Question

Reference: 07-20
Basket Company specializes in unique baskets. Peak sales for one of their products, the Easter basket, occur in March every year. The company has estimated the following sales for the first five months of the year for the Easter basket:

Month	Expected sales in units
January	2,000
February	3,000
March	10,000
April	1,000
May	500

The baskets are considered deluxe as they are very intricate. As such, the company can sell the baskets for $30. Based on past history, the company expects that 10% of sales are cash. Of the credit sales, half is collected one month after sale and the remainder is collected two months after sale. Accounts receivable as at January 1st was $50,000; all of which is expected to be collected in January.

Each basket requires 2 meters of plastic. The cost per meter is $2.00. The company wants to ensure it has enough plastic on hand at all times and therefore has indicated that ending inventory will be 10% of the following month's production needs for plastic. The company had 1,080 meters of plastic on hand as at January 1st.

The company puts all purchases of plastic on account and pays for it the month following purchase. Purchases of plastic in December amounted to $2,000.

Due to the intricate design, the company uses substantially all production line workers to create the baskets. Each basket takes 1.5 hours to produce and the direct labor rate per hour is $12.00.

The company expects to incur $40,000 of operating expenses each month, this includes $5,000 of depreciation expense. The company plans to pay cash dividends of $3,000 in January.

There is a minimum cash balance set by management of $5,000 at the end of each month. The company has access to a line of credit. Any borrowings and repayments must be made in multiples of $1,000. The company is subject to a 5% annual interest rate. For simplicity, assume interest is not compounded.

Assume that borrowings are made at the beginning of the month and repayments are made at the end of the month. The company started the year with $10,000 in the bank. 1. Create a sales budget for the first quarter of the year.

2.a. Create a cash receipts budget for the first quarter of the year. b. What is the accounts receivable balance as at March 31st?

3.Create a production budget for the first four months of the year.

4a. Create a direct materials budget for the first quarter of the year.

b. Create a cash disbursements budget for direct materials for the first quarter of the year. c. What is the accounts payable balance as at March 31st?

5.Create a direct labor budget for the first quarter of the year.

6.Create a cash budget for the first quarter of the year.

Answer 1

ans 1
Sales Budget
January february March
	Budgeted Unit Sales	Budgeted Unit Price	Budgeted Total Dollars
January	2,000	$30.00	60,000
Feb	3,000	30	90,000
Mar	10,000	30	300,000
Totals for the quarter	15000	30	450,000
Calculation of Cash receipts from customers:
		January	February	March	Total
Total budgeted sales		$60,000	$90,000	$300,000
Cash sales	10%	6,000	9,000	30,000	45,000
Sales on credit	90%	$54,000	$81,000	$270,000
Total cash receipts from customers
		January	February	March	Total
Current month's cash sales		$6,000	$9,000	$30,000	45,000
From Jan 1 accounts recivable		$50,000			50,000
From Jan sales			$27,000	$27,000	54,000
From Feb sales				$40,500	40,500
From March sales
Total collection		$56,000	$36,000	$97,500	$189,500
ans 2b Accounts receivable on march 31
(81000*.5)+(270000)	$310,500
Production Budget
January february March
	January	February	March	Total	April
Next month's budgeted sales (units)	3,000	10,000	1,000		500
Ratio of inventory to future sales	10%	10%	10%		10%
Budgeted ending inventory (units)	300	1,000	100	100	50
Budgeted units sales for month	2,000	3,000	10,000	15,000	500
Required units of available production	2,300	4,000	10,100	15,100	550
Beginning inventory (units)	200	300	1,000	200	100
Units to be produced	2,100	3,700	9,100	14,900	450
Raw materials budget. (Round Materials requirements per unit answers to 2 decimal places.)
Raw Materials Budget
January february March
	January	February	March	Total	April
Production budget (units)	2,100	3,700	9,100	14,900	450
Materials requirements per unit	2	2	2	2	2
Materials needed for production	4200	7400	18200	29800	900
Budgeted ending inventory (10%)	370	910	90	90
Total materials requirements (units)	4570	8310	18290	29,890
Beginning inventory	1,080	370	910	1,080
Materials to be purchased	3,490	7,940	17,380	28,810
Material price per unit	$2	$2	$2	$2
Total cost of direct material purchases	$6,980	$15,880	$34,760	$57,620
Ans 4b
Cash Disbursement budget for direct material
	January	February	March	Total
From accounts payable	$2,000			$2,000
From jan purcahses		$6,980		$6,980
From Feb purchases			$15,880	$15,880
Total	$2,000	$6,980	$15,880	$24,860
ans 4c Accounts payable	$34,760
ans 5
Direct Labor Budget
January february March
	January	February	March
Budgeted production (units)	2,100	3,700	9,100	14,900
Labor requirements per unit (hours)	1.5	1.5	1.5	1.5
Total labor hours needed	3,150	5,550	13,650	22,350
Labor rate (per hour)	$12	12	12	12
Labor dollars	$37,800	$66,600	$163,800	$268,200
Dear student I have done the forst 5 subparts. First 4 subparts are mandatory to do