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The management of Zigby Manufacturing prepared the following estimated balance sheet for March 2017: ZIGBY MANUFACTURING...

The management of Zigby Manufacturing prepared the following estimated balance sheet for March 2017:

ZIGBY MANUFACTURING
Estimated Balance Sheet
March 31, 2017
Assets
Cash $ 40,000
Accounts receivable 342,248
Raw materials inventory 98,500
Finished goods inventory 325,540
Total current assets 806,288
Equipment, gross 600,000
Accumulated depreciation (150,000 )
Equipment, net 450,000
Total assets $ 1,256,288
Liabilities and Equity
Accounts payable $ 200,500
Short-term notes payable 12,000
Total current liabilities 212,500
Long-term note payable 500,000
Total liabilities 712,500
Common stock 335,000
Retained earnings 208,788
Total stockholders’ equity 543,788
Total liabilities and equity $ 1,256,288


To prepare a master budget for April, May, and June of 2017, management gathers the following information:

- Sales for March total 20,500 units. Forecasted sales in units are as follows: April, 20,500; May, 19,500; June, 20,000; and July, 20,500. Sales of 240,000 units are forecasted for the entire year. The product’s selling price is $23.85 per unit and its total product cost is $19.85 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 4,925 units, which complies with the policy. The expected June 30 ending raw materials inventory is 4,000 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 16,400 units, which complies with the policy.

- Each finished unit requires 0.50 hours of direct labor at a rate of $15 per hour.

- Overhead is allocated based on direct labor hours. The predetermined variable overhead rate is $2.70 per direct labor hour. - -Depreciation of $20,000 per month is treated as fixed factory overhead.

- Sales representatives’ commissions are 8% of sales and are paid in the month of the sales. The sales manager’s monthly salary is $3,000.

-Monthly general and administrative expenses include $12,000 administrative salaries and 0.9% monthly interest on the long-term note payable.

- The company expects 30% of sales to be for cash and the remaining 70% 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 $40,000. 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 $10,000 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 35% in the quarter and paid in the third calendar quarter.

- Equipment purchases of $130,000 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.

Solutions

Expert Solution

1.

Sales Budget
April May June Total
Sales units 20500 19500 20000 60000
Selling price per unit 23.85 23.85 23.85 23.85
Budgeted Sales 488925 465075 477000 1431000
cash sales - 30% 146678 139523 143100 429300
Credit Sales - 70% 342248 325553 333900 1001700
Schedule of cash collections
April May June Total
Cash collections from:
   Cash sales 146678 139523 143100 429300
   Credit sales
     March sales 342248 342248
     April sales 342248 342248
    May Sales 325553 325553
Total collections 488926 481770 468653 1439348

2.

Production Budget
April May June Total
Sales units 20500 19500 20000 60000
Add: Ending inventory 15600 16000 16400 16400
Units neded 36100 35500 36400 76400
Less: Beginning inventory 16400 15600 16000 16400
Budgeted Production 19700 19900 20400 60000

3.

Raw material budget
April May June Total
Budgeted Production( units) 19700 19900 20400 60000
Material needed per unit of finished goods (unit) 0.5 0.5 0.5 0.5
Material needed for production (units) 9850 9950 10200 30000
   Add: Ending inventory 4975 5100 4000 4000
Material needed 14825 15050 14200 34000
Less: Beginning Inventory 4925 4975 5100 4925
Raw material purchases (units) 9900 10075 9100 29075
Cost per unit of raw material 20 20 20 20
Budgeted raw matrial purchases 198000 201500 182000 581500
Schedule of payment for raw materials
April May June Total
Payments for :
   March purchases 200500 200500
   April purchases 198000 198000
   May Purchases 201500 201500
Total payments 200500 198000 201500 600000
Payables 198000 201500 182000 182000

4.

Direct labor budget
April May June Total
Budgeted production 19700 19900 20400 60000
Direct labor HRS per unit 0.5 0.5 0.5 0.5
Direct Labor hours for production 9850 9950 10200 30000
Direct labor cost per hour 15 15 15 15
Direct labro cost 147750 149250 153000 450000

5.

Overhead Budget
April May June Total
Predetermned overhead rate per DLH ($) 2.70 2.70 2.70 2.70
Budgeted overheads 26595 26865 27540 81000
Depreciation 20000 20000 20000 60000
Total overheads 46595 46865 47540 141000
Cash payment for overheads 26595 26865 27540 81000

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