Question

1.

Budgeted Income Statement and Supporting Budgets

The budget director of Birds of a Feather Inc., with the assistance of the controller, treasurer, production manager, and sales manager, has gathered the following data for use in developing the budgeted income statement for January:

1. Estimated sales for January:

   Birdhouse	6,000 units at $55 per unit
   Bird feeder	4,500 units at $75 per unit

2. Estimated inventories at January 1:

   Direct materials:
   Wood	220 ft.
   Plastic	250 lb.
   Finished products:
   Birdhouse	300 units at $23 per unit
   Bird feeder	240 units at $34 per unit

3. Desired inventories at January 31:

   Direct materials:
   Wood	180 ft.
   Plastic	210 lb.
   Finished products:
   Birdhouse	340 units at $23 per unit
   Bird feeder	200 units at $34 per unit

4. Direct materials used in production:

   In manufacture of BirdHouse:
   Wood	0.80 ft. per unit of product
   Plastic	0.50 lb. per unit of product
   In manufacture of Bird Feeder:
   Wood	1.20 ft. per unit of product
   Plastic	0.75 lb. per unit of product

5. Anticipated cost of purchases and beginning and ending inventory of direct materials:

   Wood	$8.00 per ft.
   Plastic	$1.20 per lb.

6. Direct labor requirements:

   Birdhouse:
   Fabrication Department	0.20 hr. at $15 per hr.
   Assembly Department	0.30 hr. at $12 per hr.
   Bird Feeder:
   Fabrication Department	0.40 hr. at $15 per hr.
   Assembly Department	0.35 hr. at $12 per hr.

7. Estimated factory overhead costs for January:

   Indirect factory wages	$80,000
   Depreciation of plant and equipment	25,000
   Power and light	8,000
   Insurance and property tax	2,000

8. Estimated operating expenses for January:

   Sales salaries expense	$90,000
   Advertising expense	20,000
   Office salaries expense	18,000
   Depreciation expense—office equipment	800
   Telephone expense—selling	500
   Telephone expense—administrative	200
   Travel expense—selling	5,000
   Office supplies expense	250
   Miscellaneous administrative expense	450

9. Estimated other income and expense for January:

   Interest revenue	$300
   Interest expense	224

10. Estimated tax rate: 30%

Prepare a production budget for January.

Birds of a Feather Inc. Production Budget For the Month Ending January 31
	Units
		Birdhouse		Bird Feeder
Expected units to be sold
Plus desired inventory, January 31
Total
Less estimated inventory, January 1
Total units to be produced

Prepare a direct materials purchases budget for January.

Birds of a Feather Inc. Direct Materials Purchases Budget For the Month Ending January 31
	Wood	Plastic	Total
Required units for production:
Birdhouse
Bird feeder
Plus desired units of inventory, January 31
Total
Less estimated units of inventory, January 1
Total units to be purchased
Unit price	$	$
Total direct materials to be purchased	$	$	$

Prepare a direct labor cost budget for January.

Birds of a Feather Inc. Direct Labor Cost Budget For the Month Ending January 31
			Fabrication Department		Assembly Department	Total
Hours required for production:
	Birdhouse
	Bird feeder
	Total
Hourly rate			$		$
Total direct labor cost			$		$	$

2)

Cash Budget

The controller of Sonoma Housewares Inc. instructs you to prepare a monthly cash budget for the next three months. You are presented with the following budget information:

	May		June		July
Sales	$86,000		$90,000		$95,000
Manufacturing costs	34,000		39,000		44,000
Selling and administrative expenses	15,000		16,000		22,000
Capital expenditures	_		_		80,000

The company expects to sell about 10% of its merchandise for cash. Of sales on account, 70% are expected to be collected in the month following the sale and the remainder the following month (second month following sale). Depreciation, insurance, and property tax expense represent $3,500 of the estimated monthly manufacturing costs. The annual insurance premium is paid in September, and the annual property taxes are paid in November. Of the remainder of the manufacturing costs, 80% are expected to be paid in the month in which they are incurred and the balance in the following month.

Current assets as of May 1 include cash of $33,000, marketable securities of $40,000, and accounts receivable of $90,000 ($72,000 from April sales and $18,000 from March sales). Sales on account for March and April were $60,000 and $72,000, respectively. Current liabilities as of May 1 include $6,000 of accounts payable incurred in April for manufacturing costs. All selling and administrative expenses are paid in cash in the period they are incurred. An estimated income tax payment of $14,000 will be made in June. Sonoma’s regular quarterly dividend of $5,000 is expected to be declared in June and paid in July. Management wants to maintain a minimum cash balance of $30,000.

Required:

1. Prepare a monthly cash budget and supporting schedules for May, June, and July 2016. Input all amounts as positive values except overall cash decrease and deficiency which should be indicated with a minus sign.

Sonoma Housewares Inc.
Cash Budget
For the Three Months Ending July 31
	May	June	July
Estimated cash receipts from:
Cash sales	$	$	$
Collection of accounts receivable
Total cash receipts	$	$	$
Estimated cash payments for:
Manufacturing costs	$	$	$
Selling and administrative expenses
Capital expenditures
Other purposes:
Income tax
Dividends
Total cash payments	$	$	$
Cash increase or (decrease)	$	$	$
Cash balance at beginning of month
Cash balance at end of month	$	$	$
Minimum cash balance
Excess or (deficiency)	$	$	$

2. The budget indicates that the minimum cash balance   be maintained in July. This situation can be corrected by   and/or by the   of the marketable securities, if they are held for such purposes. At the end of May and June, the cash balance will   the minimum desired balance.

Answer 1

1)	Birds of a Feather Inc.
	Sales Budget
	For the month ended January 31st
		(A)	(B)	(A)*(B)
		Units	Sales Price per unit	Total Sales Price
	Bird House	6000	$                          55.00	$         3,30,000.00
	Bird Feather	4500	$                          75.00	$         3,37,500.00
	Total Sales Revenue			$         6,67,500.00
	Birds of a Feather Inc.
	Production Budget
	For the month ended January 31st
		Bird House	Bird Feeder
	Sales (Units)=(A)	6000	4500
	Ending Inventory=(B)	340	200
	Total=(C )=(A)+(B)	6340	4700
	Less: Beginning Inventory=(D)	300	240
	Production(Units)=(C )-(D)	6040	4460
	Birds of a Feather Inc.
	Direct Material Purchase Budget
	For the month ended January 31st
		Wood	Plastic	Total
	Units Required
	Bird House(6040*.80ft),(6040*.50 lb)=(A)	4832	3020
	Bird Feeder(4460*1.20ft),(4460*.75lb)=(B)	5352	3345
	Add: Ending Inventory=(C )	180	210
	Total=(D )=(A)+(B)+(C )	10364	6575
	Less: Beginning Inventory=(E )	220	250
	Total Units produced=(F )=(D )-(E )	10144	6325
	Unit Price=(G )	$                          8.00	$                            1.20
	Total Direct Material purchase price(F )*(G)	$                  81,152.00	$                      7,590.00	$           88,742.00
	Birds of a Feather Inc.
	Direct Labor cost budget
	For the month ended January 31st
		Fabrication Department	Assembly Department	Total
	Hours Required for production
	Bird House(3170*.20),(3170*.30)	1208	1812
	Bird Feeder(2980*.40),(2980*.35)	1784	1561
	Total=(A)	2992	3373
	Rate per labor hour=(B)	$                        15.00	$                          12.00
	Total Labor cost(A)*(B)	$                  44,880.00	$                    40,476.00	$           85,356.00