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 $0.90 unit for the year).

10. Prepare a budgeted income statement for the quarter ending March 31. (Hint: Cost of goods sold = Budgeted cost of manufacturing one unit x Number of units sold.)

DATA TABLE

Current Assets as of December 31 (prior year):

Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,500

Accounts receivable, net . . . . . . . . . . $ 48,000

Inventory . . . . . . . . . . . . . . . . . . . . . . . $ 15,000

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Property, plant, and equipment, net . .. . $ 123,000

Accounts payable . . . . . . . . . . . . . . .. $ 42,400

Capital stock . . . . .. . . . . . . . . . . . . . . $ 125,500

Retained earnings .. . . . . . . . . . . . . . .. $ 22,600

MORE DATA

a. Actual sales in December were $70,000. Selling price per unit is projected to remain stable at $10 per unit throughout the budget period. Sales for the first five months of the upcoming year are budgeted to be as follows:

January . . . . . . . . $ 80,000

February . . . . . . . $ 92,000

March . . . . . . . . . $ 99,000

April . . . . . . . . . . $ 97,000

May . . . . . . . . . . $ 85,000

b. Sales are 30% cash and 70% 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 25% 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. Two pounds of direct material is needed per unit at $2 per pound. Ending inventory of direct materials should be 10% of next month's production needs.

e. Most of the labor at the manufacturing facility is indirect, but there is some direct labor incurred. The direct labor hours per unit is 0.01. The direct labor rate per hour is $12 per hour. All direct labor is paid for in the month in which the work is performed. The direct labor total cost for each of the upcoming three months is as follows:

January . . . . . . . . $ 996

February . . . . . . . $ 1,125

March . . . . . . . . . $ 1,182

f. Monthly manufacturing overhead costs are $5,000 for factory rent, $3,000 for other fixed manufacturing expenses, and $1.20 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.

g. Computer equipment for the administrative offices will be purchased in the upcoming quarter. In January, Devon Manufacturing will purchase equipment for $5,000(cash), while February's cash expenditure will be $12,000 and March's cash expenditure will be $16,000.

h. Operating expenses are budgeted to be $1.00 per unit sold plus fixed operating expenses of $1,000 per month. All operating expenses are paid in the month in which they are incurred.

i. Depreciation on the building and equipment for the general and administrative offices is budgeted to be $5,000 for the entire quarter, which includes depreciation on new acquisitions.

j. Devon Manufacturing has a policy that the ending cash balance in each month must be at least $4,000. 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$110,000 . The interest rate on these loans is 1% per month simple interest (not compounded). The company would pay down on the line of credit balance in increments of $1,000 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.

k. The company's income tax rate is projected to be 30% of operating income less interest expense. The company pays $10,000 cash at the end of February in estimated taxes.

Answer 1

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1. Sales Budget and Schedule for Collection
		Jan	Feb	Mar	Total	April	May
Budgeted Unit Sales		8,000	9,200	9,900	27,100	9,700	8,500
Selling Price		$                   10	$                  10	$                              10	$               10	$             10	$             10
Budgeted Sale		$           80,000	$          92,000	$                       99,000	$     271,000	$     97,000	$     85,000
		Jan	Feb	Mar	Total	Accounts Receivable, 31st March
Accounts Receivable, Beginning		$           48,000			$        48,000
Cash Sale		$           24,000	$          27,600	$                       29,700	$        81,300
Credit Sale:
Jan Sale	$      56,000		$          56,000		$        56,000
Feb Sale	$      64,400			$                       64,400	$        64,400
Mar Sale	$      69,300				$                -	$     69,300
Total Collection		$           72,000	$          83,600	$                       94,100	$     249,700	$     69,300
2. Production Budget
		Jan	Feb	Mar	Total	April	May
Budgeted Unit Sales		$             8,000	$            9,200	$                         9,900	$        27,100	$        9,700	$        8,500
Add: Desired ending Inventory	25%	$             2,300	$            2,475	$                         2,425	$          2,425	$        2,125
Total Need		$           10,300	$          11,675	$                       12,325	$        29,525	$     11,825
Less: Beginning Inventory		$            -2,000	$           -2,300	$                        -2,475	$        -2,000	$      -2,425
Budgeted Production		$             8,300	$            9,375	$                         9,850	$        27,525	$        9,400
3. Raw Material Purchase Budget	WHAT
		Jan	Feb	Mar	Total	April
Budgeted Production		$             8,300	$            9,375	$                         9,850	$        27,525	$        9,400
RM needed per unit		2	2	2	2	2
Raw Material needed for Production		$           16,600	$          18,750	$                       19,700	$        55,050	$     18,800
Add: Desired ending Inventory	10%	$             1,875	$            1,970	$                         1,880	$          1,880
Total needs		$           18,475	$          20,720	$                       21,580	$        56,930
Less: beginning Inventory		$               -830	$           -1,875	$                        -1,970	$            -830
Budgeted Purchase		$           17,645	$          18,845	$                       19,610	$        56,100
per Unit Cost		$                     2	$                    2	$                                 2	$                 2
Total budgeted Purchases		$           35,290	$          37,690	$                       39,220	$     112,200
4. Schedule for Payment of Raw Material:	20%	80%
		Jan	Feb	Mar	Total	Accounts Payable, 31st March
Accounts Payable, Beginning		$           42,400			$        42,400
Jan Pur		$             7,058	$          28,232		$        35,290
Feb Pur			$            7,538	$                       30,152	$        37,690
Mar Pur				$                         7,844	$          7,844	$     31,376
Total Payment for Purchases		$           49,458	$          35,770	$                       37,996	$     123,224	$     31,376
5. Direct Labor Budget
		Jan	Feb	Mar	Total
Budgeted Production		8,300	9,375	9,850	27,525
Hours needed per unit		0.01	0.01	0.01	0.01
Total Hours Needed		83	94	99	275
Per Hour Cost		$                   12	$                  12	$                              12	$               12
Total Direct Labor Cost		$                996	$            1,125	$                         1,182	$          3,303
6. Factory Overhead Budget
		Jan	Feb	Mar	Total
Total Labor Hours Needed		8,300	9,375	9,850	27,525
Overhead Rate per Unit		$               1.20	$              1.20	$                           1.20	$            1.20
Budgeted Variable Overhead		$             9,960	$          11,250	$                       11,820	$        33,030
Fixed Overheads:
Factory Rent		$             5,000	$            5,000	$                         5,000	$        15,000
Other Fixed		$             3,000	$            3,000	$                         3,000	$          9,000
Cash Payment for Overhead		$           17,960	$          19,250	$                       19,820	$        57,030
7. Operating Expense Budget
		Jan	Feb	Mar	Total
Variable Expense	1 per Unit	$             8,000	$            9,200	$                         9,900	$        27,100
Fixed Expense		$             1,000	$            1,000	$                         1,000	$          3,000
Budgeted S&A Expense		$             9,000	$          10,200	$                       10,900	$        30,100
8. Cash Budget
		Jan	Feb	Mar	Total
Beginning Cash Balance		$             4,500	$            4,086	$                         4,341	$          4,500
Add: Cash Collection		$           72,000	$          83,600	$                       94,100	$     249,700
Total Cash Available		$           76,500	$          87,686	$                       98,441	$     254,200
Cash Paid for:
Purchases		$           49,458	$          35,770	$                       37,996	$     123,224
Direct Labor		$                996	$            1,125	$                         1,182	$          3,303
Factory Overhead		$           17,960	$          19,250	$                       19,820	$        57,030
Operating Expense		$             9,000	$          10,200	$                       10,900	$        30,100
Income Tax			$          10,000		$        10,000
Equipment		$             5,000	$          12,000	$                       16,000	$        33,000
Total Cash Payment		$           82,414	$          88,345	$                       85,898	$     256,657
Surplus/Deficit		$            -5,914	$              -659	$                       12,543	$        -2,457
Borrowing		$           10,000	$            5,000		$        15,000
Repayment				$                        -8,000	$        -8,000
Interest payment				$                           -150	$            -150
Ending Balance		$             4,086	$            4,341	$                         4,393	$          4,393
9. Budgeted Manufacturing Unit per cost:
		Quantity/Hour	Cost per Input	Total Cost per Output
Direct Material		2.00	$              2.00	$                           4.00
Direct Labor		0.01	$            12.00	$                           0.12
Manufacturing Overhead				$                           0.90
Budgeted Manufacturing Cost per Unit				$                           5.02
10. Budgeted Income Statement:
Sales Revenue		$         271,000
Less: Cost of Good Sold	27100*5.02	$         136,042
Gross Margin		$         134,958
Less: Operating Expense
Cash Expense		$           30,100
Depreciation		$             5,000
Net Operatng Income		$           25,100
Less: Interest Expense		$                150
Income before tax		$           24,950
less: Income Tax 30%		$             7,485
Net Income		$           17,465