Question

You are an managerial accountant for Blackmore Industries, and you are preparing the 2018
budget. Consider the following information, and prepare the required budgets according to
the instructions that follow:
Sales Information
November 2017 unit sales (actual)		119,062
December 2017 unit sales (actual)		120,896
January 2018 unit sales (planned)		123,000
Sales price per unit		$13.00
For all months in 2018, unit sales are expected to increase 1.1% over the previous month with the
exception of March, when a planned unit price increase to $13.55 is expected to decrease March
unit sales (compared to February) by 1.8%. The price increase will remain in effect for the rest of
the year.
Finished Goods Inventory Planning
Blackmore plans to keep 25% of the following month's unit sales on hand in finished goods
inventory at the end of any given month. Blackmore has that percentage of January's planned
sales (above) on hand at December 31, 2017.
Accounts Receivable and Collections
All sales are on account. Generally, 44% of each month's sales are collected in the month after
the sale, while 1.4% are never collected, and eventually written off. All other sales are collected
in the month of the sale.
Net (collectible) accounts receivable balance at December 31, 2017:				$691,525.00
Material Inventory Costs and Planning
Each unit of finished product is made from 2 pounds of a metallic raw material that costs $3.63
per pound. Blackmore plans to keep 5% of the following month's raw materials production
needs in inventory at the end of any given month, and has 9,600 pounds of raw material on
hand at December 31, 2017.
Accounts Payable and Disbursements
All material purchases are on account. 32% of purchases are paid for in the month following the
purchase, with the remainder paid for in the month of purchase.
Accounts payable balance at December 31, 2017:				$360,250.00
Direct Labor and Costs
Direct labor time per unit of finished goods			10	minutes
Direct labor cost			$14.45	per hour
Manufacturing Overhead Costs
Indirect materials			$0.25	per direct labor hour
Indirect labor			0.46	per direct labor hour
Maintenance			0.26	per direct labor hour
Utilities			0.44	per direct labor hour
Depreciation			$9,700	per month
Insurance			4,800	per month
Property taxes			2,100	per month
All items except depreciation are paid in the month incurred.
Selling and Administrative Costs
Advertising			$8,900	per month
Insurance			4,800	per month
Salaries			74,200	per month
Depreciation			5,400	per month
Other fixed costs			3,200	per month
All items except depreciation are paid in the month incurred.
Other Budgeting Items
Income tax expense is recorded at 25% of pretax net income. The company makes estimated
payments monthly for these amounts.
A budgeted purchase of fixed assets in the amount of $475,000 is planned for February, 2017.
Because the company uses a mid-year convention for depreciation calculations, this purchase
will not affect budgeted depreciation expense in the first quarter.
At December 31, 2017, Blackmore has $297,500 in cash. Hendrix maintains a minimum balance of
$250,000 in cash at all times, and any projected cash shortfall will be covered via a borrowing on
a line of credit. The line of credit accrues interest at 6% annualy (0.5% per month), and is repaid
as soon as Hendrix has sufficient cash to repay it while staying above the $250,000 minimum.
For the first quarter of 2018, do the following.
(a) Prepare a sales budget. This is similar to Illustration 21-3 on page 1088 of your textbook.
(b) Prepare a production budget. This is similar to Illustration 21-5 on page 1089 of your textbook.
(c) Prepare a direct materials budget. (Round to nearest dollar) This is similar to Illustration 21-7
on page 1091 of your textbook.
(d) Prepare a direct labor budget. (For calculations, round to the nearest hour.) This is similar to
Illustration 21-9 on page 1094 of your textbook.
(e) Prepare a manufacturing overhead budget. (Round intermediate amounts to the nearest
dollar.) This is similar to Illustration 21-10 on page 1094 of your textbook.
(f) Prepare a selling and administrative budget. This is similar to Illustration 21-11 on page 1095
of your textbook.
(g) Prepare a budgeted income statement. (Round intermediate calculations to the nearest
dollar.) This is similar to Illustration 21-13 on page 1096 of your textbook.
(h) Prepare a cash budget. This is similar to Illustration 21-17 on page 1100 of your textbook.
(You will need to prepare schedules for expected collections from customers and expected
payments to vendors first. See Illustrations 21-15 and 21-16 on page 1099 of your textbook
for guidance.)

Answer 1

a) Sales budget

Sales Budget for 1st quarter 2018
	January	February	March	Quarter
Sales units	1,23,000	1,36,530	1,34,072.5	3,93,602.5
Selling price per unit	$13	$13	$13.55
Budgeted sales revenue	$15,99,000	$17,74,890	$18,16,681.8	$51,90,571.8

b) Production budget

Production Budget for 1st quarter 2018
	January	February	March	Quarter
Budgeted sales units	1,23,000	1,36,530	1,34,072	3,93,602
Add: ending inventory	34,132.50	33,518.12	37,205.11
Less: opening inventory	30,224	34,132.50	33,518.12
Budgeted production in units	1,26,908.50	1,35,915.62	1,37,759.45	4,00,584

c) Direct material budget

Materials Purchases Budget for 1st quarter 2018
	January	February	March	Quarter
Budgeted production in units	1,26,908.50	1,35,915.62	1,37,759.45	4,00,583.57
DM required per unit	2	2	2
Total DM requirement	2,53,817.00	2,71,831.23	2,75,518.91	8,01,167.14
Add: closing inventory of DM	6,795.78	6,887.97	7,645.65
Less: opening invntory of DM	9,000.00	6,795.78	6,887.97
Total DM required to be purchases	2,51,612.78	2,71,923.42	2,76,276.58	7,99,812.78
Cost per pound	3.63	3.63	3.63
Budgeted cost of DM purchases	$9,13,354.39	$9,87,082.02	$10,02,883.99	29,03,320.41

d) Direct labour budget

Direct labour Budget for 1st quarter 2018
	January	February	March	Quarter
Budgeted production in units	1,26,908.50	1,35,915.62	1,37,759.45	4,00,583.57
DL required per unit	0.17	0.17	0.17
Total DL hours required	21,151.42	22,652.60	22,959.91	66,763.93
Cost per labour hour	$14.45	$14.45	$14.45
Total DL cost	$3,05,637.97	$3,27,330.11	$3,31,770.68	$9,64,738.76