Question

PROBLEM 83 Objective The objective of Problem is to reinforce your understanding of the preparation of Operating and Financial Budgets. come concerned about the cashed for the business ows. You have been asked to prepare the productive and sales of water bottles for the first quarter of 2020: the three months March and the quarter to L i the process with a poc es but at the h at he will have no need to purchase additional lids through the first quarter of 2030. Finally, you ce a cash budget for each month and the quarter. The following sales related information is prova w Budgeted 2030 Sales: Water bottles March February 7000 8.000 10000 9,000 Additional information for your budget preparation is as follows: a) Because of increased competition the average les prise par water bottle in 2020 is expected to drop to $15.00 per bottle. b) Wonderful Water bottles has a policy that each month's ending inventory of finished goods (water bottles) should be 20% of the following month's sales in units Ending inventory on December 31, 2019 followed this pattern Ending inventory of aluminum should be 40% of the next month's production needs in ounces. On average. cach water bottle will take 2 ounces of aluminum. The expected price for aluminum is $1.50 per ounce. Ending inventory on December 31, 2019 followed this pattern. Considering the April production schedule, the desired ending inventory of aluminum in March is 8.000 oz. d) Cash sales are 20% of total sales and are collected in the month of sale. The remaining sales are on account (credit) and are collected in the month following the month of sale. Accounts receivable on 12/31/19 is expected to be $140,000 e) Aluminum purchases are paid 30% in the month of purchase and 70% in the month following the month of purchase. Accounts Payable for purchases on 12/31/19 is expected to be $20,100. 1) Budgeted labor costs for the plant for the three months of the first quarter are as follows: Budgeted 2020 Labor Costs January February $5.800 $5,400 $4,100 $4,100 Plant wages Plant salaries March $5,500 $4,100 These labor costs are paid 60% in in the month in which the work is performed and 40% in the following month. Amounts owed for salary and wages payable were expected to be 55,000 on 12/31/19. This amount will be paid in January. ) In addition to the wages and salaries above, Lynn will pay his sales representative solely on a commission of 4% of sales, paid in the month incurred. Administrative salaries of $4,000 are also paid in cash cach month. h) Utilities for the plant will be $21,000, $18.000, and S20,000 for January, February and March respectively These amounts are paid in the month incurred. Other costs paid in the month incurred include indirect materials purchases of $1.800 per month i) Lynn plans to pay cash of $37,000 each month in the first quarter of 2020 for a series of advertisements in outdoor magazines J) Lynn also plans to implement an ERP system for production scheduling in February of 2020. Installation of the system will cost $24,000. paid in February. The system will be depreciated over 5 years with no salvage value. A monthly fee for use of the system will be $2,000 to be paid each month beginning in February k) Depreciation on the plant and equipment will be $38,000 per month. Depreciation on administrative equipment is $1,000 per month

Answer 1

1.

Production Budget
	January	February	March	Quarter
Budgeted Sales in Units	9,000	7,000	8,000	24,000
Add: Desired Ending Inventory	1,400	1,600	2,000	2,000
Total needed	10,400	8,600	10,000	26,000
Less: Beginning Inventory	1,800	1,400	1,600	1,800
Budgeted Production in Units	8,600	7,200	8,400	24,200

2.

Direct Materials Budget
	January	February	March	Quarter
Aluminium needed in production ( ounces )	17,200	14,400	16,800	48,400
Add: Desired Ending Inventory	5,760	6,720	8,000	8,000
Total needed	22,960	21,120	24,800	56,400
Less: Beginning Inventory	6,880	5,760	6,720	6,880
Budgeted Materials Purchases in Ounces	16,080	15,360	18,080	49,520
Cost per Ounce	$ 1.50	$ 1.50	$ 1.50	$ 1.50
Budgeted Cost of Materials Purchases	$ 24,120	$ 23,040	$ 27,120	$ 74,280

3.

Cash Collections Budget
	January	February	March	Quarter
Cash Sales	$ 27,000	$ 21,000	$ 24,000	$ 72,000
December credit sale	140,000			140,000
January credit sale		108,000		108,000
February credit sale			84,000	84,000
Total Cash Collections	$ 167,000	$ 129,000	$ 108,000	$ 404,000

4.

Cash Payments for Direct Materials: Aluminium
	January	February	March	Quarter
December Purchases	$20,100			$20,100
January Purchases	7,236	$16,884		24,120
February Purchases		6,912	16,128	23,040
March Purchases			8,136	8,136
Total Cash Payments for Direct Materials Purchases	$27,336	$ 23,796	$24,264	$75,396

5.

Cash Payments for Labor Budget
	January	February	March	Quarter
Salary and Wages Payable: December	$ 5,000			$ 5,000
For January	5,940	$ 3,960		9,900
For February		5,700	$ 3,800	9,500
For March			5,760	5,760
Total Cash Payments for Labor	$ 10,940	$ 9,660	$ 9,560	$ 30,160