Question

Iguana, Inc., manufactures bamboo picture frames that sell for $25 each. Each frame requires 4 linear feet of bamboo, which costs $3.00 per foot. Each frame takes approximately 30 minutes to build, and the labor rate averages $12 per hour. Iguana has the following inventory policies:

• Ending finished goods inventory should be 40 percent of next month’s sales.
• Ending raw materials inventory should be 30 percent of next month’s production.

Expected unit sales (frames) for the upcoming months follow:   

March	320
April	340
May	390
June	490
July	465
August	515

Variable manufacturing overhead is incurred at a rate of $0.20 per unit produced. Annual fixed manufacturing overhead is estimated to be $7,200 ($600 per month) for expected production of 4,000 units for the year. Selling and administrative expenses are estimated at $650 per month plus $0.50 per unit sold.

     Iguana, Inc., had $10,500 cash on hand on April 1. Of its sales, 80 percent is in cash. Of the credit sales, 50 percent is collected during the month of the sale, and 50 percent is collected during the month following the sale.

     Of raw materials purchases, 80 percent is paid for during the month purchased and 20 percent is paid in the following month. Raw materials purchases for March 1 totaled $2,000. All other operating costs are paid during the month incurred. Monthly fixed manufacturing overhead includes $240 in depreciation. During April, Iguana plans to pay $2,000 for a piece of equipment.

Iguana, Inc., manufactures bamboo picture frames that sell for $25 each. Each frame requires 4 linear feet of bamboo, which costs $3.00 per foot. Each frame takes approximately 30 minutes to build, and the labor rate averages $12 per hour. Iguana has the following inventory policies:

• Ending finished goods inventory should be 40 percent of next month’s sales.
• Ending raw materials inventory should be 30 percent of next month’s production.

Expected unit sales (frames) for the upcoming months follow:   

March	320
April	340
May	390
June	490
July	465
August	515

Variable manufacturing overhead is incurred at a rate of $0.20 per unit produced. Annual fixed manufacturing overhead is estimated to be $7,200 ($600 per month) for expected production of 4,000 units for the year. Selling and administrative expenses are estimated at $650 per month plus $0.50 per unit sold.

     Iguana, Inc., had $10,500 cash on hand on April 1. Of its sales, 80 percent is in cash. Of the credit sales, 50 percent is collected during the month of the sale, and 50 percent is collected during the month following the sale.

Compute the budgeted cash receipts for Iguana. (Do not round your intermediate calculations. Round final answers to 2 decimal places.)

	April	May	June	2nd quarter total
Budgeted Cash Receipts

Compute the budgeted cash payments for Iguana. (Do not round your intermediate calculations. Round final answers to 2 decimal places.)

	April	May	June	2nd quarter total
Budgeted Cash payments

Prepare the cash budget for Iguana. Assume the company can borrow in increments of $1,000 to maintain a $10,000 minimum cash balance. (Leave no cell blank enter "0" wherever required. Round your answers to 2 decimal places.)

	April	May	June	2nd quarter total
Beginning cash balance
Plus: Budgeted Cash Receipts
Less: Budgeted Cash Payments
Preliminary Cash Balance
Cash borrowed / Repaid
Ending Cash Balance

Answer 1

Part 1

	April	may	june	2nd quarter total
Budgeted Sales (Units)	340	390	490	1220
× Unit Sales Price	25	25	25	25
Budgeted Sales Revenue	8500	9750	12250	30500
Cash collections (budgeted sales revenue *80%)	6800	7800	9800	24400
Credit collections (current month) (budgeted sales revenue *20%*50%)	850	975	1225	3050
Credit collections (following month)	800	850	975
Budgeted cash receipts	8450	9625	12000	30075

Part 2

	April	may	june	2nd quarter total
Budgeted raw materials purchases	4686	5340	5778	15804
Cash disbursements
Raw material purchases (current month) (current month purchase *80%)	3749	4272	4622	12643
Raw material purchases (prior month) (prior month purchase *20%)	400(2000*20%)	937	1068	2405
Direct labor	2160	2580	2880	7620
Manufacturing overhead	672	686	696	2054
Less: Depreciation	(240)	(240)	(240)	(720)
Selling and administrative expenses	820	845	895	2560
Purchase of equipment	2000
Total budgeted cash payments	9561	9080	9921	28562

	April	may	june	2nd quarter total
Budgeted Sales (Units)	340	390	490	1220
Add: Desired ending inventory (next month’s sale *40%)	156	196	186 (465*40%)	186
Less: Beginning inventory (current month sales *40%)	(136) (340*40%)	(156)	(196)	(136)
Budgeted production	360	430	480	1270

	April	may	june	2nd quarter total
Budgeted production	360	430	480	1270
Material requirements per unit	4	4	4	4
Total material needed for production	1440	1720	1920	5080
Ending raw materials inventory (next month’s total material needed for production 30%)	516	576	582 (465+(515*40%)-(465*40%))*4*30%	582
Beginning raw materials inventory	326 (320+(340*40%)-(320*40%))*4*30%	516	576	394
Budgeted raw materials purchases	1562	1780	1926	5268
Material cost per foot	3	3	3	3
Budgeted cost of raw materials purchases	4686	5340	5778	15804

	April	may	june	2nd quarter total
Budgeted production	360	430	480	1270
Direct labor requirements per unit	0.5	0.5	0.5	0.5
Direct labor hours required (budgeted production * 0.5)	180	215	240	635
Direct labor rate	12	12	12	12
Budgeted direct labor cost (Direct labor hours required* Direct labor rate)	2160	2580	2880	7620

	April	may	june	2nd quarter total
Budgeted production	360	430	480	1270
Variable manufacturing overhead rate	0.20	0.20	0.20	0.20
Budgeted variable manufacturing (budgeted production * Variable manufacturing overhead rate)	72	86	96	254
Fixed manufacturing overhead	600	600	600	1800
Budgeted manufacturing overhead	672	686	696	2054

	April	may	june	2nd quarter total
Budgeted Sales (Units)	340	390	490	1220
× Variable Selling and Administrative Rate	0.50	0.50	0.50	0.50
Budgeted Variable Selling and Administrative Expenses (budgeted sales * Variable Selling and Administrative Rate)	170	195	245	610
+ Budgeted Fixed Selling and Administrative Expenses	650	650	650	1950
Total Budgeted Selling and Administrative Expenses	820	845	895	2560

Part 3

	April	may	june	2nd quarter total
Beginning Cash Balance	10500	10389	10934	10500
Plus: Budgeted Cash Receipts	8450	9625	12000	30075
Less: Budgeted Cash Payments	9561	9080	9921	28562
Preliminary Cash Balance	9389	10934	13013
Cash Borrowed / Repaid	1000	0	-1000	-1000
Ending Cash Balance	10389	10934	12013	12013