Question

Iguana, Inc., manufactures bamboo picture frames that sell for $25 each. Each frame requires 4 linear feet of bamboo, which costs $2.00 per foot. Each frame takes approximately 30 minutes to build, and the labor rate averages $11 per hour. Iguana has the following inventory policies:

• Ending finished goods inventory should be 40 percent of next month’s sales.
• Ending direct materials inventory should be 30 percent of next month’s production.

Expected unit sales (frames) for the upcoming months follow:

March	290
April	280
May	330
June	430
July	405
August	455

Variable manufacturing overhead is incurred at a rate of $0.60 per unit produced. Annual fixed manufacturing overhead is estimated to be $7,200 ($600 per month) for expected production of 3,000 units for the year. Selling and administrative expenses are estimated at $700 per month plus $0.50 per unit sold.

Iguana, Inc., had $11,100 cash on hand on April 1. Of its sales, 80 percent is in cash. Of the credit sales, 50 percent is collected during the month of the sale, and 50 percent is collected during the month following the sale.

Of direct materials purchases, 80 percent is paid for during the month purchased and 20 percent is paid in the following month. Direct materials purchases for March 1 totaled $2,000. All other operating costs are paid during the month incurred. Monthly fixed manufacturing overhead includes $180 in depreciation. During April, Iguana plans to pay $3,300 for a piece of equipment.

Required:
1. Compute the budgeted cash receipts for Iguana.
2. Compute the budgeted cash payments for Iguana.
3. Prepare the cash budget for Iguana. Assume the company can borrow in increments of $1,000 to maintain a $10,000 minimum cash balance.

Answer 1

(1)

	April	May	June	2nd Quarter
Cash Sale Collected	$        5,600	$        6,600	$          8,600	$        20,800
Credit sale collected in same month	$           700	$           825	$          1,075	$          2,600
Credit sale collected in following month	$           725	$           700	$              825	$          2,250
Budgeted cash Receipts	$        7,025	$        8,125	$        10,500	$        25,650

(2)

	April	May	June	2nd Quarter
Cash Purchase payment	$        2,054	$        2,464	$          2,698	$          7,216
Credit Purchase Payment in following month	$           400	$           514	$              616	$          1,530
Payment for Direct Labor	$        1,650	$        2,035	$          2,310	$          5,995
Variable manufacturing overhead	$           180	$           222	$              252	$              654
Fixed manufacturing overhead	$           420	$           420	$              420	$          1,260
Selling & Adm Expense	$           840	$           865	$              915	$          2,620
Payment for Equipment	$        3,300			$          3,300
Budgeted Cash Payment	$        8,844	$        6,520	$          7,211	$        22,575

(3)

	April	May	June	2nd Quarter
Beginning Cash balance	$11,100	$10,281	$10,886	$11,100
Plus: Budgeted Cash Receipts	$        7,025	$        8,125	$        10,500	$        25,650
Less: Budgeted cash Payments	$8,844	$6,520	$7,211	$22,575
Preliminary cash Balance	$9,281	$11,886	$14,175	$14,175
Cash Borrowed/Repaid	1000	-1000	0	$0
Ending Cash Balance	$10,281	$10,886	$14,175	$14,175

	April	May	June
Units sold	280	330	430
Add: Desired Ending Inventory of FG	132	172	162
Less: Estimated Beginning Inventory	112	132	172
Units Produced	300	370	420
RM required per unit (linear feet)	4	4	4
RM required for Units manufacturing	1200	1480	1680
Add: Desired Ending Inventory of RM	444	504	510
Less: Estimated Beginning Inventory	360	444	504
Raw Material Purchase (in feets)	1284	1540	1686
RM price per foot	$2	$2	$2
Raw Material Purchase (in dollars)	$2,568	$3,080	$3,372