Question

Waterways Corporation has recently acquired a small manufacturing operation in British Columbia that produces one of its more popular items. This plant will provide these units for resale in retail hardware stores in British Columbia and Alberta. Because the budget prepared by the plant was incomplete, Jordan Leigh, Waterways' CFO, was sent to B.C. to oversee the plant's budgeting process for the second quarter of 2021.

Jordan asked the various managers to collect the following information for preparing the second-quarter budget.

Sales
Unit sales for February 2021	$ 90,000
Unit sales for March 2021	102,000
Expected unit sales for April 2021	110,000
Expected unit sales for May 2021	115,000
Expected unit sales for June 2021	120,000
Expected unit sales for July 2021	135,000
Expected unit sales for August 2021	160,000
Average unit selling price	$15

Based on the experience in the home plant, Jordan has suggested that the B.C. plant keep 10% of the next month's unit sales in ending inventory. The plant has contracts with some of the major home hardware giants, so all sales are on account; 50% of the accounts receivable is collected in the month of sale, and the balance is collected in the month after sale. This was the same collection pattern as the previous year. The new plant has no bad debts.

Direct Materials

The combined quantity of direct materials (consisting of metal, plastic, and rubber) used in each unit is 1.1 kg. Metal, plastic, and rubber together amount to $1.50 per kg. Inventory of combined direct materials on March 31 consisted of 12,155 kg.

This plant likes to keep 10% of the materials needed for the next month in its ending inventory. Fifty percent of the payables is paid in the month of purchase, and 50% is paid in the month after purchase.

Accounts payable on March 31 will total $120,600.

Direct Labour

Labour requires 15 minutes per unit for completion and is paid at an average rate of $18 per hour.

Manufacturing Overhead
Indirect materials	$0.30 per labour hour
Indirect labour	$0.50 per labour hour
Utilities	$0.45 per labour hour
Maintenance	$0.25 per labour hour
Salaries	$42,065 per month
Depreciation	$16,800 per month
Property taxes	$2,400 per month
Insurance	$1,200 per month
Janitorial	$2,600 per month

Selling and Administrative

Variable selling and administrative expenses per unit are $1.62.

Advertising	$15,000 a month
Depreciation	$2,500 a month
Insurance	$1,400 a month
Other fixed costs	$3,000 a month
Salaries	$72,000 a month

Other Information

The cash balance on March 31 will be $100,500, but Waterways has decided it would like to maintain a cash balance of at least $500,000 beginning on April 30. The company has an open line of credit with its bank. The terms of the agreement require borrowing to be in $1,000 increments at 3% interest. Borrowing is considered to be on the first day of the month and repayments and interest payments are on the last day of the month.

In May, $845,000 of new equipment to update operations will be purchased.

Three months' insurance is prepaid on the first day of the first month of the quarter.

Instructions

For the second quarter of 2021:

a.Prepare a sales budget.

b.Prepare a schedule for expected cash collections from customers.

c.Prepare a production budget.

d.Prepare a direct materials budget.

e.Prepare a schedule for expected payments for materials purchases.

f.Prepare a direct labour budget.

g.Prepare a manufacturing overhead budget.

h.Prepare a selling and administrative expenses budget.

i.Prepare a cash budget.

Include supporting calculations.

Answer 1

(A)Sales Budget:

(A) Sales Budget :

	Descriptions	Apr-21	May-21	Jun-21	Total
(a)	Expected Sales (Units)	1,10,000	1,15,000	1,20,000	3,45,000
(b)	Sales in $ at $15 per unit	16,50,000	17,25,000	18,00,000	51,75,000

(B) Cash Budget :

	Cash Budget
	Descriptions	Apr-21	May-21	Jun-21	Total	Workings
(a)	Expected Sales (Units)	1,10,000	1,15,000	1,20,000
(b)	Sales in $	16,50,000	17,25,000	18,00,000		(a) x $15
(c )	Cash Collection	8,25,000	8,62,500	9,00,000	25,87,500	50% of Current month sales
(d)	Cash from March month sales	765000			765000	March sales 102000 x .50 x $15
	Cash from April month sales		8,25,000		8,25,000	110000 x .50 x $15
	Cash from May month sales			8,62,500	8,62,500	115000 x .50 x $15
(e )	Total Cash Collection	15,90,000	16,87,500	17,62,500	50,40,000	Total of c & d

(C) Production Budget :

	Sales Budget
	Descriptions	Apr-21	May-21	Jun-21	Total	Workings
(a)	Expected Sales	1,10,000	1,15,000	1,20,000	3,45,000
(b)	Ending Inventory	11,500	12,000	13,500	13,500	10% of next months ecpected sales	for June, 10 %of July sales
(c )	Total	1,21,500	1,27,000	1,33,500	3,58,500	(a) + (b)
(d)	Opening Inventory	11000	11500	12000	11000	10% of current month
(e )	Finished Goods required	1,10,500	1,15,500	1,21,500	3,47,500	(c ) less (d)

(D) Direct Material Budget:

	Direct Material Budget
	Descriptions	Apr-21	May-21	Jun-21	Total	Workings
							July production : 135,000 + (16,000 x 0.10) - 13,500 = 137,500 Ending inventory for June month: 137,500 x 1.1 x 10% = 15,125
(a)	Production required in Units	1,10,500	1,15,000	1,21,500	3,47,500	As per production budget
(b)	Direct Material per unit (kg)	1,21,550	1,27,050	1,33,650	3,82,250	1.1 kg of (a)
(c )	Ending Inventory	12,705	13,365	15,125	15,125	(a) + (b)
(d)	Opening Inventory	12155	12705	13365	12155	10% of current month
(e )	Total DM required	1,22,100	1,27,710	1,35,410	3,85,220	(b) + (c ) - (d)
(f)	Purchasing cost in $	1,83,150	191565	2,03,115	5,77,830	(e ) x $1.50

e.Prepare a schedule for expected payments for materials purchases.:

	Expecetd Payout for material purchases
	Descriptions	Apr-21	May-21	Jun-21	Total	Workings
(a)	Payout for March
(b )	Paymnet	91,575	95,783	1,01,558	2,88,916	50% of Current month
(c )	Cash from March month	1,20,600			1,20,600
	Cash from April month	0	91,575		91,575
	Cash from May   month			95,783	95,783
(d)	Total Cash Collection	2,12,175	1,87,358	1,97,341	5,96,874	Total of b & c

(F) Direct Labour Budget :

	Direct Labour Budget
	Descriptions	Apr-21	May-21	Jun-21	Total	Workings
(a)	Production required in Units	1,10,500	1,15,500	1,21,500	3,47,500	As per production budget
(b)	Per unit labour hour	0.25	0.25	0.25		15 Min per unit means 0.25 hour
(c )	Tota; Labour Hours	27,625	28,875	30,375	86,875	(a) x (b)
(d)	Rate per hour ($)	18	18	18	18	10% of current month
(e )	Total Labour cost	4,97,250	5,19,750	5,46,750	15,63,750	(b) x (c )

g.Prepare a manufacturing overhead budget.:

	Manufacturing Overhead Budget
	Descriptions	Apr-21	May-21	Jun-21	Total	Workings	Variable rate: $0.30 + $0.50 + $0.45 + $0.25 = $1.50Fixed: $42,065 + $16,800 + $2,400 + $1,200 + $2,600 = $65,065 Non-cash expenses : $16,800 Depreciation + $1,200 Prepaid insurance
(a)	Production required in Units	1,10,500	1,15,500	1,21,500	3,47,500	As per production budget
(b)	Per unit labour hour	0.25	0.25	0.25		15 Min per unit means 0.25 hour
(c )	Total Labour Hours	27,625	28,875	30,375	86,875	(a) x (b)
(d)	Variable rate ($)	1.5	1.5	1.5	1.5	10% of current month
(e )	Total Variable MOH	41,438	43,313	45,563	1,30,313	(b) x (c )
(f)	Fixed OH	65065	65065	65065	195195
(g)	Total Manufacturing OH	1,06,503	1,08,378	1,10,628	3,25,508
(i)	Non Cash expenses	18000	18000	18000	54,000
(j)	Cash expenditure for MOH	88,503	90,378	92,628	2,71,508	(g) less (i)

Due lenghty question (many sub questions) & paucity of time presentation of Selling & Admin Exps Budget as well as Cash Budget could not be presented. It can be in sepearate questioi.