The management of Zigby Manufacturing prepared the following estimated balance sheet for March, 2015:
ZIGBY MANUFACTURING
Estimated Balance Sheet
March 31, 2015
Assets
Cash $ 30,000
Accounts receivable 464,100
Raw materials inventory 98,505
Finished goods inventory 450,840
Total current assets 1,043,445
Equipment, gross 620,000
Accumulated depreciation (160,000)
Equipment, net 460,000
Total assets $ 1,503,445
Liabilities and Equity
Accounts payable 206,405
Short-term notes payable 22,000
Total current liabilities $ 228,405
Long-term note payable 510,000
Total liabilities 738,405
Common stock 345,000
Retained earnings 420,040
Total stockholders’ equity 765,040
Total liabilities and equity $ 1,503,445
To prepare a master budget for April, May, and June of 2015, management gathers the following information.
a.
Sales for March total 22,100 units. Forecasted sales in units are
as follows: April, 22,100; May, 19,100; June, 19,500; July, 22,100.
Sales of 250,000 units are forecasted for the entire year. The
product’s selling price is $30.00 per unit and its total product
cost is $25.50 per unit.
b.
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 4,925 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.
c.
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 17,680 units, which complies
with the policy.
d.
Each finished unit requires 0.50 hours of direct labor at a rate of
$25 per hour.
e.
Overhead is allocated based on direct labor hours. The
predetermined variable overhead rate is $3.50 per direct labor
hour. Depreciation of $25,290 per month is treated as fixed factory
overhead.
f.
Sales representatives’ commissions are 6% of sales and are paid in
the month of the sales. The sales manager’s monthly salary is
$4,000.
g.
Monthly general and administrative expenses include $22,000
administrative salaries and 0.9% monthly interest on the long-term
note payable.
h.
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).
i.
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.
J.
The minimum ending cash balance for all months is $70,000. 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.
K. Dividends of $20,000 are to be declared and paid
in May.
l.
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.
m. Equipment purchases of $140,000 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:
a. ZIGBY MANUFACTURING
SALES
APRIL, MAY, JUNE 2015
a. sales
Budgeted Unit Sales | Budgeted Unit Price | Budgeted Total Dollars | |
April 2015 | |||
May 2015 | |||
June 2015 | |||
Totals for the quarter |
b. ZIGBY MANUFACTURING
PRODUCTION BUDGET
April, May, and June 2015
April | May | June | ||
Next month's budgeted sales (units) | 19,100 | 19,500 | 22,100 | |
Ratio of inventory to future sales | 80% | 80% | 80% | |
Required units of available production | ||||
Units to be produced |
c. raw materials budget
ZIGBY MANUFACTURING
Raw Materials Budgets
April, May, and June 2015
April | May | June | ||
Production budgets (units) | ||||
Materials needed for production | ||||
Total materials requirements (units) | ||||
Materials to purchased | ||||
Material price per unit | ||||
Total cost of direct material purchases |
d. Direct Labor Budget April, May, June 2015
April | May | June | Total | |
Budgeted production (units) | ||||
Total labor hours needed | ||||
Labor dollars |
e. Factory overhead Budget
April | May | June | Total | |
Labor hours needed | ||||
Budgeted variable overhead | ||||
Budgeted fixed overhead |
Budgeted total over head:
f. Selling expense budget
April | May | June | ||
Budgeted Sales | ||||
Sales commissions | ||||
a.
Sales Budget | |||
Budgeted Unit Sales | Budgeted Unit Price | Budgeted Total Dollars | |
April | 22,100 | $ 30 | $ 663,000 |
May | 19,100 | 30 | 573,000 |
June | 19,500 | 30 | 585,000 |
Total | 60,700 | 30 | 1,821,000 |
b.
Production Budget | |||
April | May | June | |
Next month budgeted sales | 19,100 | 19,500 | 22,100 |
Ratio of Inventory to future sales | 80 % | 80 % | 80 % |
Desired ending inventory | 15,280 | 15,600 | 17,680 |
Add: Budgeted sales of current month | 22,100 | 19,100 | 19,500 |
Total inventory needed | 37,380 | 34,700 | 37,180 |
Less: Beginning Inventory | 17,680 | 15,280 | 15,600 |
Units to be produced | 19,700 | 19,420 | 21,580 |
c.
Raw Materials Budget | |||
April | May | June | |
Budgeted Production in Units | 19,700 | 19,420 | 21,580 |
Materials Needed for Production | 9,850 | 9,710 | 10,790 |
Add: Desired Ending Inventory | 4,855 | 5,395 | 4,500 |
Total Material Requireents | 14,705 | 15,105 | 15,290 |
Less: Beginning Inventory | 4,925 | 4,855 | 5,395 |
Materials to be Purchased | 9,780 | 10,250 | 9,895 |
Material cost per unit | $ 20 | $ 20 | $ 20 |
Total cost of direct materials purchases | $ 195,600 | $ 205,000 | $197,900 |
d.
Direct Labor Budget | |||
April | May | June | |
Budgeted production in units | 19,700 | 19,420 | 21,580 |
Total labor hours needed | 9,850 | 9,710 | 10,790 |
Labor hour rate | $ 25 | $ 25 | $ 25 |
Labor Dollars | $ 246,250 | $ 242,750 | $ 269,750 |
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