Question

Waterways Corporation is preparing its budget for the coming year, 2020. The first step is to plan for the first quarter of that coming year. The company has gathered information from its managers in preparation of the budgeting process.

Sales
Unit sales for November 2019		111,000
Unit sales for December 2019		103,000
Expected unit sales for January 2020		114,000
Expected unit sales for February 2020		112,000
Expected unit sales for March 2020		116,000
Expected unit sales for April 2020		124,000
Expected unit sales for May 2020		137,000
Unit selling price		$12

Waterways likes to keep 10% of the next month’s unit sales in ending inventory. All sales are on account. 85% of the Accounts Receivable are collected in the month of sale, and 15% of the Accounts Receivable are collected in the month after sale. Accounts receivable on December 31, 2019, totaled $185,400.

Direct Materials

Direct materials cost 80 cents per pound. Two pounds of direct materials are required to produce each unit.

Waterways likes to keep 5% of the materials needed for the next month in its ending inventory. Raw Materials on December 31, 2019, totaled 11,380 pounds. Payment for materials is made within 15 days. 50% is paid in the month of purchase, and 50% is paid in the month after purchase. Accounts Payable on December 31, 2019, totaled $104,585.

Direct Labor

Labor requires 12 minutes per unit for completion and is paid at a rate of $9 per hour.

Manufacturing Overhead
Indirect materials		30¢		per labor hour
Indirect labor		50¢		per labor hour
Utilities		50¢		per labor hour
Maintenance		30¢		per labor hour
Salaries		$41,000		per month
Depreciation		$17,800		per month
Property taxes		$2,800		per month
Insurance		$1,100		per month
Maintenance		$1,400		per month

Selling and Administrative
Variable selling and administrative cost per unit is $1.70.
Advertising		$16,000	a month
Insurance		$1,500	a month
Salaries		$71,000	a month
Depreciation		$2,700	a month
Other fixed costs		$3,200	a month

Other Information

The Cash balance on December 31, 2019, totaled $100,000, but management has decided it would like to maintain a cash balance of at least $700,000 beginning on January 31, 2020. Dividends are paid each month at the rate of $2.70 per share for 5,180 shares outstanding. The company has an open line of

1) For the first quarter of 2017, prepare a sales budget.

2) For the first quarter of 2017, prepare a production budget.

3) For the first quarter of 2017, prepare a direct materials budget. (Round cost per pound to 2 decimal places, e.g. 0.25 and all other answers to 0 decimal places, e.g. 2,520.)

4) For the first quarter of 2017, prepare a direct labor budget. (Round time per unit to nearest hour, e.g. 30 minutes will be rounded to 0.5 hours)

5) For the first quarter of 2017, prepare a manufacturing overhead budget. (Round overhead rate to 2 decimal places, e.g. 5.25 and all other answers to 0 decimal places, e.g. 2,520. List Variable Costs first.)

6)  For the first quarter of 2017, prepare a selling and administrative budget. (Enter per unit expenses rounded to 2 decimal places. E.g. 1.25)

7) For the first quarter of 2017, prepare a schedule for expected cash collections from customers. (Do not leave any answer field blank. Enter 0 for amounts.)

8)For the first quarter of 2017, prepare a schedule for expected payments for materials purchases. (Round answers to 0 decimal places, e.g. 2,520. Do not leave any answer field blank. Enter 0 for amounts.)

9) For the first quarter of 2017, prepare a cash budget. (Round answers to 0 decimal places, e.g. 2,520. Do not leave any answer field blank. Enter 0 for amounts.)

credit with Romney’s Bank. The terms of the agreement requires borrowing to be in $1,000 increments at 9% interest. Waterways borrows on the first day of the month and repays on the last day of the month. A $550,000 equipment purchase is planned for February.

Answer 1

1. Sales Budget:-
Waterways Corporation
Sales Budget
For the first quarter of 2020
		January	February	March
	Budgeted Sales Units	114,000	112,000	116,000
	Selling Price per Unit	$                                 12.00	$                                12.00	$                                12.00
	Budgeted Sales Revenue	$                         1,368,000	$                        1,344,000	$                        1,392,000
2. Production Budget:-
Waterways Corporation
Production Budget
For the first quarter of 2020
		January	February	March	April
	Budgeted Sales Units	114,000	112,000	116,000	124,000
Add:	Desired Ending Finished Goods Inventory (10% of next month's unit sales)	11200	11600	12400	13700
	Goods Avaliable for Sale	125,200	123,600	128,400	137,700
Less:	Beginning Finished Goods Inventory	11,400	11,200	11,600	12,400
	Units to be produced	113,800	112,400	116,800	125,300
		January	February	March	April
a	Next month's unit sales	112,000	116,000	124,000	137,000
b	Desired Ending Finished Goods Inventory (10% of next month's unit sales) (a*10%)	11200	11600	12400	13700

*Beginning finished goods inventory = Ending FG inventory of previous month
*Beginning finished goods inventory (January) = Ending FG inventory of previous month (December,2019)
Ending FG inventory of previous month (December,2019) = 10% of next month's (January's) sales
*Beginning finished goods inventory (January) = 10% of current month's (January's) sales = 10% of 114000 = 11400

3. Direct Materials Purchases Budget:-
Waterways Corporation
Direct Materials Purchases Budget
For the first quarter of 2020
		January	February	March	April
	Budgeted Production Units	113,800	112,400	116,800	125,300
	Direct Materials per unit (pounds)	2	2	2	2
	Production needs (pounds)	227,600	224,800	233,600	250,600
Add:	Desired Ending Raw Materials Inventory (pounds) (5% of the materials needed for the next month)	11,240	11,680	12,530
	Total needed (pounds)	238,840	236,480	246,130
Less:	Beginning Raw Materials Inventory (pounds)	11,380	11,240	11,680
	Purchases needed of Direct Materials (pounds)	227,460	225,240	234,450
	Cost per pound	$                                   0.80	$                                  0.80	$                                  0.80
	Total Purchases Direct Materials	$                             181,968	$                            180,192	$                            187,560	$                                       -
		January	February	March
a	Materials needed for the next month	224,800	233,600	250,600
b	Desired Ending Raw Materials Inventory (5% of the materials needed for the next month) (a*5%)	11240	11680	12530

*Beginning Raw Materials inventory (January) = Ending Raw Materials inventory of previous month (December, 2019) = 11380 pounds (given)
*Ending Raw Materials inventory = Beginning Raw Materials inventory of next month
4. Direct Labor Budget:-
Waterways Corporation
Schedule of Direct Labor Budget
For the first quarter of 2020
		January	February	March
	Budgeted Production Units	113,800	112,400	116,800
	Direct Lobor hours required per unit       (12 min/60 min)	0.20	0.20	0.20
	Budgeted Direct labor hours	22760	22480	23360
	Wage Rate per Hour	$                                         9	$                                        9	$                                        9
	Budgeted Direct labor cost	$                             204,840	$                            202,320	$                            210,240

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