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 $ 48,000 Accounts receivable 438,750 Raw materials inventory 87,900 Finished goods inventory 383,760 Total current assets 958,410 Equipment, gross 616,000 Accumulated depreciation (158,000 ) Equipment, net 458,000 Total assets $ 1,416,410 Liabilities and Equity Accounts payable $ 187,200 Short-term notes payable 20,000 Total current liabilities 207,200 Long-term note payable 508,000 Total liabilities 715,200 Common stock 343,000 Retained earnings 358,210 Total stockholders’ equity 701,210 Total liabilities and equity $ 1,416,410 To prepare a master budget for April, May, and June of 2017, management gathers the following information: Sales for March total 19,500 units. Forecasted sales in units are as follows: April, 19,500; May, 17,100; June, 21,300; and July, 19,500. Sales of 248,000 units are forecasted for the entire year. The product’s selling price is $30.00 per unit and its total product cost is $24.60 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 4,395 units, which complies with the policy. The expected June 30 ending raw materials inventory is 4,800 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 15,600 units, which complies with the policy. Each finished unit requires 0.50 hours of direct labor at a rate of $23 per hour. Overhead is allocated based on direct labor hours. The predetermined variable overhead rate is $3.40 per direct labor hour. Depreciation of $27,020 per month is treated as fixed factory overhead. Sales representatives’ commissions are 7% of sales and are paid in the month of the sales. The sales manager’s monthly salary is $3,800. Monthly general and administrative expenses include $20,000 administrative salaries and 0.5% 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 $48,000. 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 $18,000 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 $138,000 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

1. Sales budget.

	March	Apr	May	June	July
Budgeted units to be sold	19500	19,500	17,100	21,300	19,500
Sales price per unit		30	30	30	30
Total Sales		585,000	513,000	639,000	585,000

2. Production budget.

	March	Apr	May	June	July
Budgeted units to be sold	19,500	19,500	17,100	21,300	19,500
Plus:Desired units in ending inventory (80%*next month's sales)	15,600	13,680	17,040	15,600
Total units needed	35,100	33,180	34,140	36,900
Less:Units in beginning inventory		15,600	13,680	17,040
Budgeted units to be produced		17,580	20,460	19,860

3. Raw materials budget.

	March	Apr	May	June
Budgeted units to be produced		17,580	20,460	19,860
Raw materials per unit of finished goods		0.50	0.50	0.50
Raw materials needed for production		8,790	10,230	9,930
Plus:Raw material in ending inventory(pounds)=(50%*next month production)	4,395	5,115	4,965	4800
Total raw material needed		13,905	15,195	14,730
Less:Raw material in beginning inventory		4,395	5,115	4,965
Budgeted purchase of raw materials		9,510	10,080	9,765
Raw material cost per unit		20	20	20
Budgeted cost of raw material purchases		190,200	201,600	195,300

4. Direct labor budget.

	Apr	May	June
Budgeted units to be produced	17,580	20,460	19,860
Direct labor hours per unit	0.50	0.50	0.50
Direct labor hours needed for production	8,790	10,230	9,930
Direct labor cost per hour	23	23	23
Budgeted direct labor cost	202,170	235,290	228,390

5. Factory overhead budget

	Apr	May	June
Direct labor hours needed for production	8,790	10,230	9930
Predetermined variable overhead rate	3.40	3.40	3.40
Budgeted factory overhead	29,886	34,782	33,762