Homework SourseBrighton Inc manufactures kitchen tiles The company recently
Brighton, Inc., manufactures kitchen tiles. The company recently expanded, and the controller believes that it will need to borrow cash to continue operations. It began negotiating for a one-month bank loan of $500,000 starting May 1. The bank would charge interest at the rate of 1.00 percent per month and require the company to repay interest and principal on May 31. In considering the loan, the bank requested a projected income statement and cash budget for May.
The following information is available:
Required:
a. Prepare schedules computing inventory budgets by months for
1. Production in units for April, May, and June. (Do not round intermediate calculations.)
2. Raw materials purchases in pounds for April and May. (Do not round intermediate calculations.)
b. Prepare a projected income statement for May. Cost of goods sold should equal the variable manufacturing cost per unit times the number of units sold plus the total fixed manufacturing cost budgeted for the period. When calculating net sales assume cash discounts of 1 percent and bad debt expense of 0.50 percent. (Do not round intermediate calculations.)
| Materials (0.25 pound per tile, 125,000 pounds, $4 per pound) | $ | 500,000 |
| Labor | 400,000 | |
| Variable overhead | 220,000 | |
| Fixed overhead (includes depreciation of $190,000) | 420,000 | |
| Total | $ | 1,540,000 |
| |
Solution
SOLUTION
A1. Schedule of Inventory Production-
*Estimated ending inventory= 20% of next months sales.
A2. Raw materials purchase budget-
B. Income statement-
| Particulars | April | May | June |
| Budgeted sales | 550,000 | 450,000 | 550,000 |
| Add: Estimated ending inventory | 90,000 | 110,000 | 110,000 |
| Inventory required | 640,000 | 560,000 | 660,000 |
| Less: Beginning inventory | (110,000) | (90,000) | (110,000) |
| Units to be produced | 530,000 | 470,000 | 550,000 |
