Question

The management of Zigby Manufacturing prepared the following estimated balance sheet for March, 2013:

   

ZIGBY MANUFACTURING Estimated Balance Sheet March 31, 2013
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 2013, management gathers the following information.

  

a.	Sales for March total 23,300 units. Forecasted sales in units are as follows: April, 23,300; May, 17,000; June, 21,900; 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.
b.	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.
c.	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
d.	Each finished unit requires 0.50 hours of direct labor at a rate of $14 per hour.
e.	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.
f.	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 per month.
g.	Monthly general and administrative expenses include $30,000 administrative salaries and 0.8% monthly interest on the long-term note payable.
h.	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 is collected in the month of the sale).
i.	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.
J.	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.
K.	Dividends of $28,000 are to be declared and paid in May.

l.	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.
m.	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. 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. Sales Budgets

2. Production Budget

3. Raw Materials Budget

4. Direct Labor Budget

5. Factory Overhead Budget

6. Selling Expense Budget

7, General and Administrative Expense Budget

8.. Cash Budget

9. Budgeted Income Statement for the entire first quarter

10. Budgeted Balance Sheet

Answer 1

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AS FOR GIVEN DATA...

1. Error you made in cash flows payment for raw material that you have taken is actually payment for labor. Payment of raw material would be $206,390 which is accounts payable for March - since the purchases are on credit and paid for in the subsequent month.

I checked all the other budgets that you prepared and found them correct. Cash flow statement and Income statement is below: