Question

The Bandit’s Beagle Company produces wood dog houses that sell for $400 each. Budgeted sales for the first four months are as follows:

Month                        Budgeted Sales (units)

January                       1,000

February                            1,500

March                                2,500

April                                  2,000

Each dog house requires 20 square feet of oak at a cost of $10 per square foot. The company wants to maintain an inventory of dog houses equal to 10% of the following month’s sales. Inventory on January 1 consisted of 80 dog houses.

The company wants to maintain an inventory of oak equal to 20% of next month’s needs. Materials inventory on January 1 consisted of 11,000 square feet of oak. The company estimates an inventory of oak on hand at the end of March to equal 8,000 square feet.

Each dog house requires 5 hours of direct labor at a cost of $8.00 per hour. Variable manufacturing overhead is budgeted at $2 per direct labor hour.

Monthly fixed overhead consists of the following:

       Supervisors’ salaries                $ 6,000

       Insurance                           $ 2,000

       Depreciation on factory equipment $     500

       Depreciation on production facility $10,000

              Total                           $18,500

The company expects 60% of the sales of each month will be collected in that month, with 35% collected in the following month. Five percent of all sales are uncollectible and written off in the following month.

The accounts receivable balance at the beginning of the year is $200,000, which is 40% of last year’s December sales of $500,000.

The company normally pays for 70% of its purchases in the month of purchase. The remaining 30% is paid in the following month.

Accounts payable at the beginning of the year is $54,000, which is 30% if December purchases of $180,000.

Assume variable selling costs equal 5% of sales and are paid in the month following the sale. Fixed Selling, general and administrative costs are $50,000 and, except for $10,000 of depreciation, are paid in the month incurred. Estimated tax payments equal 40% of estimated income for the quarter are made at the end of each quarter.

The company attempts to maintain a cash balance of $100,000 at all times. Any excess is invested in marketable securities of $10,000 denominations earning an 8% return.

Any deficiencies are covered by borrowing from a local bank at 10% interest.

The cash balance at the beginning of the year is $105,000.

Required:

Prepare a sales budget in dollars for each month and in total for the first quarter of the year.  

Prepare a production budget in units for each month and in total for the first quarter.

Prepare a purchases budget in dollars for direct materials for each month and in total for the first quarter.

Prepare a direct labor budget for each month and in total for the first quarter.

Prepare a manufacturing overhead budget for each month and in total for the first quarter.

Prepare a schedule of cash collections on accounts receivable for each month and in total for the first quarter.

Prepare a schedule of cash payments on accounts payable for each month and in total for the first quarter.

Prepare a pro-forma income statement for each month and in total for the first quarter.

Answer 1

1) Sales budget in dollars

	January	February	March	Quarter total
Sales units	1000	1500	2500	5000
Sales price	$400	$400	$400
Budgeted sales	$4,00,000	$6,00,000	$10,00,000	$20,00,000

2) Production Budget in units

	January	February	March	Quarter total
Sales units	1,000	1,500	2,500	5,000
Add: ending inventory	150	250	200
Less: beginning inventory	80	150	250
Budgeted production in units	1,070	1,600	2,450	5,120

3) Purchases budget in dollars

	January	February	March	Quarter total
Budgeted production in units	1,070	1,600	2,450	5,120
DM required per unit	20	20	20
Total DM required (square feet)	21,400	32,000	49,000	1,02,400
Add: ending DM	6,400	9,800	8,000
Less: opening DM	11000	6,400	9,800
Budgeted DM purchases	16,800	35,400	47,200	99,400
Cost per square feet	10	10	10
Budgeted DM purchases in $	$1,68,000	$3,54,000	$4,72,000	$9,94,000

4) Direct labor budget in dollars

	January	February	March	Quarter total
Planned production	1,070	1,600	2,450	5,120
DL hours per unit	5	5	5
Total DL hours required	5,350	8,000	12,250	25,600
Cost per DL hour	$8	$8	$8
Budgeted DL cost	$42,800	$64,000	$98,000	2,04,800