Question

IGY is a US manufacturer of many types of high quality products. You are a member of the Accounting Department at IGY, LTD and you have been provided with 2020 budget estimates for Department A.

Your team is responsible to complete the following budgets for Quarter 1 (January, February and March) of 2020:

Sales

Production

Direct Materials

Direct Labor

Manufacturing Overhead

Selling & Administrative

Cash Collections

Cash Disbursements

Cash Budget

Cost of Goods Sold

Income Statement

You will need to complete some budgets for April 2020 to have the information you need for the March 2020 budget. You can make a supplementary schedule next to the budget, but show the work for April in a professional manner.

Budget Information from Management
Prepare Master Budget for Quarter 1
Sales Forecast	Units
January	5,000
February	6,000
March	7,500
April	8,000
May	7,500
Selling price per unit	$ 31.00
Full Product Cost per Unit	$ 21.00
Finished Goods Inventory
Desired Finished Goods Ending Inventory-20 % Following Months Sales	20%
January 1, 2020 Beginning Inventory Finished Goods in Units	1,700
Raw Materials Cost and Usage
Desired Ending Raw Materials Inventory-50 % Following Months Materials Requirements	50%
January 1,2020 Raw Materials Beginning Inventory- in Units	4,925
Expected June RM Ending Inventory-in Units	4,000
RM Cost per pound	$7.25
RM used per unit of product - 2 pounds per unit	2
Hints:
1-- You will need April's production needs to complete the March Direct Materials Budget
Direct Labor Cost
Direct labor per unit (% of hour)	50%
Direct labor hourly rate	$20
Overhead Expense
Variable: Allocated per Direct Labor Hour	4.20
Fixed monthly overhead- Excluding Depreciation Expense	20,000
Fixed Overhead - Depreciation Expense	5,000
Selling Expenses
Sales representative commission (paid in month of sale)	5%
Sales manger's monthly salary	9,000
Administrative Expenses
Monthly general & adminstrative expenses	10,000
Monthly interest on long-term note payable	0.50%
Sale of Securities - Plan to sell securities in March	$84,000
Cash Collections
Collected in Month of Sale	30%
Receivables collected in full month following sale	70%
Accounts Recievable Balance January 1, 2020	$165,000
Cash Disbursements
Raw materials purchased on credit. Paid in full the month following the purchase	100%
Raw materials purchases in December	$98,500
Direct Labor- Paid in the month incurred	100%
Dividends are declared and paid in March	$ 2,500
Tax Payments
The company pays estimated income taxes of $15,500 on the last day of each quarter	$5,500
Capital Purchases
Equipment purchase is budgeted for the last day of March	$7,500
Minimum Cash Balances
Minimum ending cash balance for all months is $50,000. If necessary, the company borrows cash using a short-term line of credit at 1% per month paid at the end of Quarter 2 (June).
Minumum cash balance	50,000
Monthly interest rate	1%
Beginning Cash Balance on January 1,2020	50,000

Answer 1

1.Dividednd declared in march $2500 assumed that not paid in March therefore no effect on Cash budget

2. Equipment purchase budget on last day of march, assumed that not purchaesed

3. Income tax expenses considered as $15500.

4. Company facing losess for the first quarter from Jan to march

5. Ending cash balance is more than 50000 no borrowings is required.