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:

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.

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.

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.

Each finished unit requires 0.50 hours of direct labor at a rate of $26 per hour.

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.

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.

Monthly general and administrative expenses include $25,000 administrative salaries and 0.8% monthly interest on the long-term note payable.

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).

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 $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.

Dividends of $21,000 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 40% in the quarter and paid in the third calendar quarter.

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

Required Budgets are as prepared below:

1. Sales Budget
Zigby Manufacturing
Sales Budget
For the quarter ended June 30,2017
	Month
Particulars	April	May	June	Total
Sale Units (a)	24,000	16,600	22,200	62,800
*Price per unit (b)	$31.0	$31.0	$31.0	$31.0
Total Sales	$744,000	$514,600	$688,200	$1,946,800
Zigby Manufacturing
Schedule of expected Cash collections
For the quarter ended June 30,2017
	Month
Particulars	April	May	June	Total
Beginning Accounts Receivable (a)	483,600			483,600
April Cash Sales	260,400			260,400
April Credit Sales		483,600		483,600
May Cash Sales		180,110		180,110
May Credit Sales			334,490	334,490
June Cash Sales			240,870	240,870
Total collections	744,000	663,710	575,360	1,983,070
2. Production Budget
Zigby Manufacturing
Production Budget
For the quarter ended June 30,2017
	Month
Particulars	April	May	June	Total
Sale Units (a)	24,000	16,600	22,200	62,800
Planned ending units (b)	11,620	15,540	16,800	16,800
Beginning units (c )	16,800	11,620	15,540	16,800
Planned production units (d)= (a+b-c)	18,820	20,520	23,460	62,800
3. Raw material Budget
Zigby Manufacturing
Raw Material Purchase Budget
For the quarter ended June 30,2017
	Month
Particulars	April	May	June	Total
Planned production units (a)	18,820	20,520	23,460	62,800
*Direct Material required per unit (b)	0.5	0.5	0.5	0.5
Direct Material Required for production (c )	9,410	10,260	11,730	31,400
Budgeted ending Direct Material (d)	5,130	5,865	5,100	5,100
Beginning Direct Material (e )	4,705	5,130	5,865	4,705
Budgeted direct material purchase f= c+d-e	9,835	10,995	10,965	31,795
Cost per unit (g)	$20	$20	$20	$20
BudgetedDM purchases	$196,700	$219,900	$219,300	635,900
Zigby Manufacturing
Schedule of expected Cash payments
For the quarter ended June 30,2017
	Month
Particulars	April	May	June	Total
Beginning Accounts Payable (a)	$211,400			$211,400
April Purchases (b)		$196,700		$196,700
May Purchases (c )			$219,900	$219,900
June Purchases (d)				$0
Total payments (a+b+c+d)	$211,400	$196,700	$219,900	$628,000
4. Direct labour Budget
Zigby Manufacturing
Direct Labour Budget
For the quarter ended June 30,2017
	Month
Particulars	April	May	June	Total
Planned production units (a)	18,820	20,520	23,460	62,800
*Direct labour required per unit (b)	0.5	0.5	0.5	0.5
Budgeted Direct labour hours	9,410	10,260	11,730	31,400
Cost per direct labour hour	26	26	26	26
Budgeted Direct labour Cost	$244,660	$266,760	$304,980	$816,400