Question

[The following information applies to the questions displayed below.) Iguana, Inc., manufactures bamboo picture frames that sell for $25 each. Each frame requires 4 linear feet of bamboo, which costs $2.00 per foot. Each frame takes approximately 30 minutes to build, and the labor rate averages $12.00 per hour. Iguana has the following inventory policies: • Ending finished goods Inventory should be 40 percent of next month's sales. • Ending direct materials Inventory should be 30 percent of next month's production. Expected unit sales (frames) for the upcoming months follow. March April May June July August 275 250 300 400 375 425 Variable manufacturing overhead is incurred at a rate of $0.30 per unit produced. Annual fixed manufacturing overhead is estimated to be $7,200 ($600 per month) for expected production of 4,000 units for the year. Selling and administrative expenses are estimated at $650 per month plus $0.60 per unit sold. Iguana, Inc., had $10,800 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 direct materials purchases, 80 percent is paid for during the month purchased and 20 percent is paid in the following month. Direct materials purchases for March 1 totaled $2,000. All other operating costs are paid during the month incurred. Monthly forced manufacturing overhead includes $150 in depreciation. During April, Iguana plans to pay $3,000 for a plece of equipment PA8-3 (Static) Preparing Cash Budget [LO 8-4] Required: 1. Compute the budgeted cash receipts for Iguana. 2. Compute the budgeted cash payments for Iguana. 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.

Answer 1

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Sales Budget	March	April	May	June	Total	July	August	Note
Budgeted Sales units	275.00	250.00	300.00	400.00		375.00	425.00	A
Sell price per unit	25.00	25.00	25.00	25.00		25.00	25.00	B
Budgeted Sales Revenue	6,875.00	6,250.00	7,500.00	10,000.00	23,750.00	9,375.00	10,625.00	C=A*B
Cash sale is 80%	5,500.00	5,000.00	6,000.00	8,000.00	19,000.00	7,500.00	8,500.00	D=C*80%
Credit sale is 20%	1,375.00	1,250.00	1,500.00	2,000.00	4,750.00	1,875.00	2,125.00	E=C*20%
Collection Budget	March	April	May	June	Total	July	August
Cash sale	5,500.00	5,000.00	6,000.00	8,000.00	19,000.00			See D
50% of Credit sale in the same month	687.50	625.00	750.00	1,000.00	2,375.00			F= 50% of E
50% of Credit sale in the following same month		687.50	625.00	750.00	2,062.50			G= 50% of E of previous month.
Total Scheduled Collections		6,312.50	7,375.00	9,750.00	23,437.50			H=D+F+G
Production Budget	March	April	May	June	Total	July	August
Budgeted Sales units	275.00	250.00	300.00	400.00		375.00	425.00	See A
Add: Closing	100.00	120.00	160.00	150.00		170.00		I= 40% of A of next month.
Less: Opening	110.00	100.00	120.00	160.00		150.00		J= 40% of A of same month.
Production Budget	265.00	270.00	340.00	390.00		395.00
Material Purchase Budget	March	April	May	June	Total	July	August
Production Budget		270.00	340.00	390.00		395.00		See J
Bamboo required per unit		4.00	4.00	4.00		4.00		K
Bamboo required		1,080.00	1,360.00	1,560.00		1,580.00		L=K*J
Add: Closing		408.00	468.00	474.00				M= 30% of L of next month.
Less: Opening		324.00	408.00	468.00				N= 30% of L of same month.
Material Purchase Budget		1,164.00	1,420.00	1,566.00
Direct Material Payment	March	April	May	June	Total	July	August
Material Purchase Budget		1,164.00	1,420.00	1,566.00				See N
Cost per foot		2.00	2.00	2.00				O
Direct Material cost	2,000.00	2,328.00	2,840.00	3,132.00	8,300.00			P=N*O
80% paid in same month	1,600.00	1,862.40	2,272.00	2,505.60	6,640.00			Q=P*80%
20% paid in next month		400.00	465.60	568.00	1,433.60			R= 20% of P of previous month.
Direct Material Payment		2,262.40	2,737.60	3,073.60	8,073.60			W=Q+R
Variable manufacturing overhead Budget	March	April	May	June	Total	July	August
Production Budget		270.00	340.00	390.00		395.00		See J
Variable manufacturing overhead per unit		0.30	0.30	0.30				S
Variable manufacturing overhead Budget		81.00	102.00	117.00	300.00			T=J*S
Variable Selling & admin expenses Budget	March	April	May	June	Total	July	August
Budgeted Sales units		250.00	300.00	400.00				See A
Variable Selling & admin expenses per unit		0.60	0.60	0.60				U
Variable Selling & admin expenses Budget		150.00	180.00	240.00	570.00			V=A*U
Cash budget		April	May	June	Total
Beginning Cash Balance		10,800.00	10,519.10	13,774.50
Plus: Collections		6,312.50	7,375.00	9,750.00	23,437.50			See H
Cash Available		17,112.50	17,894.10	23,524.50	23,437.50
Disbursements
Direct Material Payment		2,262.40	2,737.60	3,073.60	8,073.60			See W
Variable manufacturing overhead		81.00	102.00	117.00	300.00			See T
Fixed manufacturing overhead (exc. depreciation)		450.00	450.00	450.00	1,350.00
Variable Selling & admin expenses		150.00	180.00	240.00	570.00			See V
Fixed Selling & admin expenses		650.00	650.00	650.00	1,950.00
Equipment purchased		3,000.00
Total cash payments		6,593.40	4,119.60	4,530.60	15,243.60
Ending cash balance		10,519.10	13,774.50	18,993.90