Question

Derry Manufacturing is preparing its master budget for the first quarter of the upcoming year. The following data pertain to Derry Manufacturing's operations:

Current Assets as of December 31 (prior year):
Cash. . . . . . . . . . . . . . . . . . . . . . . . . . .	$4,500
Accounts receivable, net. . . . . . . . . . . . . . .	$46,000
Inventory. . . . . . . . . . . . . . . . . . . . . . . .	$15,300
Property, plant, and equipment, net. . . . . . . . . . . .	$124,000
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . .	$42,400
Capital stock. . . . . . . . . . . . . . . . . . . . . . . . . . .	$125,500
Retained earnings. . . . . . . . . . . . . . . . . . . . . . . . . .	$22,500

More Info: a. Actual sales in December were $70,000. Selling price per unit is projected to remain stable at $10 per unit throuout the budget period. Sales for the first five months of the upcoming year are budgeted to be as follows: January. . . . . . . . . $80,000 February. . . . . . . . $92,000 March. . . . . . . . . . $99,000 April. . . . . . . . . . . . $97,000 May. . . . . . . . . . . . $85,000 b. Sales are 30% cash and 70% credit. All credit sales are collected in the month following the sale. c. Derry Manufactruing has a policy that states that each month's ending inventory of finished goods should be 25% of the following month's sales (in units). d. Of each month's direct material purchases, 20% are paid for in the month of purchase, while the remainder is paid for in the month following purchase. Two pounds of direct material is needed per unit at $2.00 per pound. Ending inventory of direct materials should be 10% of next month's production needs. e. Most of the labor at the manufacturing facility is indirect, but there is some direct labor incurred. The direct labor hours per unit is 0.01. The direct labor rate per hour is $12 per hour. All direct labor is paid for in the month in which the work is performed. The direct labor cost for each of the upcoming three months is as follows: January. . . . . . . . . $996 February. . . . . . . . $1,125 March. . . . . . . . . . $1,182 f. Monthly manufacturing overhead costs are $5,000 for factory? rent,$3,000 for other fixed manufacturing? expenses, and $1.20 per unit for variable manufacturing overhead. No depreciation is included in these figures. All expenses are paid in the month in which they are incurred. g. Computer equipment for the administrative offices will be purchased in the upcoming quarter. In January, Derry Manufacturing will purchase equipment for $5,000 (cash), while February's cash expenditure will be $12,000 and March's cash expenditure will be $16,000. h. Operating expenses are budgeted to be $1.00 per unit sold plus fixed operating expenses of $1,000 per month. All operating expenses are paid in the month in which they are incurred. i. Depreciation on the building and equipment for the general and administrative offices is budgeted to be $5,100 for the entire quarter, which includes depreciation on new qcquisitions. j. Derry Manufacturing has a policy that the ending cash balance in each month must be at least $4,000. It has a line of credit with a local bank. The company can borrow in increments of $1,000 at the beginning of each month, up to a total outstanding loan balance of $125,000. The interest rate on these loans is 1% per month simple interest (not compounded). The company would pay down on the line of credit balance in increments of $1,000 if it has excess funds at the end of the quarter. The company would also pay the accumulated interest at the end of the quarter on the funds borrowed during the quarter. k. The company's income tax rate is projected to be 30% of operating income less interest expense. The company pays $10,000 cash at the end of February in estimated taxes. REQUIREMENTS: 1. Prepare a schedule of cash collections for? January, February, and? March, and for the quarter in total. 2. Prepare a production budget.? (Hint: Unit sales? = Sales in dollars? / Selling price per? unit.) 3. Prepare a direct materials budget. 4. Prepare a cash payments budget for the direct material purchases from Requirement 3. 5. Prepare a cash payments budget for direct labor. 6. Prepare a cash payments budget for manufacturing overhead costs. 7. Prepare a cash payments budget for operating expenses. 8. Prepare a combined cash budget. 9. Calculate the budgeted manufacturing cost per unit? (assume that fixed manufacturing overhead is budgeted to be $0.80 per unit for the? year). 10. Prepare a budgeted income statement for the quarter ending March 31.? (Hint: Cost of goods sold? = Budgeted cost of manufacturing one unit x Number of units? sold.)

Answer 1

As per policy only first four questions will be answered

Requirement 1

Cash collections budget

For the Quarter Ended March 31

		Month
	January	February	March	quarter
Cash sales	24000 (80000*30%)	27600 (92000*30%)	29700 (99000*30%)	81300
Credit sales	49000 (70000*70%)	56000 (80000*70%)	64400 (92000*70%)	169400
Total	83000	83600	94100	260700

Requirement 2

Production budget

For the Quarter Ended March 31

		Month
	January	February	March	quarter
Unit sales	8000	9200	9900	27100
Plus: desired ending inventory	2300 (9200*25%)	2475 (9900*25%)	2425 (9700*25%)	2425
Total needed	10300	11675	12325	29525
Less: Beginning inventory	2000 (8000*25%)	2300	2475	2000
Number of units to produce	8300	9375	9850	27525

Requirement 3

Direct materials budget

For the quarter ended March 31

		Month
	January	February	March	Quarter
Units to be produced	8300	9375	9850	27525
Multiply by: Quantity (pounds) of DM needed per unit	2	2	2	2
Quantity (pounds) needed for production	16600	18750	19700	55050
Plus: desired ending inventory of DM	1875	1970	1880 (9700+(8500*25%)-(9700*25%))*2*10%	1880
Total quantity (pounds) needed	18475	20720	21580	56930
Less: Beginning inventory	1660	1875	1970	1660
Quantity (pounds) to purchase	16815	18845	19610	55270
Multiply by: cost per pound	2	2	2	2
Total cost of DM Purchases	33630	37690	39220	110540

Requirement 4

Cash Payments for direct materials budget

For the quarter ended March 31

		Month
	January	February	March	quarter
December Purchases from accounts payable	42400			42400
January Purchases	6726 (33630*20%)	26904 (33630*80%)		33630
February Purchases		7538 (37690*20%)	30152 (37690*80%)	37690
March Purchases			7844 (39220*20%)	7844
Total	49126	34442	37996	121564