To prepare a master budget for April May and June of 2015 ma

To prepare a master budget for April, May, and June of 2015, management gathers the following information.

  

Sales for March total 20,800 units. Forecasted sales in units are as follows: April, 20,800; May, 21,600; June, 20,900; July, 20,800. Sales of 242,000 units are forecasted for the entire year. The product’s selling price is $25.00 per unit and its total product cost is $21.00 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 5,360 units, which complies with the policy. The expected June 30 ending raw materials inventory is 4,200 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 16,640 units, which complies with the policy.

Each finished unit requires 0.50 hours of direct labor at a rate of $17 per hour.

Overhead is allocated based on direct labor hours. The predetermined variable overhead rate is $3.00 per direct labor hour. Depreciation of $21,100 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 $3,200.

Monthly general and administrative expenses include $14,000 administrative salaries and 0.7% 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 is 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 $42,000. 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.

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.

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:

To prepare a master budget for April, May, and June of 2015, management gathers the following information.

ZIGBY MANUFACTURING Estimated Balance Sheet March 31, 2015 Assets Cash Accounts receivable Raw materials inventory Finished goods inventory $ 42,000 364,000 107,200 349,440 Total current assets Equipment, gross Accumulated depreciation 862,640 604,000 (152,000) Equipment, net 452,000 Total assets $ 1,314,640 Liabilities and Equity Accounts payable Short-term notes payable 211,300 14,000 Total current liabilities Long-term note payable $ 225,300 510,000 Total liabilities Common stock Retained earnings 735,300 337,000 242,340 Total stockholders equity 579,340 Total liabilities and equity $ 1,314,640

Solution

1 SALES BUDGET Budgeted unit sales Budgeted unit Price Budgeted Total Dollars April 20800 $25 $520,000 May 21600 $25 $540,000 June 20900 $25 $522,500 2 PRODUCTION BUDGET April May June A Next months budgeted sales (units) 21600 20900 20800 B Ratio of inventory to future sales 80% 80% 80% C Beginning Finished goods inventory 16640 17280 16720 (Beginning inventory of April=0.8*20800) D=A*B Ending Finished goods inventory 17280 16720 16640 E=C Required units of available production 16640 17280 16720 F Unit of sales 20800 21600 20900 G=F+D-E Units to be produced 21440 21040 20820 3 RAW MATERIALS BUDGET April May June A Production budget (units) 21440 21040 20820 B=0.5*0.5*A Beginning raw materials inventory(units) 5360 5260 5205 C=0.5*A Materials needed for production 10720 10520 10410 D Ending raw materials inventory 5260 5205 4200 E=C+D-B Total material requirement (Units) 10620 10465 9405 F=E Materials to be purchased(Units) 10620 10465 9405 G Material price per unit $20 $20 $20 H=F*G Total cost of direct materials purchase $212,400 $209,300 $188,100 4 DIRECT LABOUR BUDGET April May June A Budgeted production (units) 21440 21040 20820 B Hours needed per unit 0.5 0.5 0.5 C=A*B Total labor hours needed 10720 10520 10410 D Direct labor rate $17 $17 $17 E=C*D Labor dollars $182,240 $178,840 $176,970