Question

In: Accounting

Northern Illinois Manufacturing is preparing its budget for the coming year. The first step is to...

Northern Illinois Manufacturing is preparing its budget for the coming year. The first step is to plan for the first quarter of that coming year. Northern Illinois gathered the following information from its managers.

Sales:

Actual unit sates for November

113,500

Actual unit sales for December

103,100

Expected unit sales for January

114,000

Expected unit sales for February

113,500

Expected unit sales for March

116,000

Expected unit sales for April

126,000

Expected unit sales for May

138,500

Unit selling price

$12

Northern Illinois wants to keep 10% of the next month’s unit sales in ending inventory. All sales are on account. 85% of the Accounts Receivable are collected in the month of sale and 15% of the Accounts Receivable are collected in the month after sale. Accounts receivable on December 31 totaled 183,780.

Direct Materials:

The product uses metal, plastic, and rubber. In total, each unit requires 2 pounds of material at an average cost of 0.75 per pound.

Northern Illinois likes to keep 5% of the materials needed for the next month in its ending inventory. Payment for materials is made within 15 days. 50% is paid in the month of purchase and 50% is paid in the month after purchase. Accounts Payable on December 31 totaled $120,595. Raw materials on December 31 totaled 11,295 pounds.

Direct Labor:

Labor requires 12 minutes per unit for completion and is paid at a rate of $18 per hour.

Manufacturing Overhead:

Indirect materials

30 cents per labor hour

Indirect labor

50 cents per labor hour

Utilities

45 cents per labor hour

Maintenance

25 cents per labor hour

Salaries

$52,000 per month

Depreciation

$16,800 per month

Property taxes

$2,675 per month

Insurance

$2,200 per month

Janitorial

$1,800 per month

Selling and Administrative Expenses:

Variable selling and administrative cost per unit is $2.40.

Fixed selling and administrative costs per month are:

Advertising

$15,000 per month

Insurance

$1,400 per month

Salaries

$72,000 per month

Depreciation

$2,500 per month

Other fixed costs

$3,000 per month

Other Information:

The cash balance on December 31 totaled $220,500, but management has decided that it wants to maintain a cash balance of at least $750,000 beginning January 31. Dividends are paid each month at the rate of $2.50 per share for 5,000 shares outstanding. The company has an open line of credit with the First National Bank. The terms of the agreement requires borrowing to be in $1,000 increments at 8% interest. Northern Illinois borrows on the first day of the month and repays on the last day of the month. Reserve repayment, if required, until Northern Illinois can pay the entire amount. A $250,000 equipment purchase is planned for February.

Instructions (Do all parts):

Note: All budgets and schedules should be prepared by month for the first quarter (January, February, and March). Round all figures to the nearest dollar. For labor hours round to whole hours.

a. Prepare a sales budget.

b. Prepare a production budget.

c. Prepare a direct materials budget.

d. Prepare a direct labor budget.

e. Prepare a manufacturing overhead budget.

f. Prepare a selling and administrative budget.

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

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

i. Prepare a cash budget.

Please complete in microsoft excel.

Solutions

Expert Solution

Requirement A:

Sales Budget

Particulars Jan Feb Mar
Sales in Number of units 114000 135000 116000
Price per unit 12 12 12
Dollar Sales 1368000 1620000 1392000

Requirement B:

Production Budget

Particulars Jan Feb Mar
Sales in Number of units 114000 135000 116000
Opening Inventory 11400 13500 11600
Closing Inventory 13500 11600 12600
To be Produced units 116100 133100 117000

Requirement C:

Direct Materials Budget:

Particulars Jan Feb Mar
Production units 116100 133100 117000
DM Required per unit 2 2 2
Total DM Required 232200 266200 234000
Opening DM Required 11610 13310 11700
Closing DM Required 13310 11700 12725
DM to be purchased 233900 264590 235025

Requirement D:

Direct Labor Budget:

Particulars Jan Feb Mar
Production units 116100 133100 117000
Direct Labor Hours Reqd per unit 0.2 0.2 0.2
Total Direct Labor hours Reqd 23220 26620 23400
Direct Labor rate per hour 18 18 18
Total Direct Labor Cost 417960 479160 421200

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