Question

Evergreen Corporation is preparing the master budget for the third quarter ending March 31, 2009.  It sells a single product for $20 a unit.  Sales are 25% cash and 75% credit.  The credit sales are collected 30% in the month of the sale and the remaining 70% is collected in the next month.  No credit sales occurred in December 2008. The December 31 inventory of finished goods is 15,000 units and projected sales are 20,000, 55000, 65,000, 75,000, and 85,000 units for the first  months of the year.  The desired ending inventory for each month is 35% of the next month's sales. The inventory of Finished Goods expected to be on hand on April 30 is 10,500 units.  Each Finished Unit requires 2 kilograms of materials at a cost of $1.00 per kilo and it takes 15 minutes to complete one unit.  Evergreen anticipates having 20,000 kilos of materials on hand at December 31, 2008.  The company requires 15% of the next month production materials needs to be available before the start of the month.  Labour is paid at the rate of $9.00 per hour and is paid when incurred.  Production overhead is incurred based on units of production and costs $1.50 per unit. Sixty percent of the purchases are paid in the month of purchase and 40% are paid in the following month.  Purchases in December 2008 were $232,500.

Operating expenses are paid in the month incurred and consist of sales commissions (8% of sales), shipping cost (4% of sales), office salaries of $15,000 a month, advertising of $2,800 per month,  and amortization of $3,200 per month, and other miscellaneous expenses of $4,500 per month.  The cash balance must not be negative. The beginning cash balance is $48,000.  Loans are obtained at the end of the month in which a cash shortage occurs and are made in even multiples of $1,000.  Interest is 1% per month based on the beginning-of-month loan balance and must be paid at the end of each month when the loan is repaid.   Evergreen paid $4,000 in cash dividends in January and purchased land for $150,000 in March paying cash.

						Cost per Unit
			Amount per unit	Measure	Cost	Produced
Direct Material				kg/unit
Direct Labour				per hour
Total Manufacturing Overhead
				Evergreen
				Income Statement
				First Quarter, 2009
			January	February	March	TOTAL
Sales
Less Cost of Sales
Gross Margin
Operating Expenses
Income from Operatins
Interest Expense
Net Income

Answer 1

											Column1
	Column1	Column2	Column3	Column4	Column5	Column6	Column7	Column8
								Cost per Unit
					Amount per unit	Measure	Cost	Produced
	Direct Material	2 kg of Material @$1.00 Per Kilo			$1.00	Kgs	2	2
	Direct Labour	15 Minutes per unit			$9.00	Hour	2.25(15/60*9.00)	2.25
	Total manufacturing overhead				$1.50	Unit	1.5	1.5
					Evergreen
					Income Statement
					First Quarter,2009				Respective Sales in a month*SP
					January	Febuary	March	Total
	Sales				400000	1100000	1300000	2800000	Production units*Cost per unit
	Less:Cost of Sales								Production units*Cost per unit
	Direct Material				48500	117000	137000	302500	Production units*Cost per unit
	Direct labour				54562.5	131625	154125	340312.5
	Total manufacturing Overhead				36375	87750	102750	226875
	Gross Margin				260562.5	763625	906125	1930312.5
	Operating Expenses				73500	157500	181500	412500
	Income from Operations				187062.5	606125	724625	1517812.5
	Interest Income				0	0	0	0
	Net Income				187062.5	606125	724625	1517812.5
1	Working notes
	Production budget in units:
	Particulars	Jan	Feb	Mar	Apr
	Sales	20000	55000	65000	75000
	Less:Opening Stock	15000	19250	22750	26250
	Add:Closing Stock	19250	22750	26250	10500
		(55000*35%)	(65000*35%)	(75000*35%)	(Given)
	Production In units	24250	58500	68500	59250
2
	Operating expenes:
	Particulars	Jan	Feb	Mar
	Sales	400000	1100000	1300000
	Operating expenes:
	Sales Commission	32000	88000	104000
	Shipping Cost	16000	44000	52000
	Office Salaries	15000	15000	15000
	Advertisement expenses	2800	2800	2800
	Amortization	3200	3200	3200
	Other Miscellaneous	4500	4500	4500
		73500	157500	181500
3
	Calculation of Interest Income:
	Particulars	Jan	Feb	Mar
	Opening balance	48000	132870	677450
	Cash sales	100000	275000	325000	(sales*30%)
	Receipt From Customers	90000	517500	870000
	(w.n 4)
	Total (A)	238000	925370	1872450
	Less:Payments
	Payment for purchases	27630	90420	128535
	(w.n 5)
	Operating expenses	73500	157500	181500
	Cash dividend	4000
	purchase of Land			150000
	Total (B)	105130	247920	460035
	Closing balance (A-B)	132870	677450	1412415
4
	Calculation of credit Sales:	Jan	Feb	Mar
	Particulars	400000	1100000	1300000
	Sales	100000	275000	325000
	Cash sales	(40000*25%)	(1100000*25%)	(1300000*25%)
	Credit sales	300000	825000	975000
	30% in the month of sale	90000	247500	292500
	70% in the next month		270000	577500
5	Collection	90000	517500	870000
	Calculation of Purchases:
	Particulars		Feb	Mar	April
	Material required for	48500	117000	137000	118500
	production
	Add:closing stock	17550	20550	17775	(15%of next month production)
	Less:Opening stock	20000	17550	20550
	Purchases	46050	120000	134225
	60% in the month of purchase	27630	72000	80535
	40% in the following month		18420	48000
	Payment	27630	90420	128535
Note: Since no negative cash balance occur,no borrowings has not been made.