Question

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Iguana, Inc., manufactures bamboo picture frames that sell for $30 each. Each frame requires 4 linear feet of bamboo, which costs $3.00 per foot. Each frame takes approximately 30 minutes to build, and the labor rate averages $13 per hour. Iguana has the following inventory policies:

• Ending finished goods inventory should be 40 percent of next month’s sales.
• Ending raw materials inventory should be 30 percent of next month’s production.

Expected unit sales (frames) for the upcoming months follow:   

March	285
April	270
May	320
June	420
July	395
August	445

Variable manufacturing overhead is incurred at a rate of $0.50 per unit produced. Annual fixed manufacturing overhead is estimated to be $8,400 ($700 per month) for expected production of 4,200 units for the year. Selling and administrative expenses are estimated at $750 per month plus $0.50 per unit sold.

     Iguana, Inc., had $11,000 cash on hand on April 1. Of its sales, 80 percent is in cash. Of the credit sales, 50 percent is collected during the month of the sale, and 50 percent is collected during the month following the sale.

     Of raw materials purchases, 80 percent is paid for during the month purchased and 20 percent is paid in the following month. Raw materials purchases for March 1 totaled $3,000. All other operating costs are paid during the month incurred. Monthly fixed manufacturing overhead includes $170 in depreciation. During April, Iguana plans to pay $3,200 for a piece of equipment.

1. Compute the budgeted cash receipts for Iguana. (Do not round your intermediate calculations. Round final answers to 2 decimal places.)

	April May June 2nd Quarter Total Budgeted Cash Receipts $0.00

2. Compute the budgeted cash payments for Iguana. (Do not round your intermediate calculations. Round final answers to 2 decimal places.)

	April May June 2nd Quarter Total Budgeted Cash Payments $0.00

3. Prepare the cash budget for Iguana. Assume the company can borrow in increments of $1,000 to maintain a $10,000 minimum cash balance. (Leave no cell blank enter "0" wherever required. Round your answers to 2 decimal places.)

April May June 2nd Quarter Total

Beginning Cash Balance

Plus: Budgeted Cash Receipts

Less: Budgeted Cash Payments

Preliminary Cash Balance

Cash Borrowed / Repaid

Ending Cash Balance

Answer 1

1. Budgeted cash receipts for Iguana:

Particulars	March	April	May	June	Quarter (April - June)
a. Budgeted Sales (in frame)	285	270	320	420	1,010
b. Selling price per frame ($)	30	30	30	30	30
c. Total budgeted sales ($) (a * b)	8,550	8,100	9,600	12,600	30,300
d. Cash sales ($) (80%)	6,840	6,480	7,680	10,080	24,240
	($8,550 * 80%)	($8,100 * 80%)	($9,600 * 80%)	($12,600 * 80%)
e. Credit sales ($) (20%)	1710	1620	1920	2520	6,060
	($8,550 * 20%)	($8,100 * 20%)	($9,600 * 20%)	($12,600 * 20%)
f. Credit sales collected in the same month (e * 50%) ($)	855	810	960	1260	3,030
	($1,710 * 50%)	($1,620 * 50%)	($1,920 * 50%)	($2,520 * 50%)
g. Credit sales collected in the next month ($)		855	810	960	2,625
		($1,710 * 50%)	($1,620 * 50%)	($1,920 * 50%)
h. Total cash collections (d + f + g) ($)		8,145	9,450	12,300	29,895

Production Budget:

Particulars	March	April	May	June	July	August
a. Budgeted Sales (in frame)	285	270	320	420	395	445
b. Add: Ending finished good inventory (in frame)	108	128	168	158	178
(40% of next month sales)	($270 * 40%)	($320 * 40%)	($420 * 40%)	($395 * 40%)	($445 * 40%)
c. Less: Beginning finished good inventory (in frame)	114	108	128	168	158
	($285 * 40%)	($270 * 40%)	($320 * 40%)	($420 * 40%)	($395 * 40%)
d. Production (in frame) (a+b-c)	279	290	360	410	415

Raw material budget:

Particulars	March	April	May	June	July
a. Production (in frame)	279	290	360	410	415
b. Raw material required per frame (in feet)	4	4	4	4	4
c. Total raw material required (in feet) (a * b)	1,116	1,160	1,440	1,640	1,660
d. Add: Ending raw material inventory (in feet)	348	432	492	498
(30% of next month production)	($1,160 * 30%)	($1,440 * 30%)	($1,640 * 30%)	($1,660 * 30%)
e. Less: Beginning raw material inventory (in feet)	335	348	432	492
	($1,116 * 30%)	($1,160 * 30%)	($1,440 * 30%)	($1,640 * 30%)
f. Total raw material required for production (c+d-e) (in feet)	1,129	1,244	1,500	1,646
g. Raw material cost per feet ($)	3	3	3	3
h. Total raw material cost ($) (f * g)	3,388	3,732	4,500	4,938
i. Payment for purchase of direct material
80% paid in same month ($)		2,985.60	3,600	3,950.40
		($3,732 * 80%)	($4,500 * 80%)	($4,938 * 80%)
March purchases paid in April ($)		600	746.40	900
		($3,000 * 20%)	($3,732 * 20%)	($4,500 * 20%)
j. Total payment for purchases ($)		3,585.60	4,346.40	4,850.40
		($2,986 + $600)	($3,600 + $746)	($3,950 +$900)

Direct Labor budget:

Particulars	April	May	June
a. Production (in frame)	290	360	410
b. Direct labor hours required (in hours)	145	180	205
(30 minutes = 0.50 hours)	(290 * 0.50 hours)	360 * 0.50 hours)	(410 * 0.50 hours)
c. Labor rate per hour ($)	13	13	13
d. Total Direct labor cost (b * c) ($)	1885	2340	2665

Manufacturing overhead budget:

Particulars	April	May	June
a. Production (in frame)	290	360	410
b. Variable overhead rate per unit produced ($)	0.50	0.50	0.50
c. Total variable manufacturing overhead cost (a * b) ($)	145	180	205
d. Fixed manufacturing overhead cost ($)	530	530	530
($700 - $170 for depreciation)
e. Total manufacturing overhead (c + d) ($)	675	710	735

Selling and administrative expense budget:

Particulars	April	May	June
a. Budgeted sales (in frame)	270	320	420
b. Variable selling and adiministrative expense per frame ($)	0.5	0.5	0.5
c. Variable selling and administrative expense (a * b) ($)	135	160	210
d. Fixed selling and administrative expense ($)	750	750	750
e. Total selling and admiinistrative expense (c+d) ($)	885	910	960

Budgeted cash payments for Iguana:

Particulars	April	May	June	Quarter (April - June)
a. Total payment for purchase of direct material ($)	3,585.60	4,346.40	4,850.40	12,782.40
b. Total Direct labor cost ($)	1,885	2,340	2,665	6,890
c. Total manufacturing overhead ($)	675	710	735	2,120
d. Total selling and administrative expense ($)	885	910	960	2,755
e. Purchase of equipment ($)	3,200	-	-	3,200
f. Total Cash payments (a+b+c+d+e) ($)	10,230.60	8,306.40	9,210.40	27,747.40

Cash budget for Iguana:

Particulars	April	May	June	Quarter Total
a. Beginning cash balance ($)	11,000	10,914.40	10,058.00	31,972.4
b. Plus: Budgeted Cash receipts ($)	8,145	9,450	12,300	29,895
c. Less: Budgeted cash payments ($)	10,230.60	8,306.40	9,210.40	27,747.4
d. Preliminary cash balance ($)	8,914.40	12,058.00	13,147.60	34,120
e. Cash borrowed / (Repayment) ($)	2,000	-2,000	0	0
f. Ending cash balance ($)	10,914.40	10,058.00	13,147.60	34,120