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	$	51,000
Accounts receivable		483,600
Raw materials inventory		94,100
Finished goods inventory		443,520
Total current assets		1,072,220
Equipment, gross		622,000
Accumulated depreciation		(161,000	)
Equipment, net		461,000
Total assets	$	1,533,220
Liabilities and Equity
Accounts payable	$	211,400
Short-term notes payable		23,000
Total current liabilities		234,400
Long-term note payable		515,000
Total liabilities		749,400
Common stock		346,000
Retained earnings		437,820
Total stockholders’ equity		783,820
Total liabilities and equity	$	1,533,220

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

1. Sales for March total 24,000 units. Forecasted sales in units are as follows: April, 24,000; May, 16,600; June, 22,200; and July, 24,000. Sales of 251,000 units are forecasted for the entire year. The product’s selling price is $31.00 per unit and its total product cost is $26.40 per unit.
2. 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 4,705 units, which complies with the policy. The expected June 30 ending raw materials inventory is 5,100 units. Raw materials cost $20 per unit. Each finished unit requires 0.50 units of raw materials.
3. Company policy calls for a given month’s ending finished goods inventory to equal 70% of the next month’s expected unit sales. The March 31 finished goods inventory is 16,800 units, which complies with the policy.
4. Each finished unit requires 0.50 hours of direct labor at a rate of $26 per hour.
5. Overhead is allocated based on direct labor hours. The predetermined variable overhead rate is $3.80 per direct labor hour. Depreciation of $31,400 per month is treated as fixed factory overhead.
6. Sales representatives’ commissions are 5% of sales and are paid in the month of the sales. The sales manager’s monthly salary is $4,100.
7. Monthly general and administrative expenses include $25,000 administrative salaries and 0.8% monthly interest on the long-term note payable.
8. The company expects 35% of sales to be for cash and the remaining 65% on credit. Receivables are collected in full in the month following the sale (none are collected in the month of the sale).
9. 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.
10. The minimum ending cash balance for all months is $99,000. 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.
11. Dividends of $21,000 are to be declared and paid in May.
12. 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.
13. Equipment purchases of $141,000 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 budget.
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 second quarter (not for each month separately).
10. Budgeted balance sheet.

Answer 1

Sales Budget
Particulars	April	May	June	Quarter
a. Sales (units)	24000	16600	22200	62800
b. Selling price per unit	31	31	31
c. Total sales (a*b)	744000	514600	688200	1946800
d. Cash Sales (35% of total sales )	260400	180110	240870	681380
e. Credit Sales (65% of total sales )	483600	334490	447330	1265420
Production Budget
Particulars	April	May	June	Quarter
a. Sales (units)	24000	16600	22200	62800
b. Add: Closing stock (70% of next month sales)	11620	15540	16800	43960
	(16600 * 0.7)	(22200* 0.7)	(given)
c. Less: Opening stock	16800	11620	15540	43960
d. Production (Units)	18820	20520	23460	62800
Raw material Budget
Particulars	April	May	June	Quarter
a. Production (Units)	18820	20520	23460	62800
b. Raw material required per unit	0.5	0.5	0.5
c. Raw material consumed (a*b)	9410	10260	11730	31400
d.Add: Closing stock of raw material	5130	5865	6000	16995
	( 10260 *0.5)	(11730 * 0.5)	(12000 *0.5)
e. Less: Opening stock of raw material	4705	5130	5865	15700
f. Raw material purchases (Units)	9835	10995	11865	32695
g. cost per unit	20	20	20	60
h. Total cost of raw material (f*g)	196700	219900	237300	653900
Direct Labor Budget
Particulars	April	May	June	Quarter
a. Production (Units)	18820	20520	23460	62800
b. Direct labour hour required per unit	0.5	0.5	0.5
c. Total direct labour hours (a*b)	9410	10260	11730	31400
d. Cost per hour	26	26	26
e. Total direct labour cost (c*d)	244660	266760	304980	816400
Factory overhead Budget
Particulars	April	May	June	Quarter
a. Total direct labour hours	9410	10260	11730	31400
b. Overhead rate per hour	3.8	3.8	3.8
c. Variable factory overheads (a*b)	35758	38988	44574	119320
d. Fixed factory overhead	31400	31400	31400	94200
c. Total factory overheads (a*b)	67158	70388	75974	213520
Selling expense Budget
Particulars	April	May	June	Quarter
a. Sales value	744000	514600	688200	1946800
b. Sales commission (5% of sales)	37200	25730	34410	97340
c. Sales manager salary	4100	4100	4100	12300
	41300	29830	38510	109640
General and administrative overhead expense Budget
Particulars	April	May	June	Quarter
a. Administrative salary	25000	25000	25000	75000
b. Interest on note (515000 *0.8%)	4120	4120	4120	12360
	29120	29120	29120	87360
Cash Budget for the month April, May and June
Particulars	April	May	June
Opening Cash Balance	51000	201362	251274
Add: Receipts
Cash sales	260400	180110	240870
Credit sales (collected in the next month)	483600	483600	334490
Total collections (sub total b)	744000	663710	575360
Less: Cash Disbursements
Purchase of material (Fully paid in next month)	211400	196700	219900
Direct labour cost paid in cash	244660	266760	304980
Factory overhead cost paid in cash	67158	70388	75974
Selling expense paid in cash	41300	29830	38510
General and admin. cost paid in cash	29120	29120	29120
Purchase of equipment	0	0	141000
Cash dividend	0	21000	0
Total cash disbursements (sub total c)	593638	613798	809484
Excess/ deficiency (a+b-c)	201362	251274	17150
Borrowings	0	0	82677
Repayments	0	0	0
Interest on borrowings	0	0	827
			(82677*1%
Closing cash balance (d+e-f-g)	201362	251274	99000