Question

 

Devon Manufacturing is preparing its master budget for the first quarter of the upcoming year. The below data table and more data pertain to Devon Manufacturing's operations:

REQUIREMENTS

1. Prepare a schedule of cash collections for January, February, and March, and for the quarter in total.

2. Prepare a production budget. (Hint: Unit sales = Sales in dollars / Selling price per unit.)

3. Prepare a direct materials budget.

4. Prepare a cash payments budget for the direct material purchases from Requirement 3.

5. Prepare a cash payments budget for direct labor.

6. Prepare a cash payments budget for manufacturing overhead costs.

7. Prepare a cash payments budget for operating expenses.

8. Prepare a combined cash budget.

9. Calculate the budgeted manufacturing cost per unit (assume that fixed manufacturing overhead is budgeted to be per $0.80 unit for the year).

10. Prepare a budgeted income statement for the quarter ending March 31.

11. Prepare a partial balance sheet for march 31. Follow the same format as the original balance sheet provided for Dec 31, adding loans payable and income tax payable

DATA TABLE

Current Assets as of December 31 (prior year):

Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,640

Accounts receivable, net . . . . . . . . . . $ 57,600

Inventory . . . . . . . . . . . . . . . . . . . . . . . $ 15,600

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Property, plant, and equipment, net . .. . $ 121,500

Accounts payable . . . . . . . . . . . . . . .. $ 42,800

Capital stock . . . . .. . . . . . . . . . . . . . . $ 124,500

Retained earnings .. . . . . . . . . . . . . . .. $ 22,800

MORE DATA

a. Actual sales in December were $72,000. Selling price per unit is projected to remain stable at $12 per unit throughout the budget period. Sales for the first five months of the upcoming year are budgeted to be as follows:

January . . . . . . . . $ 104,000

February . . . . . . . $ 108,000

March . . . . . . . . . $ 112,800

April . . . . . . . . . . $ 109,200

May . . . . . . . . . . $ 105,600

b. Sales are 20% cash and 80% credit. All credit sales are collected in the month following the sale.

c. Devon Manufacturing has a policy that states that each month's ending inventory of finished goods should be 10% of the following month's sales (in units).

d. Of each month's direct material purchases, 20% are paid for in the month of purchase, while the remainder is paid for in the month following purchase. Three pounds of direct material is needed per unit at $2 per pound. Ending inventory of direct materials should be 30% of next month's production needs.

e. Monthly manufacturing overhead costs are $4,500 for factory rent, $2,800 for other fixed manufacturing expenses, and $1.10 per unit for variable manufacturing overhead. No depreciation is included in these figures. All expenses are paid in the month in which they are incurred.

f. Computer equipment for the administrative offices will be purchased in the upcoming quarter. In January, Devon Manufacturing will purchase equipment for $6,000(cash), while February's cash expenditure will be $12,800 and March's cash expenditure will be $15,600.

g. Operating expenses are budgeted to be $1.30 per unit sold plus fixed operating expenses of $1,800 per month. All operating expenses are paid in the month in which they are incurred.

h. Depreciation on the building and equipment for the general and administrative offices is budgeted to be $4,600 for the entire quarter, which includes depreciation on new acquisitions.

i. Devon Manufacturing has a policy that the ending cash balance in each month must be at least $4,200. It has a line of credit with a local bank. The company can borrow in increments of $1,000 at the beginning of each month, up to a total outstanding loan balance of$130,000 . The interest rate on these loans is 2% per month simple interest (not compounded). The company would pay down on the line of credit balance if it has excess funds at the end of the quarter. The company would also pay the accumulated interest at the end of the quarter on the funds borrowed during the quarter.

j. The company's income tax rate is projected to be 30% of operating income less interest expense. The company pays $10,800 cash at the end of February in estimated taxes.

Answer 1

		Devon Manufacturing
		Schedule of Sales Budget
	Month	Jan	Feb	March	Quarter
	Sales (Quantity)=(Sales Value)/12=(A)	8666.666667	9000	9400	27066.66667
	Sales Price per unit=(B)	12	12	12	12
	Sales =(A)*(B)	$         1,04,000.00	$          1,08,000.00	$    1,12,800.00	$    3,24,800.00
		Devon Manufacturing
1)		Schedule of expected cash collection
	Month	Jan	Feb	March	Quarter
	Accounts Receivable($72000*80%)	$             57,600.00			$        57,600.00
	Jan Sales($104000*20%) in Jan and ($104000*80%) in Feb	$             20,800.00	$              83,200.00		$    1,04,000.00
	Feb Sales ($108000*20%) in Feb and ($108000*80%) in March		$              21,600.00	$        86,400.00	$    1,08,000.00
	March Sales($112800*20% ) in March			$        22,560.00	$        22,560.00
	Total Cash collection	$             78,400.00	$          1,04,800.00	$    1,08,960.00	$    2,92,160.00
		Devon Manufacturing
		Production Budget
2)	Month	Jan	Feb	Mar	Quarter	April
	Sales (Units)	8,666.67	9,000.00	9,400.00	27,066.67	9100
	Ending Inventory=(9000*10%) in Jan,(9400*10%) in Feb,(($109200/$12)*10%) in March	900.00	940.00	910.00	910.00	880
	Total Needs	9,566.67	9,940.00	10,310.00	27,976.67	9,980.00
	Less: Beginning Inventory	866.67	900.00	940.00	866.67	910
	Production	8,700.00	9,040.00	9,370.00	27,110.00	9,070.00
3)		Jan	Feb	March	Quarter
	Required Production unit=(A)	8,700.00	9,040.00	9,370.00	27,110.00	9070
	Direct Material per unit(Pounds)=(B)	3	3	3	3	3
	Total Pounds of Raw material needed for production=(C )=(A)*(B)	26100	27120	28110	81330	27210
	Add: Ending Raw Material=(D )	8136	8433	8163	8163
	Total material required=(E )=(C)+(D)	34236	35553	36273	89493
	Less: Beginning Inventory=(F )	7830	8136	8433	7830
	Direct Material purchases=(G )=(E )-(F )	26406	27417	27840	81663
	Cost per Pound=(H)	$                       2.00	$                         2.00	$                  2.00	2
	Cost of Direct Material Purchased=(G)*(H)	$             52,812.00	$              54,834.00	$        55,680.00	$    1,63,326.00
	Devon Manufacturing
4)	Budgeted Cash disbursement of Mercendise Purchase
	Months	Jan	Feb	Mar	Quarter
	Accounts Payable	$             42,800.00			$        42,800.00
	Jan Purchases	$             10,562.40	$              42,249.60		$        52,812.00
	Feb Purchases(20% in Feb) and (80% in March)		$              10,966.80	$        43,867.20	$        54,834.00
	March Purchases(20% in March)			$        11,136.00	$        11,136.00
	Total Cash Payments	$             53,362.40	$              53,216.40	$        55,003.20	$    1,61,582.00
	Devon Manufacturing
	Budget for Total cash disbursement for Manufacturing Overhead
	Months	Jan	Feb	March	Quarter
	Factory Rent	$               4,500.00	$                4,500.00	$          4,500.00	$        13,500.00
	Fixed Manufacturing Expenes	$               2,800.00	$                2,800.00	$          2,800.00	$          8,400.00
	Variable Manufacturing Expenses	$               9,570.00	$                9,944.00	$        10,307.00	$        29,821.00
	Total Manufacturing Overhead	$             16,870.00	$              17,244.00	$        17,607.00	$        51,721.00
	Variable Manufacturing Overhead	(8700*1.10)	(9040*1.10)	(9370*1.10)
	Devon Manufacturing
	Budget for Total cash disbursement for Operating Expenses
	Month	Jan	Feb	March	Quarter
	Variable Operating Expenses	$             11,266.67	$              11,700.00	$        12,220.00	$        35,186.67
	Fixed Operating Expenses	$               1,800.00	$                1,800.00	$          1,800.00	$          5,400.00
	Total Operating Expenses	$             13,066.67	$              13,500.00	$        14,020.00	$        40,586.67
	Variable Operating Expenses	8666.67*1.30	9000*1.30	9400*1.30