Question

Corporation is preparing its budget for the coming year. The first step is to plan for the first quarter of that coming year. Waterways gathered the following information from the managers.

Sales:

Actual unit sates for November	113,500
Actual unit sales for December	103,100
Expected unit sales for January	114,000
Expected unit sales for February	113,500
Expected unit sales for March	116,000
Expected unit sales for April	126,000
Expected unit sales for May	138,500
Unit selling price	$12

Waterways wants 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 totaled 183,780.

Direct Materials:

The product uses metal, plastic, and rubber. In total, each unit requires 2 pounds of material at an average cost of 0.75 per pound.

Waterways likes to keep 5% of the materials needed for the next month in its ending inventory. 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 totaled $120,595. Raw materials on December 31 totaled 11,295 pounds.

Direct Labor:

Labor requires 12 minutes per unit for completion and is paid at a rate of $18 per hour.

Manufacturing Overhead:

Indirect materials	30 cents per labor hour
Indirect labor	50 cents per labor hour
Utilities	45 cents per labor hour
Maintenance	25 cents per labor hour
Salaries	$52,000 per month
Depreciation	$16,800 per month
Property taxes	$2,675 per month
Insurance	$2,200 per month
Janitorial	$1,800 per month

Selling and Administrative Expenses:

Variable selling and administrative cost per unit is $2.40.

Advertising	$15,000 per month
Insurance	$1,400 per month
Salaries	$72,000 per month
Depreciation	$2,500 per month
Other fixed costs	$3,000 per month

Other Information:

The cash balance on December 31 totaled $220,500, but management has decided that it wants to maintain a cash balance of at least $750,000 beginning January 31. Dividends are paid each month at the rate of $2.50 per share for 5,000 shares outstanding. The company has an open line of credit with the First National Bank. The terms of the agreement requires borrowing to be in $1,000 increments at 8% interest. Waterways borrows on the first day of the month and repays on the last day of the month. Reserve repayment, if required, until Waterways can pay the entire amount. A $250,000 equipment purchase is planned for February.

Instructions (Do all parts):

Note: All budgets and schedules should be prepared by month for the first quarter (January, February, and March). Round all figures to the nearest dollar. For labor hours round to whole hours.

e. Prepare a manufacturing overhead budget.

f. Prepare a selling and administrative budget.

g. Prepare a schedule for expected cash collections from customers.

h. Prepare a schedule for expected payments for materials purchases.

i. Prepare a cash budget.

Answer 1

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Working-1		Sales Budget
	Nov	Dec	Jan	Feb	Mar		Total	Apr	May
Estimated Unit Sale	113500	103100	114000	113500	116000		343500	126000	138500
Selling Price Per Unit	12	12	12	12	12		12	12	12
Total Estimated Sale	1362000	1237200	1368000	1362000	1392000	0	4122000	1512000	1662000
1. Production Budget
		Dec	Jan	Feb	Mar		Total	Apr
Expected units to be sold		103100	114000	113500	116000		343500	126000	138500
add: desired ending inventory		11400	11350	11600	12600		12600	13850
Total Units available for sale		114500	125350	125100	128600		356100	139850
Less: Beginning invenory			11400	11350	11600		11400	12600
Production Needed			113950	113750	117000	0	344700	127250
2. Direct Material Purchase Budget
			Jan	Feb	Mar		Quarter	Apr
Material Needed for production:
2 for one unit		Prod*2	227900	227500	234000		689400	254500
add: desired ending inventory			11375	11700	12725		12725
Total Units available for usage			239275	239200	246725		702125
Less: Beginning invenory			11295	11375	11700		11295
Total Purchases to be made			227980	227825	235025		690830
Per Unit Purchase Price			0.75	0.75	0.75		0.75
Total Purchases in $			170985	170869	176269		518123
h. Schedule of Expected Cash Payments
			Jan	Feb	Mar		Quarter	Payable
Accounts Payable-Last Year			120595				120595
Jan			85493	85493			170985
Feb				85434	85434		170869
Mar					88134		88134	88134
			206088	170927	173569	0	550583	88134
3. Direct Labor Budget
			Jan	Feb	Mar	Oct	Quarter
Labor Hour Requried:
Budgeted Production			113950	113750	117000		344700
Hours needed	12/60		0.2	0.2	0.2
Total Hour Required			22790	22750	23400		68940
Per Hour Cost			18	18	18
Total Labor Cost		0	410220	409500	421200		1240920
g. Schedule of Expected Cash Collection
			Jan	Feb	Mar		Quarter	Receivable
Accounts Receivable-Last Year			183780				183780
Jan			1162800	205200			1368000
Feb				1157700	204300		1362000
Mar					1183200		1183200	208800
			1346580	1362900	1387500	0	4096980	208800
e. Manufacturing Overhead Budget
			Jan	Feb	Mar		Quarter
Indirect Material	0.3*Labor Hour		6837	6825	7020		20682
Indirect Labor	0.5*Labor Hour		11395	11375	11700		34470
Utilities	0.45*Labor Hour		10256	10238	10530		31023
Maintenance	0.25*Labor Hour		5698	5688	5850		17235
Salaries			52000	52000	52000		156000
Depreciation			16800	16800	16800		50400
Property Tax			2675	2675	2675		8025
Insurance			2200	2200	2200		6600
Janitorial			1800	1800	1800		5400
Total Manufacturing Overhead			109660	109600	110575		329835
f. Selling and Admin Budget
			Jan	Feb	Mar		Quarter
Variable Selling and Admin	2.4*Sale Unit		273600	272400	278400		824400
Advertising			15000	15000	15000		45000
Insurance			1400	1400	1400		4200
Salaries			72000	72000	72000		216000
Depreciation			2500	2500	2500		7500
Other fixed costs			3000	3000	3000		9000
Total Selling and Admin			367500	366300	372300		1106100
Less: Non Cash			2500	2500	2500		7500
Cash Paid for Selling and Admin			365000	363800	369800		1098600
i. Cash Budget
			Jan	Feb	Mar		Quarter
Beginning Balance			220500	750686	750332		220500
add: Cash Collection			1346580	1362900	1387500		4096980
Total Available Cash			1567080	2113586	2137832		4317480
Cash Disbursment for:
Material			206088	170927	173569		550583
Labor			410220	409500	421200		1240920
Manufacturing overhead			109660	109600	110575		329835
Selling and Admin			365000	363800	369800		1098600
							0
Dividends			12500	12500	12500		37500
Equipment purchases				250000			250000
Total Cash Disbursment			1103468	1316327	1087644		3507438
Cash Surplus/(Deficit)			463613	797259	1050189		810042
Borrowing			289000				289000
Interest 8%*Borrowing*Months/12			1927	1927	1627		5480
Repayment				45000	244000		289000
Ending Cash Balance			750686	750332	804562		804562