Question

The management of Zigby Manufacturing prepared the following estimated balance sheet for March 2017:

ZIGBY MANUFACTURING Estimated Balance Sheet March 31, 2017
Assets
Cash	$	51,000
Accounts receivable		483,600
Raw materials inventory		94,100
Finished goods inventory		443,520
Total current assets		1,072,220
Equipment, gross		622,000
Accumulated depreciation		(161,000	)
Equipment, net		461,000
Total assets	$	1,533,220
Liabilities and Equity
Accounts payable	$	211,400
Short-term notes payable		23,000
Total current liabilities		234,400
Long-term note payable		515,000
Total liabilities		749,400
Common stock		346,000
Retained earnings		437,820
Total stockholders’ equity		783,820
Total liabilities and equity	$	1,533,220

To prepare a master budget for April, May, and June of 2017, management gathers the following information:

1. Sales for March total 24,000 units. Forecasted sales in units are as follows: April, 24,000; May, 16,600; June, 22,200; and July, 24,000. Sales of 251,000 units are forecasted for the entire year. The product’s selling price is $31.00 per unit and its total product cost is $26.40 per unit.
2. Company policy calls for a given month’s ending raw materials inventory to equal 50% of the next month’s materials requirements. The March 31 raw materials inventory is 4,705 units, which complies with the policy. The expected June 30 ending raw materials inventory is 5,100 units. Raw materials cost $20 per unit. Each finished unit requires 0.50 units of raw materials.
3. Company policy calls for a given month’s ending finished goods inventory to equal 70% of the next month’s expected unit sales. The March 31 finished goods inventory is 16,800 units, which complies with the policy.
4. Each finished unit requires 0.50 hours of direct labor at a rate of $26 per hour.
5. Overhead is allocated based on direct labor hours. The predetermined variable overhead rate is $3.80 per direct labor hour. Depreciation of $31,400 per month is treated as fixed factory overhead.
6. Sales representatives’ commissions are 5% of sales and are paid in the month of the sales. The sales manager’s monthly salary is $4,100.
7. Monthly general and administrative expenses include $25,000 administrative salaries and 0.8% monthly interest on the long-term note payable.
8. The company expects 35% of sales to be for cash and the remaining 65% on credit. Receivables are collected in full in the month following the sale (none are collected in the month of the sale).
9. All raw materials purchases are on credit, and no payables arise from any other transactions. One month’s raw materials purchases are fully paid in the next month.
10. The minimum ending cash balance for all months is $99,000. If necessary, the company borrows enough cash using a short-term note to reach the minimum. Short-term notes require an interest payment of 1% at each month-end (before any repayment). If the ending cash balance exceeds the minimum, the excess will be applied to repaying the short-term notes payable balance.
11. Dividends of $21,000 are to be declared and paid in May.
12. No cash payments for income taxes are to be made during the second calendar quarter. Income tax will be assessed at 40% in the quarter and paid in the third calendar quarter.
13. Equipment purchases of $141,000 are budgeted for the last day of June.

Required:
Prepare the following budgets and other financial information as required. All budgets and other financial information should be prepared for the second calendar quarter, except as otherwise noted below. (Round calculations up to the nearest whole dollar, except for the amount of cash sales, which should be rounded down to the nearest whole dollar.):

1. Sales budget.
2. Production budget.
3. Raw materials budget.
4. Direct labor budget.
5. Factory overhead budget.
6. Selling expense budget.
7. General and administrative expense budget.
8. Cash budget.
9. Budgeted income statement for the entire second quarter (not for each month separately).
10. Budgeted balance sheet.

Answer 1

		Zigby Manufacturing
	Sales Budget
1)		April	May	June	Quarter
	Budgeted Unit Sales=(A)	24000	16600	22200	62800
	Selling Price per unit=(B)	$               31.00	$              31.00	$               31.00	$                       31.00
	Total Sales=(A)*(B)	$      7,44,000.00	$      5,14,600.00	$       6,88,200.00	$            19,46,800.00
	Schedule of Production Budget
2)		April	May	June	Total
	Budgeted Unit Sales=(A)	24000	16600	22200	62800
	Add: Desired ending inventory=(B)	11620	15540	16800	16800
	Total Needs=(C )=(A)+(B)	35620	32140	39000	79600
	Less: Beginning Inventory=(D)	16800	11620	15540	16800
	Required Production=(C )-(D )	18820	20520	23460	62800
		April	May	June
	Desired Ending Inventory	(16600*70%)	(22200*70%)	(24000*70%)
	Beginning Inventory	given	(16600*70%)	(22200*70%)
3)	Schedule of Raw Material Purchased Budget
		April	May	June	Total
	Required Production=(A)	18820	20520	23460	62800
	Unit of raw material needed per unit of finished goods=(B)	0.5	0.5	0.5	0.5
	Raw Material required=(C )=(A)*(B)	9410	10260	11730	31400
	Add: Ending Inventory=(D)	5130	5865	5100	5100
	Total Units of raw material needed=(E )=(C )+(D)	14540	16125	16830	36500
	Less: Beginning Inventory=(F )	4705	5130	5865	4705
	Total Raw Material Purchased=(G)=(E )-(F)	9835	10995	10965	31795
	Each unit of raw material cost =(H)	$               20.00	$              20.00	$               20.00	$                       20.00
	Total Raw Material Cost=(G)*(H)	$      1,96,700.00	$      2,19,900.00	$       2,19,300.00	$              6,35,900.00
	April	(10260*50%)
	May	(11730*50%)
	June	Given
4)	Schedule of Direct Labor cost
		April	May	June	Total
	Required Production=(A)	18820	20520	23460	62800
	Direct Labor hours per unit=(B)	0.5	0.5	0.5	0.5
	Total Direct Labor hours needed =(C )=(A)*(B)	9410	10260	11730	31400
	Direct Labor cost per hours=(D)	$               26.00	$              26.00	$               26.00	$                       26.00
	Total direct labor cost=(C )*(D)	$      2,44,660.00	$      2,66,760.00	$       3,04,980.00	$              8,16,400.00
5)	Schedule of Manufacturing Overhead cost
		April	May	June	Quarter
	Total Direct Labor Hours=(A)	9410	10260	11730	31400
	Variable Overhead cost Per unit of direct labour hours=(B)	$                3.80	$                3.80	$                 3.80	$                        3.80
	Total Variable cost=(C )=(A)*(B)	$         35,758.00	$        38,988.00	$         44,574.00	$              1,19,320.00
	Fixed Overhead=(D )	$         31,400.00	$        31,400.00	$         31,400.00	$                 94,200.00
	Total Overhead=(C )+(D)	$         67,158.00	$        70,388.00	$         75,974.00	$              2,13,520.00
	Schedule of Selling Expenses
6)		April	May	June	Quarter
	Sales Commission=(Sales*5%)	37,200.00	25,730.00	34,410.00	97,340.00
	Sales Representative salaries	$          4,100.00	$          4,100.00	$           4,100.00	$                 12,300.00
	Total Selling & administrative expenses	$         41,300.00	$        29,830.00	$         38,510.00	$              1,09,640.00