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		114,000
Unit sales for December 2019		103,000
Expected unit sales for January 2020		114,000
Expected unit sales for February 2020		111,000
Expected unit sales for March 2020		116,000
Expected unit sales for April 2020		125,000
Expected unit sales for May 2020		136,000
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 11,370 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 $104,580.

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		40¢		per labor hour
Maintenance		30¢		per labor hour
Salaries		$41,000		per month
Depreciation		$17,900		per month
Property taxes		$2,400		per month
Insurance		$1,300		per month
Maintenance		$1,200		per month

Selling and Administrative
Variable selling and administrative cost per unit is $1.70.
Advertising		$16,000	a month
Insurance		$1,300	a month
Salaries		$72,000	a month
Depreciation		$2,600	a month
Other fixed costs		$3,100	a month

Other Information

The Cash balance on December 31, 2019, totaled $102,000, 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 $2.60 per share for 5,280 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 $490,000 equipment purchase is planned for February.

Question:

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.)

WATERWAYS CORPORATION Direct Materials Budget For the First Quarter of 2020 / March 2020 / For the Month Ending March 2020 (Pick One)
		First Quarter
		January		February		March		Quarter
Add / Less :
Add / Less :
		$		$		$
		$		$		$		$

Answer 1

Production Budget for first Quarter:

	January	February	March	Quarter
a. Sales	114,000	111,000	116,000	341,000
b. Ending Finished Goods Inventory	11,100	11,600	12,500	35,200
(10% of next month's sales)	(111,000 * 10%)	(116,000 * 10%)	(125,000 * 10%)
c. Beginninf Finished Goods Inventory	11,400	11,100	11,600	34,100
d. Production in units (a + b - c)	113,700	111,500	116,900	342,100

Direct material Budget for first Quarter of 2020:

	January	February	March	Quarter
a. Budgeted Production in units	113,700	111,500	116,900	342,100
b. Raw amterial required per unit in lbs	2 pounds	2 pounds	2 pounds
c. Budgeted Raw material Usage (a * b)	227,400	223,000	233,800	684,200
d. Ending Raw material inventories	11,150	11,690	12,610	35,450
	(223,000 * 5%)	(233,800 * 5%)	(252,200 * 5%)
e. Total material requirements (c + d)	238,550	234,690	246,410	719,650
f. Beginning Raw material inventories	11,370	11,150	11,690	34,210
g. Raw material Purchases (Qunatities) (e - f)	227,180	223,540	234,720	685,440
i. Direct material cost per pound	$0.8	$0.8	$0.8
j. Raw material purchases (in dollar) (g * i)	$181,744	$178,832	$187,776	$548,352