Question

Jesper Manufacturing is preparing its master budget for the first quarter of the upcoming year. The following data pertain to Jesper Manufacturing's operations:

Current Assets as of December 31 (prior year):
Cash	$4,460
Accounts receivable, net	$52,000
Inventory	$15,400
Property, plant, and equipment, net	$122,000
Accounts payable	$44,000
Common stock	$126,860
Retained earnings	$23,000

1. Actual sales in December were $76,000. Selling price per unit is projected to remain stable at $9 per unit throughout the budget period. Sales for the first five months of the upcoming year are budgeted to be as follows:

January	$80,100
February	$89,100
March	$82,800
April	$85,500
May	$77,400

2. Sales are 30% cash and 70% credit. All credit sales are collected in the month following the sale.
3. Jesper Manufacturing has a policy that states that each month's ending inventory of finished goods should be 10% of the following month's sales (in units).
4. Of each month's direct material purchases, 20% are paid for in the month of purchase, while the remainder is paid for in the month following purchase. Two kilograms of direct material is needed per unit at $1.40/kg. Ending inventory of direct materials should be 20% of next month's production needs.
5. Monthly manufacturing conversion costs are $6,500 for factory rent, $2,900 for other fixed manufacturing expenses, and $1.40 per unit for variable manufacturing overhead. No depreciation is included in these figures. All expenses are paid in the month in which they are incurred.
6. Computer equipment for the administrative offices will be purchased in the upcoming quarter. In January, Jesper Manufacturing will purchase equipment for $5,800 (cash), while February's cash expenditure will be $11,600 and March's cash expenditure will be $15,800.
7. Operating expenses are budgeted to be $1.20 per unit sold plus fixed operating expenses of $1,400 per month. All operating expenses are paid in the month in which they are incurred.
8. Depreciation on the building and equipment for the general and administrative offices is budgeted to be $5,600 for the entire quarter, which includes depreciation on new acquisitions.
9. Jesper Manufacturing has a policy that the ending cash balance in each month must be at least $4,400. It has a line of credit with a local bank. The company can borrow in increments of $1,000 at the beginning of each month, up to a total outstanding loan balance of $130,000. The interest rate on these loans is 1% per month simple interest (not compounded). Jesper Manufacturing pays down on the line of credit balance if it has excess funds at the end of the quarter. The company also pays the accumulated interest at the end of the quarter on the funds borrowed during the quarter.
10. The company's income tax rate is projected to be 30% of operating income less interest expense. The company pays $10,800 cash at the end of February in estimated taxes.

Requirements:

1. Prepare a schedule of cash collections for January, February, and March, and for the quarter in total.
2. Prepare a production budget. (Hint: Unit sales = Sales in dollars / Selling price per unit.)
3. Prepare a direct materials budget.

Answer 1

Cash Collection Budget
S.No	Particulars	January	February	March
A	Total Sales made during the Month	$80,100	$89,100	$82,800
B	Cash Sales during the Month( A*30%)	$24,030	$26,730	$24,840
C	Credit Sales of Previous Month Collected(Note-1)	$53,200	$56,070	$62,370
D	Toatl Cash Collections	$77,230	$82,800	$87,210
Production Budget
S.No	Particulars	January	February	March
A	Budgeted Sales during the Month	$80,100	$89,100	$82,800
B	Selling Price Per Unit	$9	$9	$9
C	Budgeted Sales in Units ( A/B )	8900	9900	9200
D	Opening Stock of Finished Goods (C*10%)(Units)	890	990	920
E	Budgeted Sales of Following Month	$89,100	$82,800	$85,500
F	Budgeted Sales Units of Following Month(E/B)	9900	9200	9500
G	Closing Stock to be maintained ( F*10%)	990	920	950
H	Budgeted Production ( C-D+G) (Units )	9000	9830	9230
Direct Materials Budget
S.No	Particulars	January	February	March
A	Budgeted Sales in Units during the Month	8900	9900	9200
B	Raw Material Required for each unit (Kilogram)	2	2	2
C	Raw Material Required for Budgeted Sales (A*B )	17800	19800	18400
D	Opening Stock of Raw material(A*B*20%)(Kilogram)	3560	3960	3680
E	Budgeted Sales Units of Following Month	9900	9200	9500
G	Raw Material Required for Budgeted Sales of Following Month(E*2 Kilogram)	19800	18400	19000
H	Closing Stock to be maintained ( G*10%)	1980	1840	1900
I	Material to be Purchased during the Month (C-D+H)(Pounds)	16220	17680	16620
J	Material Price Per Kilogram	$1.40	$1.40	$1.40
K	Material to be Purchased during the Month (I*J)(Value)	$22,708	$24,752	$23,268

Credit Sales of December Month Collected in January :

Total Sales made in December: $76,000

Credit Sales of December Collected in January : $76,000 * 70% = $53,200

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