Question

To prepare a master budget for April, May, and June of 2020, management gathers the following information:

1. Sales for March total 19,500 units. Forecasted sales in units are as follows: April 19,500 ; May 17,100; June 21,300; July 19,500. Sales of 248,000 units are forecasted for the entire year. The product’s selling price is $30.00 per unit and the total product cost is $24.60 per unit.

b. Company policy calls for a given month’s ending finished goods inventory to equal 80% of the next month’s expected unit sales. The March 31 finished goods inventory is 15,600 units, which complies with the policy.

3. 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 4,395 units, which complies with this policy. The expected June 30 ending raw materials inventory is 4,800 units. Raw materials cost $20 per unit. Each finished unit requires .50 units of raw materials.

d. Each finished unit requires .50 hours of direct labor at a rate of $23.00 per hour.

e. Overhead is allocated based on direct labor hours. The predetermined variable overhead rate is $3.40 per direct labor hour. Depreciation of $27,020 per month is treated as fixed factory overhead.

f. Sales representatives’ commissions are 7% of sales and are paid in the month of the sales. The sales manager’s monthly salary is $3,800 per month.

g. Monthly general and administrative expenses include $20,000 administrative salaries and .5% monthly interest on the long-term note payable.

h. The company expects 25% of sales to be for cash and the remaining 75% on credit. Receivables are collected in full in the month following the sale (none are collected in the month of the sale)

i. 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.

j. The minimum ending cash balance for all months is $48,000. 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.

k. Dividends of $18,000 are to be declared and paid in May

l. 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.

m. Equipment purchases of $138,000 are budgeted for the last day of June.

14. The estimated balance sheet for the company as of March, 2020 is included on tab (C) .  

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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 (April, May & June shown separately), except as otherwise noted. Round calculations to the nearest whole dollars.

pt 3

11. Budgeted Income statement for the entire second quarter (not for each month separately)

12. Budgeted Statement of Retained Earnings (For the entire second quarter)

13. Budgeted Balance Sheet

Use areas on these budget tabs or separate tabs to document any supporting calculations or assumptions needed to come up with the above information.

Answer 1

WORKINGS