Question

Waterways (9) 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.

a. Prepare a sales budget.

b. Prepare a production budget.

c. Prepare a direct materials budget.

d. Prepare a direct labor budget.

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

1)Sales Budget

	Jan	Feb	March
Unit sales [A]	114000	113500	116000
Unit price [B]	12	12	12
Total sales [A*B]	1368000	1362000	1392000

B)Production Budget

	Jan	Feb	March
Unit sales	114000	113500	116000
Ending Finished goods inventory desired	11350   [113500*.10]	11600   [116000*.10]	12600   [126000*.10]
Total units required	125350	125100	128600
less:Beginning inventory	(11400)   [114000*.10]	(11350)	(11600)
Unit to be produced	113950	113750	117000

c)Direct material budget.

Units produced in april = 126000+[138500*.10]-[126000*.10]= 127250

material requirement for april = 127250*2 = 254500

	Jan	Feb	Mar
units to be produced [A]	113950`	113750	117000
Material requirement per unit [B]	2	2	2
Total material required for production [A*B]	227900	227500	234000
Ending inventory desired	11375   [227500*.05]	11700   [234000*.05]	12725 [254500*.05]
less:Beginning inventory	(11295)	(11375)	(11700)
Material purchased [c]	227980	227825	235025
cost per pound [D]	.75	.75	.75
cost of material purchased [C*D]	170985	170869	176269

D)Labor budget

	Jan	Feb	mar
units produced [A]	113950	113750	117000
hours required per unit [B]	12/60	12/60	12/60
Total hours required [A*B]	22790	22750	23400
cost per hour	18	18	18
Total labor cost	410220	409500	421200