Question

Waterways Corporation is preparing its budget for the coming year, 2020. The first step is to plan for the first quarter of that coming year. The company has gathered information from its managers in preparation of the budgeting process. Sales Unit sales for November 2019 111,000 Unit sales for December 2019 103,000 Expected unit sales for January 2020 114,000 Expected unit sales for February 2020 114,000 Expected unit sales for March 2020 116,000 Expected unit sales for April 2020 127,000 Expected unit sales for May 2020 139,000 Unit selling price $12 Waterways likes to keep 10% of the next month’s unit sales in ending inventory. All sales are on account. 85% of the Accounts Receivable are collected in the month of sale, and 15% of the Accounts Receivable are collected in the month after sale. Accounts receivable on December 31, 2019, totaled $185,400. Direct Materials Direct materials cost 80 cents per pound. Two pounds of direct materials are required to produce each unit. Waterways likes to keep 5% of the materials needed for the next month in its ending inventory. Raw Materials on December 31, 2019, totaled 11,400 pounds. Payment for materials is made within 15 days. 50% is paid in the month of purchase, and 50% is paid in the month after purchase. Accounts Payable on December 31, 2019, totaled $104,595. Direct Labor Labor requires 12 minutes per unit for completion and is paid at a rate of $9 per hour. Manufacturing Overhead Indirect materials 30¢ per labor hour Indirect labor 50¢ per labor hour Utilities 50¢ per labor hour Maintenance 30¢ per labor hour Salaries $41,000 per month Depreciation $18,100 per month Property taxes $2,500 per month Insurance $1,200 per month Maintenance $1,200 per month Selling and Administrative Variable selling and administrative cost per unit is $1.50. Advertising $15,000 a month Insurance $1,500 a month Salaries $71,000 a month Depreciation $2,500 a month Other fixed costs $2,900 a month Other Information The Cash balance on December 31, 2019, totaled $98,000, but management has decided it would like to maintain a cash balance of at least $700,000 beginning on January 31, 2020. Dividends are paid each month at the rate of $2.70 per share for 4,740 shares outstanding. The company has an open line of credit with Romney’s Bank. The terms of the agreement requires borrowing to be in $1,000 increments at 9% interest. Waterways borrows on the first day of the month and repays on the last day of the month. A $530,000 equipment purchase is planned for February.

For the first quarter of 2020, prepare a sales budget.

For the first quarter of 2020, prepare a production budget.

For the first quarter of 2020, prepare a direct materials budget. (Round cost per pound to 2 decimal places, e.g. 0.25 and all other answers to 0 decimal places, e.g. 2,520.)

For the first quarter of 2020, prepare a direct labor budget. (Round time per unit to nearest hour, e.g. 30 minutes will be rounded to 0.5 hours)

For the first quarter of 2020, prepare a manufacturing overhead budget. (Round overhead rate to 2 decimal places, e.g. 5.25 and all other answers to 0 decimal places, e.g. 2,520. List Variable Costs first.)

For the first quarter of 2020, prepare a selling and administrative budget. (Enter per unit expenses rounded to 2 decimal places. E.g. 1.25)

For the first quarter of 2020, prepare a schedule for expected cash collections from customers.

For the first quarter of 2020, prepare a schedule for expected payments for materials purchases. (Round answers to 0 decimal places, e.g. 2,520.)

For the first quarter of 2020, prepare a cash budget. (Round answers to 0 decimal places, e.g. 2,520.)

Answer 1

	Sales budget
					January	February	March	Total
Unit sales				a	114000	114000	116000	344000
Selling price				b	12	12	12
Sales revenue in $				a*b	1368000	1368000	1392000	4128000
	Production budget
					January	February	March	Total	April	May
Unit sales					114000	114000	116000	344000	127000	139000
Add: Desired ending inventory					11400	11600	12700		13900
(10% of next month unit sales)					(114000*10%)	(116000*10%)	(127000*10%)		(139000*10%)
					125400	125600	128700	379700	140900
Less; beginning inventory					11400	11400	11600		12700
					(114000*10%)
Units to be produced					114000	114200	117100	345300	128200
	Direct materials budget
					January	February	March	Total	April
Units to be produced				a	114000	114200	117100	345300	128200
Materials required per unit in pounds				b	2	2	2		2
Materials needed				a*b	228000	228400	234200	690600	256400
Add: Desired ending inventory					11420	11710	12820
(5% of materials needed for next month)					(228400*5%)	(234200*5%)	(256400*5%)
					239420	240110	247020	726550
Less:Beginning inventory					11400	11420	11710
Materials to be purchased in pounds				c	228020	228690	235310	692020
Materials cost per pound				d	0.8	0.8	0.8
Direct material cost				c*d	182416	182952	188248	553616
	Direct labor budget
					January	February	March	Total
Units to be produced				a	114000	114200	117100	345300
Hours required per unit			(12/60)	b	0.2	0.2	0.2
Labor hours required				c=a*b	22800	22840	23420	69060
Labor rate per hour				d	9	9	9
Direct labor cost				c*d	205200	205560	210780	621540