Question

Storm Tools has formed a new business unit to produce battery-powered drills. The business unit was formed by the transfer of selected assets and obligations from the parent company. The unit's initial balance sheet on January 1 contained cash ($500,000), plant and equipment ($2,500,000), notes payable to the parent ($1,000,000), and residual equity ($2,225,000). The business unit is expected to repay the note at $50,000 per month, plus all accrued interest at 1/2% per month. Payments are made on the last day of each month. The unit is scheduled to produce 25,000 drills during January, with an increase of 2,500 units per month for the next three months. Each drill requires $40 of raw materials. Raw materials are purchased on account, and paid in the month following the month of purchase. The plant manager has established a goal to end each month with raw materials on hand, sufficient to meet 25% of the following month's planned production. The unit expects to sell 20,000 drills in January; 25,000 in February, 25,000 in March, and 30,000 per month thereafter. The selling price is $100 per drill. Half of the drills will be sold for cash through a website. The others will be sold to retailers on account, who pay 40% in the month of purchase, and 60% in the following month. Uncollectible accounts are not material. Each drill requires 20 minutes of direct labor to assemble. Labor rates are $24 per hour. Variable factory overhead is applied at $9 per direct labor hour. The fixed factory overhead is $25,000 per month; 60% of this amount is related to depreciation of plant and equipment. With the exception of depreciation, all overhead is funded as incurred. Selling, general, and administrative costs are funded in cash as incurred, and consist of fixed components (salaries, $100,000; office, $40,000; and advertising, $75,000) and variable components (15% of sales). prepar a monthly comprehensive budget plan for Storm's new business unit for January through March. The plan should include the (a) sales and cash collections budget, (b) production budget, (c) direct materials purchases and payments budget, (d) direct labor budget, (e) factory overhead budget, (f) ending finished goods budget (assume total factory overhead is applied to production at the rate of $11.73 per direct labor hour), (g) SG&A budget, and (h) cash budget.

please you have to show the details that how you solved it ,, all the details please

Answer 1

a. 1. Sales Budget :

	January	February	March	Total
Budgeted Sales in Units	20,000	25,000	25,000	70,000
Unit Selling Price	$ 100	$ 100	$ 100	$ 100
Budgeted Dollar Sales	$ 2,000,000	$ 2,500,000	$ 2,500,000	$ 7,000,000

2. Budgeted Cash Collection from Sales:

	January	February	March	Total
Cash Sales	$ 1,000,000	$ 1,250,000	$ 1,250,000	$ 3,500,000
Collection of Credit Sales of
January	400,000	600,000		1,000,000
February		500,000	750,000	1,250,000
March			500,000	500,000
Totals	1,400,000	2,350,000	2,500,000	6,250,000

b. Production Budget:

	January	February	March	Totals
Budgeted Sales in Units	20,000	25,000	25,000	70,000
Desired Ending Inventory	5,000	7,500	12,500	12,500
Total Inventory Needed	25,000	32,500	37,500	82,500
Less: Beginning Inventory	0	5,000	7,500	0
Budgeted Production in Units	25,000	27,500	30,000	82,500

c.1. Direct Materials Purchases Budget:

	January	February	March	Total
Raw Materials needed in Production	$ 1,000,000	$ 1,100,000	$ 1,200,000	$ 3,300,000
Add: Desired Ending Inventory	275,000	300,000	325,000	325,000
Total Inventory Needed	1,275,000	1,400,000	1,525,000	3,625,000
Less: Beginning Inventory	0	275,000	300,000	0
Budgeted Raw Materials Purchases	$ 1,275,000	$ 1,125,000	$ 1,225,000	$ 3,625,000

2. Direct Materials Payments Budget:

	January	February	March	Totals
Payments for Purchases of
January	0	1,275,000	0	1,275,000
February	0		1,125,000	1,125,000
March	0		0	0
Totals	0	1,275,000	1,125,000	2,400,000

d. Direct Labor Budget :

	January	February	March	Totals
Direct Labor Hours needed in Production	8,333.33	9,166.67	10,000	27,500
DLH Rate	$ 24	$ 24	$ 24	$ 24
Budgeted Direct Labor Cost	$ 200,000	$ 220,000	$ 240,000	$ 660,000

e. Factory Overhead Budget:

	January	February	March	Total
Cash Overhead Expenses:
Variable Overheads ( $ 9 x 20 / 60) x Units Produced	$ 75,000	$ 82,500	$ 90,000	$ 247,500
Fixed Overhead	10,000	10,000	10,000	30,000
Total Cash Overhead Cost	85,000	92,500	100,000	277,500
Depreciation	15,000	15,000	15,000	45,000
Total Factory Overhead	$ 100,000	$ 107,500	$ 115,000	$ 322,500

f. Ending Finished Goods Budget:

Direct Materials per Unit	$ 40
Direct Labor per Unit ( $ 24 x 20/60)	8
Factory Overhead ( $ 11.73 x 20/60)	3.91
Unit Product Cost	$ 51.91
Budgeted Finished Goods Ending Inventory in Units	12,500
Dollar Value of Finished Goods Inventory	$ 648,875

g. Selling, General and Administrative Expenses Budget:

	January	February	March	Total
Variable Expenses	$ 300,000	$ 375,000	$ 375,000	$ 1,050,000
Fixed Expenses
Salaries Expense	100,000	100,000	100,000	300,000
Office Expense	40,000	40,000	40,000	120,000
Advertising Expense	75,000	75,000	75,000	225,000
Total Selling and General Administrative Expenses Cost	$ 515,000	$ 590,000	$ 590,000	$ 1,695,000

h. Cash Budget:

	January	February	March	Total
Beginning Cash Balance	500,000	1,045,000	1,162,750	500,000
Cash Receipts	1,400,000	2,350,000	2,500,000	6,250,000
Total Cash Available	1,900,000	3,395,000	3,662,750	6,750,000
Less: Cash Disbursements for
Merchandise Purchases	0	1,275,000	1,125,000	2,400,000
Direct Labor	200,000	220,000	240,000	660,000
Factory Overhead	85,000	92,500	100,000	277,500
Selling, General and Administrative Expenses	515,000	590,000	590,000	1,695,000
Repayment of Notes Payable	50,000	50,000	50,000	150,000
Interest on Note Payable	5,000	4,750	4,500	14,250
Total Cash Disbursements	855,000	2,232,250	2,109,500	5,196,750
Cash Surplus ( Deficit)	1,045,000	1,162,750	1,553,250	1,553,250
Ending Cash Balance	1,045,000	1,162,750	1,553,250	1,553,250