Question

The management of Zigby Manufacturing prepared the following estimated balance sheet for March 2017:

ZIGBY MANUFACTURING Estimated Balance Sheet March 31, 2017
Assets
Cash	$	58,000
Accounts receivable		484,640
Raw materials inventory		91,290
Finished goods inventory		393,304
Total current assets		1,027,234
Equipment, gross		636,000
Accumulated depreciation		(168,000	)
Equipment, net		468,000
Total assets	$	1,495,234
Liabilities and Equity
Accounts payable	$	206,390
Short-term notes payable		30,000
Total current liabilities		236,390
Long-term note payable		525,000
Total liabilities		761,390
Common stock		353,000
Retained earnings		380,844
Total stockholders’ equity		733,844
Total liabilities and equity	$	1,495,234

To prepare a master budget for April, May, and June of 2017, management gathers the following information:

Sales for March total 23,300 units. Forecasted sales in units are as follows: April, 23,300; May, 17,000; June, 21,900; and July, 23,300. Sales of 258,000 units are forecasted for the entire year. The product’s selling price is $26.00 per unit and its total product cost is $21.10 per unit.

Company policy calls for a given month’s ending raw materials inventory to equal 50% of the next month’s materials requirements. The March 31 raw materials inventory is 4,565 units, which complies with the policy. The expected June 30 ending raw materials inventory is 5,800 units. Raw materials cost $20 per unit. Each finished unit requires 0.50 units of raw materials.

Company policy calls for a given month’s ending finished goods inventory to equal 80% of the next month’s expected unit sales. The March 31 finished goods inventory is 18,640 units, which complies with the policy.

Each finished unit requires 0.50 hours of direct labor at a rate of $14 per hour.

Overhead is allocated based on direct labor hours. The predetermined variable overhead rate is $4.50 per direct labor hour. Depreciation of $38,360 per month is treated as fixed factory overhead.

Sales representatives’ commissions are 10% of sales and are paid in the month of the sales. The sales manager’s monthly salary is $4,800.

Monthly general and administrative expenses include $30,000 administrative salaries and 0.8% monthly interest on the long-term note payable.

The company expects 20% of sales to be for cash and the remaining 80% on credit. Receivables are collected in full in the month following the sale (none are collected in the month of the sale).

All raw materials purchases are on credit, and no payables arise from any other transactions. One month’s raw materials purchases are fully paid in the next month.

The minimum ending cash balance for all months is $58,000. If necessary, the company borrows enough cash using a short-term note to reach the minimum. Short-term notes require an interest payment of 1% at each month-end (before any repayment). If the ending cash balance exceeds the minimum, the excess will be applied to repaying the short-term notes payable balance.

Dividends of $28,000 are to be declared and paid in May.

No cash payments for income taxes are to be made during the second calendar quarter. Income tax will be assessed at 40% in the quarter and paid in the third calendar quarter.

Equipment purchases of $148,000 are budgeted for the last day of June.

Required:
Prepare the following budgets and other financial information as required. All budgets and other financial information should be prepared for the second calendar quarter, except as otherwise noted below.

Selling expense budget.
General and administrative expense budget.
Cash budget.
Budgeted income statement for the entire second quarter (not for each month separately).
Budgeted balance sheet.

Answer 1

Required Budgets are as prepared below:

6. selling expense budget
Zigby Manufacturing
Selling expense Budget
For the quarter ended June 30,2017
	Month
Particulars	April	May	June	Total
Budgeted Sales	605,800	442,000	569,400	1,617,200
Sales commisssions (10% of sales)	60,580	44,200	56,940	161,720
Salaries	4,800	4,800	4,800	14,400
7. General and administrative expense budget
Zigby Manufacturing
General and administrative expense Budget
For the quarter ended June 30,2017
	Month
Particulars	April	May	June	Total
Administrative salaries	30,000	30,000	30,000	90,000
Interest (.8%*525,000)	4,200	4,200	4,200	12,600
Total expense	34,200	34,200	34,200	102,600
Zigby Manufacturing
Cash Budget
For the quarter ended June 30,2017
	Month
Particulars	April	May	June	Total
Beginning Cash balance	58,000	158,625	231,055	58,000
Add: Collection from customers	$605,800	$573,040	$467,480	$1,646,320
cash available for use	$663,800	$731,665	$698,535	$1,704,320
Less: cash Disbursements
Merchandise purchase	$206,390	$195,900	$219,700	$621,990
Direct labour	127,820	146,440	161,140	$435,400
Manufacturing overhead	41,085	47,070	51,795	$139,950
sales commision	60,580	44,200	56,940	$161,720
Salaries	4,800	4,800	4,800	$14,400
Administrative saleries	30,000	30,000	30,000	$90,000
Interest (.8%*525,000)	4,200	4,200	4,200	$12,600
Dividend paid		28,000		$28,000
Equipment purchase			148,000	$148,000
Total disbusrement	474,875	500,610	676,575	1,652,060
Cash surplus/Deficit	188,925	231,055	21,960	52,260
Financing
Borrowing			37,000	37,000
Repayment	-30,000			-30,000
Interest	-300			-300
Net cash from Financing	-30,300	0	37,000	6,700
Budgeted ending cash balance	158,625	231,055	58,960	58,960
Zigby Manufacturing
Budgeted Income Statement
For the quarter ended June 30,2017
Particulars	Amount ($)	Amount ($)
Sales		1,617,200
Less: Cost of goods sold (62,200*21.1)		1,312,420
Gross margin		304,780
Less: Selling and administrative exp
Administrative salaries	90,000
Sales commissions	161,720
Sales Salaries	14,400
		266,120
Net operating Income		38,660
Interest expense		12,900
Net Income		25,760
Dividend Paid		28,000
Net Income		-2,240
Zigby manufacturing
Budgeted balance Sheet
Jun-30
Assets
Cash	58,960
Accounts Receivable	455,520
Raw material Inventory	116,000
Finished Goods Inventory	393,304
Total current assets	1,023,784
Equipment gross	784,000
Accumulated dep	-283,080
Equipment Net	500,920
Total assets	1,524,704
Liabilities and Stockholders' Equity
Accounts payale	$231,100
Short term Notes payable	37,000
Total current liabilities	268,100
Long term Notes Payable	525,000
Total liabilities	793,100
Common Stock	353,000
Retained Earnings (380,844-2,240)	378,604
Total stockholders equity	731,604
Total liabilities and stockholders equity	1,524,704

Working:

1. Sales Budget
Zigby Manufacturing
Sales Budget
For the quarter ended June 30,2017
	Month
Particulars	April	May	June	Total
Sale Units (a)	23,300	17,000	21,900	62,200
*Price per unit (b)	$26.0	$26.0	$26.0	$26.0
Total Sales	$605,800	$442,000	$569,400	$1,617,200
Zigby Manufacturing
Schedule of expected Cash collections
For the quarter ended June 30,2017
	Month
Particulars	April	May	June	Total
Beginning Accounts Receivable (a)	484,640			484,640
April Cash Sales	121,160			121,160
April Credit Sales		484,640		484,640
May Cash Sales		88,400		88,400
May Credit Sales			353,600	353,600
June Cash Sales			113,880	113,880
Total collections	605,800	573,040	467,480	1,646,320
June end Account Receivable 569,400*.8	455520
2. Production Budget
Zigby Manufacturing
Production Budget
For the quarter ended June 30,2017
	Month
Particulars	April	May	June	Total
Sale Units (a)	23,300	17,000	21,900	62,200
Planned ending units (b)	13,600	17,520	18,640	18,640
Beginning units (c )	18,640	13,600	17,520	18,640
Planned production units (d)= (a+b-c)	18,260	20,920	23,020	62,200
June ending inventory 23,300*.8
3. Raw material Budget
Zigby Manufacturing
Raw Material Purchase Budget
For the quarter ended June 30,2017
	Month
Particulars	April	May	June	Total
Planned production units (a)	18,260	20,920	23,020	62,200
*Direct Material required per unit (b)	0.5	0.5	0.5	0.5
Direct Material Required for production (c )	9,130	10,460	11,510	31,100
Budgeted ending Direct Material (d)	5,230	5,755	5,800	5,800
Beginning Direct Material (e )	4,565	5,230	5,755	4,565
Budgeted direct material purchase f= c+d-e	9,795	10,985	11,555	32,335
Cost per unit (g)	$20	$20	$20	$20
BudgetedDM purchases	$195,900	$219,700	$231,100	646,700
Zigby Manufacturing
Schedule of expected Cash payments
For the quarter ended June 30,2017
	Month
Particulars	April	May	June	Total
Beginning Accounts Payable (a)	$206,390			$206,390
April Purchases (b)		$195,900		$195,900
May Purchases (c )			$219,700	$219,700
June Purchases (d)				$0
Total payments (a+b+c+d)	$206,390	$195,900	$219,700	$621,990
June end Accounts Payable	$231,100
4. Direct labour Budget
Zigby Manufacturing
Direct Labour Budget
For the quarter ended June 30,2017
	Month
Particulars	April	May	June	Total
Planned production units (a)	18,260	20,920	23,020	62,200
*Direct labour required per unit (b)	0.5	0.5	0.5	0.5
Budgeted Direct labour hours	9,130	10,460	11,510	31,100
Cost per direct labour hour	14	14	14	14
Budgeted Direct labour Cost	$127,820	$146,440	$161,140	$435,400
5. Factory Overhead Budget
Zigby Manufacturing
Factory Overhead Budget
For the quarter ended June 30,2017
	Month
Particulars	April	May	June	Total
Variable Factory Overhead:
Budgeted Direct labour hours	9,130.0	10,460.0	11,510.0	31,100.0
Variable Overhead rate	4.5	4.5	4.5	4.5
Total Variable overhead	41,085	47,070	51,795	139,950
Fixed factory overhead
Depreciation	38,360	38,360	38,360	115,080