Question

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: • The company budgeted sales at 600,000 units per month in April, June, and July and at 500,000 units in May. The selling price is $4 per unit. . The inventory of finished goods on April 1 was 150,000 units. The finished goods inventory at the end of each month equals 25 percent of sales anticipated for the following month. There is no work in process. The inventory of raw materials on April 1 was 57,500 pounds. At the end of each month, the raw materials inventory equals no less than 40 percent of production requirements for the following month. The company purchases materials in quantities of 71,500 pounds per shipment. • Selling expenses are 10 percent of gross sales. Administrative expenses, which include depreciation of $3,000 per month on office furniture and fixtures, total $160,000 per month. • The manufacturing budget for tiles, based on normal production of 500,000 units per month, follows: Materials (0.25 pound per tile, 125,000 pounds, $4 per pound) Labor Variable overhead Fixed overhead (includes depreciation of $190,000) Total $ 500,000 390,000 200,000 390,000 1,480,000 Required: a-1. Prepare schedules computing inventory budgets by months for production in units for April, May, and June. a-2. Prepare schedules computing inventory budgets by months for raw materials purchases in pounds for April and May. 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.

Answer 1

schedule containing inventory budgets by month for production in unit for April, May and June

1. Production Budget (in units)
Particulars	April	May	Jun
Budgeted Sales	600,000.00	500,000.00	600,000.00
Add: Closing Stocks	125,000.00	150,000.00	150,000.00
Less: Opening Stock	150,000.00	125,000.00	125,000.00
Production Units	575,000.00	525,000.00	625,000.00

2. schedule containing inventory budgets by month for row material in pounds for April, May

2. Raw Material Purchase Budget In Pounds
Particulars	April	May
production Units	575,000.00	525,000.00
Add: Closing Stocks	210,000.00	250,000.00
Less: Opening Stock	150,000.00	210,000.00
purchase row material	635,000.00	565,000.00
Amount @.25 pound	158,750.00	141,250.00

3. income statement for the month of May

3 Income Statement for the Month of May
Particulars	details	Amount
Sales	500000*4	2000000
less- discount	200000*1%	20000
bad debts	2000000*0.50%	10000
Net sales		1970000
cost of sales
variable cost		1090000
fixed cost		390000
Balance		490000
expenses
selling expenses	2000000*10%	200000
administration cost( including depreciation)		160000
interest expenses	500000*1%	50000
operating profit		80000