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	$	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.

Answer 1

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