Question

Iguana, Inc., manufactures bamboo picture frames that sell for $30 each. Each frame requires 4 linear feet of bamboo, which costs $2.50 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 280 April 260 May 310 June 410 July 385 August 435

Variable manufacturing overhead is incurred at a rate of $0.40 per unit produced. Annual fixed manufacturing overhead is estimated to be $7,800 ($650 per month) for expected production of 3,000 units for the year. Selling and administrative expenses are estimated at $700 per month plus $0.50 per unit sold. Iguana, Inc., had $10,900 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 $2,500. All other operating costs are paid during the month incurred. Monthly fixed manufacturing overhead includes $160 in depreciation. During April, Iguana plans to pay $3,100 for a piece of equipment.

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

Sales collection Budget:
	March	April	may	June	July	Aug
Units sales	280	260	310	410	385	435
Selling pr.	30	30	30	30	30	30
Total Sales	8400	7800	9300	12300	11550	13050
Less: Cash sales 80%	6720	6240	7440	9840	9240	10440
Credit Sales	1680	1560	1860	2460	2310	2610
Collection:
March	840	840
Apr		780	780
may			930	930
jun				1230	1230
jul					1155	1155
aug						1305
Total	840	1620	1710	2160	2385	2460
Production budget:
sales	280	260	310	410	385	435
add:cl. Inventory	104	124	164	154	174	0
Total available for sale	384	384	474	564	559	435
less:op. inventory		104	124	164	154	174
Production reqd.		280	350	400	405	261
D Material Purchase Budget:
Production reqd.		280	350	400	405	261
D Mat. reqd.		1120	1400	1600	1620	1044
Add:Cl. Stock	336	420	480	486	313.2	0
total reqd.	336	1540	1880	2086	1933.2	1044
Less:Op. Stock		336	420	480	486	313.2
D Material purchases		1204	1460	1606	1447.2	730.8
Budgeted Purchase Payment Budget:
D Material purchases		1204	1460	1606	1447.2	730.8
Cost per foot		2.5	2.5	2.5	2.5	2.5
Total cost	2500	3010	3650	4015	3618	1827
Purchases Payments:
March	2000	500
Apr		2408	602
may			2920	730
jun				3212	803
jul					2894.4	723.6
aug						1461.6	365.4
Total	2000	2908	3522	3942	3697.4	2185.2	365.4
Cash Payments Budget:
Purchases	2000	2908	3522	3942	3697.4	2185.2	365.4
Lab. $ 6/unit	0	1680	2100	2400	2430	1566	0
Variable Manuf o/h	0	112	140	160	162	104.4	0
Fixed manuf. o/h	490	490	490	490	490	490	490	(650-160)
Sell&Admin	840	830	855	905	892.5	917.5	700
Total Cash payments	3330	6020	7107	7897	7671.9	5263.1	1555.4
Cash Budget:
		April	May	June
Op Cash		10900	10640	11683
Add:cash sales		6240	7440	9840
Add:collection		1620	1710	2160
Total cash available		18760	19790	23683
Less: Disbursements:
Payments		6020	7107	7897
Equipment		3100
Total disbursements		9120	7107	7897
Cash over disbursements		9640	12683	15786
Add:Cash advance		1000
Less:Advance payments		0	-1000
Closing Cash		10640	11683	15786