Question

The management of Zigby Manufacturing prepared the following estimated balance sheet for March 2017: ZIGBY MANUFACTURING Estimated Balance Sheet March 31, 2017 Assets Cash $ 43,000 Accounts receivable 432,900 Raw materials inventory 86,198 Finished goods inventory 387,168 Total current assets 949,266 Equipment, gross 606,000 Accumulated depreciation (153,000 ) Equipment, net 453,000 Total assets $ 1,402,266 Liabilities and Equity Accounts payable $ 194,798 Short-term notes payable 15,000 Total current liabilities 209,798 Long-term note payable 500,000 Total liabilities 709,798 Common stock 338,000 Retained earnings 354,468 Total stockholders’ equity 692,468 Total liabilities and equity $ 1,402,266 To prepare a master budget for April, May, and June of 2017, management gathers the following information: Sales for March total 22,200 units. Forecasted sales in units are as follows: April, 22,200; May, 16,000; June, 19,800; and July, 22,200. Sales of 243,000 units are forecasted for the entire year. The product’s selling price is $26.00 per unit and its total product cost is $21.80 per unit. Company policy calls for a given month’s ending raw materials inventory to equal 50% of the next month’s materials requirements. The March 31 raw materials inventory is 4,310 units, which complies with the policy. The expected June 30 ending raw materials inventory is 4,300 units. Raw materials cost $20 per unit. Each finished unit requires 0.50 units of raw materials. Company policy calls for a given month’s ending finished goods inventory to equal 80% of the next month’s expected unit sales. The March 31 finished goods inventory is 17,760 units, which complies with the policy. Each finished unit requires 0.50 hours of direct labor at a rate of $18 per hour. Overhead is allocated based on direct labor hours. The predetermined variable overhead rate is $3.00 per direct labor hour. Depreciation of $25,134 per month is treated as fixed factory overhead. Sales representatives’ commissions are 9% of sales and are paid in the month of the sales. The sales manager’s monthly salary is $3,300. Monthly general and administrative expenses include $15,000 administrative salaries and 0.6% monthly interest on the long-term note payable. The company expects 25% of sales to be for cash and the remaining 75% on credit. Receivables are collected in full in the month following the sale (none are collected in the month of the sale). All raw materials purchases are on credit, and no payables arise from any other transactions. One month’s raw materials purchases are fully paid in the next month. The minimum ending cash balance for all months is $50,000. If necessary, the company borrows enough cash using a short-term note to reach the minimum. Short-term notes require an interest payment of 1% at each month-end (before any repayment). If the ending cash balance exceeds the minimum, the excess will be applied to repaying the short-term notes payable balance. Dividends of $13,000 are to be declared and paid in May. No cash payments for income taxes are to be made during the second calendar quarter. Income tax will be assessed at 40% in the quarter and paid in the third calendar quarter. Equipment purchases of $133,000 are budgeted for the last day of June. Required: Prepare the following budgets and other financial information as required. All budgets and other financial information should be prepared for the second calendar quarter, except as otherwise noted below. (Round calculations up to the nearest whole dollar, except for the amount of cash sales, which should be rounded down to the nearest whole dollar.): 1. Sales budget. 2. Production budget. 3. Raw materials budget. 4. Direct labor budget. 5. Factory overhead budget. 6. Selling expense budget. 7. General and administrative expense budget. 8. Cash budget. 9. Budgeted income statement for the entire second quarter (not for each month separately). 10. Budgeted balance sheet.

Answer 1

Sales Budget
	April	may	June	Total
Unit sales	22200	16000	16800	55000
Unit Selling Price	26	26	26	26
Budgeted Sales	577200	416000	436800	1430000
Cash Sales	144300	104000	109200	357500
Credit Sales	432900	312000	327600	1072500
Schedule of cash colections
	April	may	June	Total
Cash sales	144300	104000	109200	357500
Credit Sales:
March sales	432900			432900
April Sales		432900		432900
May Sales			312000	312000
Total Collections	577200	536900	421200	1535300
Receivables	432900	312000	327600	327600
Production budget
	April	may	June	Total
Budgeted unit sales	22200	16000	16800	55000
Add:Desired Ending inventory	12800	13440	17760	17760
Total units neded	35000	29440	34560	72760
Less: Beginning inventory	17760	12800	13440	17760
Budgeted production units	17240	16640	21120	55000
Raw material budget
	April	may	June	Total
Budgeted Prudiction	17240	16640	21120	55000
Raw material per unit - nos	0.50	0.50	0.50	0.50
Raw material required for production	8620	8320	10560	27500
Add:Desired ending inventory	4160	5280	4300	4300
Total raw material needed	12780	13600	14860	31800
Less: Beginning raw materi inventory	4310	4160	5280	4310
Budgeted raw material purchases - units	8470	9440	9580	27490
Cost per unit of raw material - $	20	20	20	20
Budgeted raw material purchases - dollars	169400	188800	191600	549800
Schedule of payments for raw materials
	April	may	June	Total
March purchases	194798			194798
April Purchases		169400		169400
May Purchases			188800	188800
total Payments	194798	169400	188800	552998
Payables	169400	188800	191600	191600
Direct labor budget
	April	may	June	Total
Budgeted Production	17240	16640	21120	55000
Direct labor hours per unit	0.5	0.5	0.5	0.5
total direct labor hours for production	8620	8320	10560	27500
Direct labor hour rate - $	18	18	18	18
Budgeted Direct Labor Cost	155160	149760	190080	495000
Manufacturing overhead budget
	April	may	June	Total
Variable overhead rate per direct labor hour	3	3	3	3
Budgeted Variable overhead - $	25860	24960	31680	82500
Fixed overhead	25134	25134	25134	75402
Total manufacturing overhead	50994	50094	56814	157902
Cash payment for manufacturing overhead	25860	24960	31680	82500
Selling and administrative expenses
	April	may	June	Total
Sales commission - 9% of sales	51948	37440	39312	128700
Sales manager's salary	3300	3300	3300	9900
Administrative Salaries	15000	15000	15000	45000
Interest on long-term note (0.6% per month)	30000	30000	30000	90000
Total Selling and administrative expenses	100248	85740	87612	273600
ZIGBY MANUFACTURING
CASH BUDGET
	April	may	June	Total
Beginning Balance	43000	144134	238174	43000
Collections from sales	577200	536900	421200	1535300
Totl cash available for disbursements	620200	681034	659374	1578300
Cash disbursements:
For raw material	194798	169400	188800	552998
For direct Labor	155160	149760	190080	495000
For manufacturing overheads	25860	24960	31680	82500
For selling and administrative expenses	100248	85740	87612	273600
For payment of dividends		13000		13000
For purchase of equipment			133000	133000
Total disbursements	476066	442860	631172	1550098
Excess of cash over disbursements	144134	238174	28202	28202
Minimum cash balance	50000	50000	50000	50000
Cash surplues/(deficit)	94134	188174	-21798	-21798
Finance
Borrowings / (Repayments)	0	0	22000	22000
Interest	0	0	0	0
Total Finance	0	0	22000	22000
Ending Cash Balance	144134	238174	50202	50202