Question

Please assist me in completing the last three items: Cash Budget, Budgeted Income Statement and Budgeted Balance Sheet. I am stuck. Thanks in advance.

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

ZIGBY MANUFACTURING Estimated Balance Sheet March 31, 2017
Assets
Cash	$	80,000
Accounts receivable		364,000
Raw materials inventory		96,000
Finished goods inventory		364,800
Total current assets		904,800
Equipment, gross		610,000
Accumulated depreciation		(155,000	)
Equipment, net		455,000
Total assets	$	1,359,800
Liabilities and Equity
Accounts payable	$	195,500
Short-term notes payable		17,000
Total current liabilities		212,500
Long-term note payable		510,000
Total liabilities		722,500
Common stock		340,000
Retained earnings		297,300
Total stockholders’ equity		637,300
Total liabilities and equity	$	1,359,800

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

Sales for March total 20,000 units. Forecasted sales in units are as follows: April, 20,000; May, 19,000; June, 19,500; and July, 20,000. Sales of 245,000 units are forecasted for the entire year. The product’s selling price is $26.00 per unit and its total product cost is $22.80 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 4,800 units, which complies with the policy. The expected June 30 ending raw materials inventory is 4,500 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 16,000 units, which complies with the policy.

Each finished unit requires 0.50 hours of direct labor at a rate of $20 per hour.

Overhead is allocated based on direct labor hours. The predetermined variable overhead rate is $3.20 per direct labor hour. Depreciation of $23,400 per month is treated as fixed factory overhead.

Sales representatives’ commissions are 6% of sales and are paid in the month of the sales. The sales manager’s monthly salary is $3,500.

Monthly general and administrative expenses include $17,000 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 $45,000. 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 $15,000 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 $135,000 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
Unit Sales	20000	19000	19500	58500
Sales Price   ($)	26	26	26	26
Budgeted Sales	520000	494000	507000	1521000
Cash Sales	156000	148200	152100	456300
Credit Sales (70%)	364000	345800	354900	1064700
Schedule of cash collections
	April	May	june	Total
Cash sales (30%)	156000	148200	152100	456300
Credit sales
March sales	364000			364000
April sales		364000		364000
May sales			345800	345800
Total collections	520000	512200	497900	1530100

2. Production budget
	April	May	june	Total
Budgeted Unit Sales	20000	19000	19500	58500
Add: Desired Ending Inventory	15200	15600	16000	16000
(80% of next month sales)				0
Total Units Required	35200	34600	35500	74500
Less: Beginning Inventory	16000	15200	15600	16000
Budgeted Production	19200	19400	19900	58500

3. Raw material Budget
	April	May	june	Total
Budgeted Production	19200	19400	19900	58500
Raw material required per unit of production	0.50	0.50	0.50	0.50
Raw material required for production	9600	9700	9950	29250
Desired ending Inventory (B)	9700	9950	4500	4500
(50% of next month's requirements)				0
Total raw material required	19300	19650	14450	33750
Less: Beginning Raw materil inventory	4800	9700	9950	4800
Budgeted raw material purchase units	14500	9950	4500	28950
Raw material price per unit	20	20	20	20
Budgeted raw material purchases	290000	199000	90000	579000
Monthly raw material cost	192000	194000	199000	585000

4. Direct labor budget
	April	May	june	Total
Budgeted Production	19200	19400	19900	58500
Direct labor hours per unit	0.5	0.5	0.5	0.5
Total direct labor hrs	9600	9700	9950	29250
Direct labor cost per hr	20	20	20	20
Budgeted direct labor cost	192000	194000	199000	585000

5. Factory overhead budget
	April	May	june	Total
Direct labor hours	9600	9700	9950	29250
Variable factory overhead cost per DLH	3.2	3.2	3.2	3.2
Variable overhead cost	30720	31040	31840	93600
Fixed factory overhead	23400	23400	23400	23400
Budgeted factory overhead	54120	54440	55240	117000
Cash payment for factory overhead	30720	31040	31840	93600

6. Selling expenses budget
	April	May	june	Total
Budgeted sales	520000	494000	507000	1521000
Sales commission (6% of sales)	31200	29640	30420	91260
Sales Manager's salary	3500	3500	3500	10500
Budgeted Selling expenses	34700	33140	33920	101760

8. General and administrative expenses budget
Administrative salaries	17000	17000	17000	51000
0.9% on long-term note payable	4590	4590	4590	13770
Budgeted general and administrative expenses	21590	21590	21590	64770