Question

***ONLY NEED QUESTIONS 6 & 7 ANSWERED***

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

Production Budget(in units)

	January	February	March
Sales	2600	4500	10200
Add Closing Stock	1800	4080	4800
Less Opening Stock	150	1800	4080
Production	4250	6780	10920

Direct expenses

	January	February	March
Production in units	4250	6780	10920
Direct material($15 p.u)	63750	101700	163800
Direct Labour($28 p.u)	119000	189840	305760
Overheads($15500+$8 p.u):-
Variable	34000	54240	87360
Fixed(including depreciation of 7000)	15500	15500	15500
Fixed(excluding depreciation of 7000)	8500	8500	8500

Sales and Administrative Budget

	January	February	March
Sales	2600	4500	10200
Sales Commission($5 p.u.)	13000	22500	51000
Shipping Cost($1 p.u.)	2600	4500	10200
Salary	3000	3000	3000
Rent	2000	2000	2000
Depreciation	1500	1500	1500
Total expense	22100	33500	67700
Total payment to be made (No cash payment for depreciation)	20600	32000	66200

Cash Collection from debtors

	January	February	March
Sales in $	325000	562500	1275000
Collection
30% in current month	97500	168750	382500
60% in next month	0	195000	337500
10% in third month	0	0	32500
Receivables of december	4600	0	0
Total receipts	102100	363750	752500

Cash Payments for Direct Material

	January	February	March
Direct Material	63750	101700	163800
Payment:-
60% current month	38250	61020	98280
40% next month	0	25500	40680
Payables of december	2900	0	0
Total payments for direct material	41150	86520	138960

Cash Budget

	January	February	March
Opening Balance	25050	(110110)	(120980)
Receipts from sales/debtors	102100	363750	752500
Total Receipts (A)	127150	253640	631520
Payments:-
Direct Material	41150	86520	138960
Direct Labour	119000	189840	305760
Overheads:-
Variable($8 p.u.)	34000	54240	87360
Fixed(excluding depreciation)	8500	8500	8500
Selling overheads:-
Sales Commission($5 p.u.)	13000	22500	51000
Shipping Cost($1 p.u.)	2600	4500	10200
Administrative overheads:-
Salary	3000	3000	3000
Rent	2000	2000	2000
Equipment purchase	15000	0	0
Dividend	0	4500	0
Total Payments(B)	238250	375600	606780
Cash balance A-B	(111100)	(121960)	24740
Minimum Cash Balance	5000	5000	5000
Financing:-
Borrowing at the beginning of the month	1000	1000	0
(Repayment at the end of the month)	0	0	(2000)
Interest	(10)	(20)	(20)
Closing Cash Balance	(110110)	(120980)	22720

Interest is to be charged in march as principal is repaid at the end of the month.