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The management of Zigby Manufacturing prepared the following estimated balance sheet for March 2017: ZIGBY MANUFACTURING...

The management of Zigby Manufacturing prepared the following estimated balance sheet for March 2017:

ZIGBY MANUFACTURING
Estimated Balance Sheet
March 31, 2017
Assets
Cash $ 51,000
Accounts receivable 483,600
Raw materials inventory 94,100
Finished goods inventory 443,520
Total current assets 1,072,220
Equipment, gross 622,000
Accumulated depreciation (161,000 )
Equipment, net 461,000
Total assets $ 1,533,220
Liabilities and Equity
Accounts payable $ 211,400
Short-term notes payable 23,000
Total current liabilities 234,400
Long-term note payable 515,000
Total liabilities 749,400
Common stock 346,000
Retained earnings 437,820
Total stockholders’ equity 783,820
Total liabilities and equity $ 1,533,220

Sales for March total 24,000 units. Forecasted sales in units are as follows: April, 24,000; May, 16,600; June, 22,200; and July, 24,000. Sales of 251,000 units are forecasted for the entire year. The product’s selling price is $31.00 per unit and its total product cost is $26.40 per unit.

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 4,705 units, which complies with the policy. The expected June 30 ending raw materials inventory is 5,100 units. Raw materials cost $20 per unit. Each finished unit requires 0.50 units of raw materials.

Company policy calls for a given month’s ending finished goods inventory to equal 70% of the next month’s expected unit sales. The March 31 finished goods inventory is 16,800 units, which complies with the policy.

Each finished unit requires 0.50 hours of direct labor at a rate of $26 per hour.

Overhead is allocated based on direct labor hours. The predetermined variable overhead rate is $3.80 per direct labor hour. Depreciation of $31,400 per month is treated as fixed factory overhead.

Sales representatives’ commissions are 5% of sales and are paid in the month of the sales. The sales manager’s monthly salary is $4,100.

Monthly general and administrative expenses include $25,000 administrative salaries and 0.8% monthly interest on the long-term note payable.

The company expects 35% of sales to be for cash and the remaining 65% on credit. Receivables are collected in full in the month following the sale (none are collected in the month of the sale).

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.

The minimum ending cash balance for all months is $99,000. 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.

Dividends of $21,000 are to be declared and paid in May.

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.

Equipment purchases of $141,000 are budgeted for the last day of June.

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, except as otherwise noted below. (Round calculations up to the nearest whole dollar, except for the amount of cash sales, which should be rounded down to the nearest whole dollar.):

1. Sales budget.
2. Production budget.
3. Raw materials budget.
4. Direct labor budget.
5. Factory overhead budget.
6. Selling expense budget.
7. General and administrative expense budget.

8. Cash budget.

9. Budgeted income statement for the entire second quarter (not for each month separately).
10. Budgeted balance sheet.

Solutions

Expert Solution

As per policy only first four questions will be answered

Part 1

ZIGBY MANUFACTURING
Sales Budget
April, May, and June 2017
Budgeted Unit Sales Budgeted Unit Price Budgeted Total Dollars
April 2017 24000 $31.00 744,000
May 2017 16600 31.00 514,600
June 2017 22200 31.00 688,200
Totals for the quarter 62,800 $31.00 1946800

Part 2

ZIGBY MANUFACTURING
Production Budget
April, May, and June 2017
April May June Total
Next month's budgeted sales (units) 16600 22200 24000
Ratio of inventory to future sales 70% 70% 70%
Budgeted ending inventory (units) 11620 15540 16800
Budgeted units sales for month 24000 16600 22200
Required units of available production 35620 32140 39000
Beginning inventory (units) (16800) (11620) (15540)
Units to be produced 18,820 20,520 23460 62,800

Part 3

ZIGBY MANUFACTURING
Raw Materials Budget
April, May, and June 2017
April May June Total
Production budget (units) 18,820 20,520 23460
Materials requirements per unit 0.50 0.50 0.50
Materials needed for production 9,410 10,260 11,730
Budgeted ending inventory 5,130 5865 5100
Total materials requirements (units) 14540 16125 16830
Beginning inventory (4,705) (5,130) (5,865)
Materials to be purchased 9,835 10,995 10965 31795
Material price per unit $20 $20 $20 $20
Total cost of direct material purchases $196700 $219,900 $219300 $635,900

Part 4

ZIGBY MANUFACTURING
Direct Labor Budget
April, May, and June 2017
April May June Total
Budgeted production (units) 18,820 20,520 23,460
Labor requirements per unit (hours) 0.50 0.50 0.50
Total labor hours needed 9,410 10,260 11,730 31,400
Labor rate (per hour) $26 $26 $26 $26
Labor dollars $244,660 $266,760 $304,980 $816,400

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