Question

Preparation of a complete master budget

The management of Zigby Manufacturing prepared the following estimated balance sheet for March, 2015:

ZIGBY MANUFACTURING
Estimated Balance Sheet
March 31, 2015
ASSETS
Cash..........................................................		$ 40,000
Accounts receivable................................		342,248
Raw materials inventory.......................... Finished goods inventory........................		98,500    325,540
Total current assets.................................		806,288
Equipment................................................	$600,000
Less accumulated depreciation..............	150,000	450,000
Total assets..............................................		$1,256,288
LIABILITIES AND EQUITY
Accounts payable....................................		$    200,500
Short-term notes payable....................................		12,000
Taxes payable..........................................		0
Total current liabilities.............................		212.500
Long-term note payable........................... Common stock.........................................	$335,000	500,000
Retained earnings....................................	208,788
Total stockholders’ equity.......................		543,788
Total liabilities and equity........................		$1,256,288

To prepare a master budget for April, May, and June of 2015, management gathers the following information:

• Sales for March total 20,500 units. Forecasted sales in units are as follows: April, 20,500; May, 19,500; June, 20,000; and July, 20,500. Sales of 240,000 units are forecasted for the entire year. The product's selling price is $23.85 per unit and its total product cost is $19.85 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 4,925 units, which complies with the policy. The expected June 30 ending raw materials inventory is 4,000 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 16,400 units, which complies with the policy.

• Each finished unit requires 0.50 hours of direct labor at a rate of $15 per hour.

• Overhead is allocated based on direct labor hours. The predetermined variable overhead rate is $2.70 per direct labor hour. Depreciation of $20,000 per month is treated as fixed factory overhead.

• Sales representatives' commissions are 8% of sales and are paid in the month of the sales. The sales manager's monthly salary is $3,000.

• Monthly general and administrative expenses include $12,000 administrative salaries and 0.9% monthly interest on the long-term note payable.

• The company expects 30% of sales to be for cash and the remaining 70% on credit. Receivables are collected in full in the month following the sale (none is 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 $40,000. 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 $10,000 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 35% in the quarter and paid in the third calendar quarter.

• Equipment purchases of $130,000 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. Round calculations up to the nearest whole dollar, except for the amount of cash sales, which should be rounded down to the nearest whole dollar.

1. Raw materials budget.
2. Direct labor budget.

Check  

(2) Units to produce: April, 19,700; May, 19,900

(3) Cost of raw materials purchases, April, $198,000

(5) Total overhead cost, May, $46,865

(8) Ending cash balance: April, $83,346; May, $124,295

(10) Budgeted total assets, June 30: $1,299,440

Answer 1

Solution 1:
ZIGBY MANUFACTURING
Sales Budget
April, May, and June 2015
	Budgeted Unit Sales	Budgeted Unit Price	Budgeted Sales Dollars
Apr-15	20500	$23.85	$488,925.00
May-15	19500	$23.85	$465,075.00
Jun-15	20000	$23.85	$477,000.00
Totals for the second quarter	60000	$23.85	$1,431,000.00
Solution 2:
ZIGBY MANUFACTURING
Production Budget
April, May, and June 2015
	April	May	June
Next month's budgeted sales (units)	19500	20000	20500
Ratio of inventory to future sales	80%	80%	80%
Desired ending inventory	15600	16000	16400
Budgeted sales units	20500	19500	20000
Required units of available production	36100	35500	36400
Beginning inventory	16400	15600	16000
Units to be produced	19700	19900	20400
Solution 3:
ZIGBY MANUFACTURING
Raw Materials Budget
April, May, and June 2015
	April	May	June
Production budget (units)	19700	19900	20400
Raw material per unit	0.5	0.5	0.5
Materials needed for production	9850	9950	10200
Desired ending inventory	4975	5100	4000
Total materials requirements (units)	14825	15050	14200
Beginning inventory	4925	4975	5100
Materials to be purchased	9900	10075	9100
Material price per unit	$20.00	$20.00	$20.00
Budgeted raw material purchases	$198,000.00	$201,500.00	$182,000.00
Solution 4:
ZIGBY MANUFACTURING
Direct Labor Budget
April, May, and June 2015
	April	May	June	Total
Budgeted production (units)	19700	19900	20400	60000
Direct labor hour per unit	0.5	0.5	0.5	0.5
Total labor hours needed	9850	9950	10200	30000
Direct labor rate per hour	$15.00	$15.00	$15.00	$15.00
Budgeted direct labor cost	$147,750.00	$149,250.00	$153,000.00	$450,000.00