Question

Information for 2020:

1.   Sales forecast: January: 2,600 units; February: 4,500 units; March: 10,200 units; April: 12,000 units. The unit sales price is $125. All sales are on credit and collections are 30% in the month of sale, 60% the following month, and 10% two months following the sale. Accounts receivable as of the end of December is $4,600 and this amount is expected to be collected in January.

2. End of month inventory must equal 40% of next month’s sales. The inventory at the end of December was 150 units.

3. The following are the expected costs for direct materials, direct labor and manufacturing overhead:

DM                             DL                                         Overhead

January          $15/unit                                 $28/unit              $15,500 + $8.00 per unit produced     

February        $15/unit                                 $28/unit              $15,500 + $8.00 per unit produced

March          $15/unit $28/unit              $15,500 + $8.00 per unit produced

A. Direct materials are paid 60% in the month incurred and 40% in the following month.

      Account payable for materials at the end of December is $2,900; this amount will be paid in January.

B. Direct labor is paid in the month incurred.

C. Overhead costs are paid in the month incurred. Fixed overhead includes depreciation of $7,000 per month.

4.   Selling costs are sales commissions: $5 per unit sold; shipping costs: $1 per unit sold. Administrative costs per month are: salaries: $3,000; rent: $2,000; depreciation: $1,500. All costs are paid in the month incurred.

5. The company plans to purchase equipment in January costing $15,000 and will pay for it in cash.

6. The company plans to pay $4,500 cash dividends in February.

7. The cash balance as of December 31 is $25,050. The company borrows money only if the cash balance falls below $5,000 at the end of the month. The company has a revolving credit with US Bank to borrow in increments of $1,000 at the beginning of each month at interest of 12% annual rate. The company repays interest at the end of each month and principle (or portion) at the end of the month when they have the resources to do so. As of December 31, the company has no outstanding loans.

Required:

Based on the information given, prepare the following budgets for each month of the first quarter of 2020 and the quarter totals:

1. Sales Budget, including a schedule of expected cash collections;
2. Production Budget (in units);
3. Direct material, including schedule of expected cash disbursements;
4. Direct labor budget;
5. Manufacturing Overhead Budget;
6. Selling and Administrative Expenses Budget;
7. Cash Budget.

Answer 1