Question

Decker Manufacturing is preparing its master budget for the first quarter of the upcoming year. The following data pertain to

Decker

​Manufacturing's operations:

  

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Requirement 1. Prepare a schedule of cash collections for​ January, February, and​ March, and for the quarter in total.

Decker Manufacturing
Cash Collections Budget
For the Quarter Ended March 31
	Month

	January	February	March	Quarter
Cash sales	$24,000	$27,600	$29,700
Credits sales
Total cash collections

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Data Table

Current Assets as of December 31 (prior year):
Cash. . . . . . . . . . . . . . . . . . . . . . . . . . .	$4,500
Accounts receivable, net. . . . . . . . . . . . .	$47,000
Inventory. . . . . . . . . . . . . . . . . . . . . . . .	$15,500
Property, plant, and equipment, net. . . . . . . . . . . .	$121,500
Accounts payable. . . . . . . . . . . . . . . . . . . . . . .	$42,400
Capital stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	$125,000
Retained earnings. . . . . . . . . . . . . . . . . . . . . . . . . .	$22,800

MORE INFORMATION

a.	Actual sales in December were $ 70 comma 000$70,000. Selling price per unit is projected to remain stable at $ 10$10 per unit throughout the budget period. Sales for the first five months of the upcoming year are budgeted to be as​ follows: January. . . . . . . . $80,000 February. . . . . . . . $92,000 March. . . . . . . . . . $99,000 April. . . . . . . . . . $97,000 May. . . . . . . . . . $85,000
b.	Sales are 3030​% cash and 7070​% credit. All credit sales are collected in the month following the sale.
c.	DeckerDecker Manufacturing has a policy that states that each​ month's ending inventory of finished goods should be 2525​% of the following​ month's sales​ (in units).
d.	Of each​ month's direct material​ purchases, 2020​% are paid for in the month of​ purchase, while the remainder is paid for in the month following purchase. TwoTwo pounds of direct material is needed per unit at $ 2.00$2.00 per pound. Ending inventory of direct materials should be 10 %10% of next​ month's production needs.
e.	Most of the labor at the manufacturing facility is​ indirect, but there is some direct labor incurred. The direct labor hours per unit is 0.010.01. The direct labor rate per hour is $ 12$12 per hour. All direct labor is paid for in the month in which the work is performed. The direct labor total cost for each of the upcoming three months is as​ follows: January. . . . . . . . $996 February. . . . . . . . $1,125 March. . . . . . . . . . $1,182 f. Monthly manufacturing overhead costs are $ 5 comma 000$5,000 for factory​ rent, $ 3 comma 000$3,000 for other fixed manufacturing​ expenses, and $ 1.20$1.20 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. g. Computer equipment for the administrative offices will be purchased in the upcoming quarter. In​ January, DeckerDecker Manufacturing will purchase equipment for $ 5 comma 000$5,000 ​(cash), while​ February's cash expenditure will be $ 12 comma 000$12,000 and​ March's cash expenditure will be $ 16 comma 000.$16,000. h. Operating expenses are budgeted to be $ 1.00$1.00 per unit sold plus fixed operating expenses of $ 1 comma 000$1,000 per month. All operating expenses are paid in the month in which they are incurred. No depreciation is included in these figures. i. Depreciation on the building and equipment for the general and administrative offices is budgeted to be $ 4 comma 400$4,400 for the entire​quarter, which includes depreciation on new acquisitions.   j. DeckerDecker Manufacturing has a policy that the ending cash balance in each month must be at least $ 4 comma 000$4,000. It has a line of credit with a local bank. The company can borrow in increments of $ 1 comma 000$1,000 at the beginning of each​ month, up to a total outstanding loan balance of $ 130 comma 000$130,000. The interest rate on these loans is 11​% per month simple interest​ (not compounded). The company would pay down on the line of credit balance in increments of $ 1 comma 000$1,000 if it has excess funds at the end of the quarter. The company would also pay the accumulated interest at the end of the quarter on the funds borrowed during the quarter. k. The​ company's income tax rate is projected to be​ 30% of operating income less interest expense. The company pays $ 10 comma 000$10,000 cash at the end of February in estimated taxes. REQUIREMENT 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. 4. Prepare a cash payments budget for the direct material purchases from Requirement 3. 5. Prepare a cash payments budget for direct labor. 6. Prepare a cash payments budget for manufacturing overhead costs. 7. Prepare a cash payments budget for operating expenses. 8. Prepare a combined cash budget. 9. Calculate the budgeted manufacturing cost per unit​ (assume that fixed manufacturing overhead is budgeted to be $ 0.80$0.80 per unit for the​ year). 10. Prepare a budgeted income statement for the quarter ending March 31.​ (Hint: Cost of goods sold​ = Budgeted cost of manufacturing one unit x Number of units​ sold.)

Answer 1

1. Schedule of cash collections:
	January	February	March	Total
Budgeted Sales	80000	92000	99000	271000
Cash sales	24000	27600	29700	81300
Collections from credit sales:
December sales	47000			47000
January sales		56000		56000
February sales			64400	64400
Total Cash collections	71000	83600	94100	248700
2. Production Budget
	January	February	March	Total
Unit Sales	8000	9200	9900	27100
Add: Desired ending inventory	2300	2475	2425	2425
(25% of the next month's sale)
Desired units	10300	11675	12325	29525
Less: Beginning inventory	2000	2300	2475	2000
Budgeted Production	8300	9375	9850	27525
3. Direct material budget
	January	February	March	Total
Budgeted Production	8300	9375	9850	27525
Direct material per unit (pounds)	2	2	2	2
Direct material required for production	16600	18750	19700	55050
Add: Desired Ending inventory	1875	1970	1880	1880
(10% of net month's requirement)
	18475	20720	21580	56930
Less: Beginning Inventory	1710	1875	1970	1710
Budgeted direct material purchases (units)	16765	18845	19610	55220
Cost per unit	2	2	2	2
Direct material purchases	33530	37690	39220	110440
4. Schedule of payments
	January	February	March	Total
Direct material purchases	33530	37690	39220	110440
Payments for :
December purchases	42400			42400
January purchses	6706	26824		33530
February purchases		7538	30152	37690
March purchases			7844	7844
Payments for direct material purchases	49106	34362	37996	121464
5. Direct labor budget
	January	February	March	Total
Budgeted production	8300	9375	9850	27525
Direct labor hour per unit	0.01	0.01	0.01	0.01
Direct labor hours	83	93.75	98.5	275.25
Direct labor rate per hour	12	12	12	12
Direct labor cost	996	1125	1182	3303
6. Manufacturing overhead budget
	January	February	March	Total
Budgeted production	8300	9375	9850	27525
Variable overhead rate per unit	1.2	1.2	1.2	1.2
Variable overhead cost	9960	11250	11820	33030
Fixed overhead:
Factory Rent	5000	5000	5000	15000
Other fixed overheads	3000	3000	3000	9000
Total fixed overhead	8000	8000	8000	24000
Total manufacturing overhead	17960	19250	19820	57030
7. Operating expenses budget
	January	February	March	Total
Budgeted unit sales	8000	9200	9900	27100
Variable operating expeses per unit	1	1	1	1
Variable overhead expenses	8000	9200	9900	27100
Fixed operating expenses	1000	1000	1000	3000
Total operating expenses	9000	10200	10900	30100