In: Accounting
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 | $13 |
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 1.30 kg. Metal, plastic,
and rubber together amount to $1.50 per kg. Inventory of combined
direct materials on March 31 consisted of 14,365 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 $124,800.
Direct Labour
Labour requires 15 minutes per unit for completion and is paid at
an average rate of $10 per hour.
Manufacturing Overhead | ||||
Indirect materials | $0.30 | per labour hour | ||
Indirect labour | $0.60 | per labour hour | ||
Utilities | $0.50 | per labour hour | ||
Maintenance | $0.30 | per labour hour | ||
Salaries | $44,200 | per month | ||
Depreciation | $15,000 | per month | ||
Property taxes | $2,150 | per month | ||
Insurance | $1,200 | per month | ||
Janitorial | $2,500 | per month |
Selling and Administrative | |||
Variable selling and administrative expenses per unit are $1.40. | |||
Advertising | $13,000 | a month | |
Depreciation | $2,800 | a month | |
Insurance | $1,100 | a month | |
Other fixed costs | $3,400 | a month | |
Salaries | $74,000 | a month |
Other Information
The cash balance on March 31 will be $136,500, 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 2% 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, $900,000 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.
1) For the second quarter of 2021, prepare a sales budget.
2) For the second quarter of 2021, prepare a schedule for expected cash collections from customers.
3) For the second quarter of 2021, prepare a production budget.
4) For the second quarter of 2021, prepare a direct materials budget.
5) For the second quarter of 2021, prepare a schedule for expected payments for materials purchases.
6) For the second quarter of 2021, prepare a direct labour budget.
7) For the second quarter of 2021, prepare a manufacturing overhead budget
8) For the second quarter of 2021, prepare a selling and administrative expenses budget.
9) For the second quarter of 2021, prepare a cash budget