earnings Total shareholders' equity Total liabilities and shareholders' equity *65,000 Boards @ $.80 each 830,000 Wheel Assemblies @ $.30 each **128,000 units @ $4.75 each Required Complete the budgeting process at Bee-Line Toys by preparing the pro forma Statement of Financial Position as of December 31, 2011. Be sure to support the statement with appropriate calculations. 565 825 301 ___608 _2,299 1,757 12,400 _2,960 11,197 $13,496 $

690 200 ___356 1,246 _2,700 _3,946

3,000 5,400 _1,150 _9,550 $13,496

2010 CMA Part 1 Section A Budgeting Bee-Line Toys

Solution
Bee-line Toys pro forma Statement of Financial Position as of December 31, 2011 is presented below.

Cash Accounts receivable1 Raw materials inventory2 Finished goods inventory3 Total current assets Land $13,600 Plant and equipment4 Accumulated depreciation5 Total assets Expenses payable6 Mortgage payable Income taxes payable7 Total current liabilities Long-term mortgage8 Total liabilities Common stock9 Paid-in capital In excess of par10 Retained earnings11 Total shareholders' equity Total liabilities and shareholders' equity

Bee-Line Toys Pro Forma Statement of Financial Position as of December 31, 2011 (In thousands)

405 1,175 125 _1,273 2,978 1,757

$13,600 __3,684

_9,916 $14,651 $ 885 200 ___264 1,349 __2,500 __3,849 3,200 5,620 __1,982 _10,802 $14,651

Supporting Calculations:
1

Accounts receivable: Beginning accounts receivable Total sales $52,250 Less cash sales __5,300 Sub-total Less collections Ending accounts receivable Raw material inventory: Beginning raw material inventory Purchases: Boards Wheels Less Production: Boards (9,640 x $ .80) Wheels (9,640 x 2 x $ .30) Ending raw material inventory

825

_46,950 47,775 _46,600 $ 1,175 $ 301 7,680 5,640

(7,712) _(5,784) $ 125

2010 CMA Part 1 Section A Budgeting Bee-Line Toys

3

Flnished goods inventory: Beginning finished goods inventory Units completed (9,640 x $4.75) Cost of goods sold (9,500 x $4.75) Ending finished goods inventory Plant and equipment: Beginning balance Purchase of equipment Ending balance Accumulated depreciation: Beginning balance 2011 depreciation Ending balance Experses payable: Beginning balance Raw material purchases ($7,680 + $5,640) Labor usage 21,690 Overhead incurred ($10,604 - $724) Selling & administrative expense Raw material paid Labor paid Overhead paid Selling & administrative paid Ending balance Income taxes payable: Beginning balance 2011 tax expense* Taxes paid Ending balance Long-term mortgage payable: Beginning balance Amount to current portion payable Ending balance Common stock: Beginning balance Common stock issued (20,000 x $10) Ending balance Paid-in capital in excess of par: Beginning balance Excess from stock issuance ($420 - $200) Ending balance Retained earnings: Beginning balance 2011 net income* Dividends Ending balance

45,790 (45,125) $ 1,273

608

$ 12,400 ___1,200 $ 13,600 $ 2,960 ____724 $ 3,684 $ 690 13,320

9,880 4,955 (13,380) (21,640) (9,650) _ (4,980) $ 885 356 768 __ _(860) $ 264 $ 2,700 __ (200) $ 2,500 $ 3,000 ____200 $ 3,200 $ 5,400 ____220 $ 5,620 $ 1,150 1,152 __ (320) $ 1,982 $

10

11

2010 CMA Part 1 Section A Budgeting Bee-Line Toys

*2011 pro forma income Sales COGS (9,500 x $4.75) Selling expense Administrative expense Operating income Interest expense Income before taxes Income tax (40%) Net income $52,250 $45,125 1,875 3,080 2,170 250 1,920 ___ 768 $ 1,152