Question

Iguana, Inc., manufactures bamboo picture frames that sell for $25 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 $12 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 320 340 390 490 465 515 June July August Variable manufacturing overhead is incurred at a rate of $0.20 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 $0.50 per unit sold. Iguana, Inc., had $10,500 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 fixed manufacturing overhead includes $240 in depreciation. During April, Iguana plans to pay $2,000 for a piece of equipment. PA8-3 (Algo) 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. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Compute the budgeted cash receipts for Iguana. (Do not round your intermediate calculations. Round final answers to 2 decimal places.) April 8.450.00 May 9,625.00 June $ 12,000.00 2nd Quarter Total $ 30,075.00 Budgeted Cash Receipts $ $ Required 1 Required 2 >

Answer 1

1. Budgeted Cash Receipts April $ 8,450.00 May $ 9,625.00 June 2nd Quarter Total $ 12,000.00 $ 30,075.00 Budgeted Cash Receipts Working Notes: March April June 490 Sales Unit(a) Sales price per unit (b) Sales revenue (c =a xb) 320 25 8,000 May 340 25 $ 8,500 $ $ $ 390 25 9,750 $ $ $ 12,250 Cash sales (C x 80%) Credit Sales (cx 20%) $ $ 6,400 $ 1,600 $ 6,800 1,700 $ $ 7,800 $ 1,950 $ 9,800 2,450 Calculation of Cash Receipts April May 6,800 7,800 9,800 800.00 850.00 Cash Sales Collection of Credit Sales: In April March Sales (1,600 x 50%) April Sales (1,700 x 50%) In May April Sales (1,700 x 50%) May Sales (1,950 x 50%) In June May Sales (1,950 x 50%) June Sales (2,450 x 50%) 850.00 975.00 975.00 1,225.00 12,000.00 Total 8,450.00 9,625.00

2) Budgeted Cash Payments April May 9,057.40 June 9,921.40 2nd Quarter Total 28,448.40 Budgeted Cash Payments 9,469.60 May June July August 340 390 490 465 515 Working Notes: Production Units April Sales Units Add: Ending Finished Goods (Following Month sales x 40%) Total Goods Available For sale Less: Beginning Finished Goods Total Production Needed *Beginning Finished Goods in April (April Sales x 40%) 196 186 586 156 496 136 360 206 671 186 676 196 480 156 430 485 June July 480 485 1,920 1,940 Raw Material Purchases April May Finsihed Goods Production (a) 360 430 Raw material required (b) Raw Material Production (axb) 1,440 1,720 Add: Ending Raw Material (Following Month production ® 30%) 516 576 Total Raw Material Needed 1,956 2,296 Less: Beginning Raw Material (432) (516) Raw Material Purchases (c) 1,524 1,780 Purchase cost (d) 3.00 $ 3.00 Total Purchases cost (cxd) $ 4,572.00 $ 5,340.00 *Beginning Raw material in April (April production x 30%) 582 2,502 (576) 1,926 $ 3.00 $ 5,778.00

Payment of Purchases Cash Purchases @ 80% Credit Purchases @ 20% April 3,657.60 914.40 May 4,272.00 1,068.00 June 4,622.40 1,155.60 April May 4,272.00 June 4,622.40 3,657.60 400.00 Cash Purchases Credit Purchases: March Purchases (2,000 x 20%) April Purchases May Purchases Total Purchases Payment 914.40 1,068.00 5,690.40 4,057.60 5,186.40 Payment of Direct Labor April May June Production (a) Direct labor hours per unit (b) (in hrs) Total Direct Labor hours require (c = axb) Direct labor rate per hour (d) Direct Labor cost (cxd) 360 0.50 180 480 0.50 430 0.50 215 12 2,580 12 $ 240 12 2,880 2,160

Payment of Manufacturing Cost April June $ Production (a) Variable cost per unit (b) Variable cost (axb) Add: Fixed Cost Total Manufacturing cost Less: Depreciation Total Manufacturing cost payment May 360 0.20 $ 72 600 672 (240) 432 $ 430 0.20 86 600 686 (240) 446 480 0.20 96 600 696 (240) 456 $ Selling and administrative Expenses April May Estimated Sales unit (a) Variable selling & Administrative cost per unit (b) $ Variable selling & Administrative cost (a xb) 340 0.50 170.00 June 490 $ 0.50 245.00 390 0.50 195.00 $ Total Budgeted Payment April 4,057.60 2,160.00 432.00 May 5,186.40 2,580.00 446.00 June 5,690.40 2,880.00 456.00 Payment for inventory Direct labor cost Manufacturing cost Selling and administrative expenses Fixed Variable Purchase of equipment Total Budgeted Payment 650.00 650.00 245.00 195.00 650.00 170.00 2,000.00 9,469.60 9,057.40 9,921.40

3) Preparation of Cash Budget Beginning Cash Balance Add: Budgeted Cash Receipts Less: Budgeted Cash Payments Preliminary Cash Balance Cash Borrowd/Repaid Ending Cash Balance April 10,500.00 8,450.00 (9,469.60 9,480.40 1,000.00 10,480.40 May June 2nd Quarter Total 10,480.40 10,048.00 10,500.00 9,625.00 12,000.00 30,075.00 (9,057.40)| (9,921.40)| (28,448.40) 11,048.00 12,126.60 12,126.60 (1,000.00) 10,048.00 12,126.60 12,126.60