Question

The management of Zigby Manufacturing prepared the following estimated balance sheet for March 2019. ZIGBY MANUFACTURING Estimated Balance Sheet March 31, 2019 Assets Cash Accounts receivable Raw materials inventory Finished goods inventory Total current assets Equipment Accumulated depreciation Equipment, net Total assets Liabilities and Equity Accounts payable Short-term notes payable Total current liabilities Long-term note payable Total liabilities Common stock Retained earnings Total stockholders' equity Total liabilities and equity 50,000 434, 240 84,210 368,000 936,450 602,000 (151,000) 451,000 $1,387,450 $ 196,610 12,000 208,610 505,000 713,610 336,000 337,840 673,840 $1,387,450 To prepare a master budget for April, May, and June of 2019, management gathers the following information. a. Sales for March total 23,000 units. Forecasted sales in units are as follows: April, 23,000; May, 15,300; June, 20,400; and July, 23,000. Sales of 241,000 units are forecasted for the entire year. The product's selling price is $23.60 per unit and its total product cost is $20.00 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 4,210 units, which complies with the policy. The expected June 30 ending raw materials inventory is 4,100 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 18,400 units, which complies with the policy. d. Each finished unit requires 0.50 hours of direct labor at a rate of $15 per hour. e. Overhead is allocated based on direct labor hours. The predetermined variable overhead rate is $2.80 per direct labor hour. Depreciation of $21,520 per month is treated as fixed factory overhead. f. Sales representatives' commissions are 10% of sales and are paid in the month of the sales. The sales manager's monthly salary is $3,100. g. Monthly general and administrative expenses include $13,000 administrative salaries and 0.5% monthly interest on the long-term note payable. h. The company expects 20% of sales to be for cash and the remaining 80% on credit. Receivables are collected in full in the month following the sale (none are 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 $41,000. 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.

Answer 1

Calculation April May June Zigby Manufacturing Sales Budget Req 1 Sales (Units) Selling price per unit Total budgeted sales April 23,000 23.60 542,800 May 15,300 23.60 361,080 June 20,400 23.60 481,440 Quarter 58,700 23.60 1,385,320 Sales (units)* Selling price per unit Quarter April May June Production budget Req2 Budgeted Next Months Sales (Units) Ratio of inventory to future sales Budgeted Ending Inventory (Units) Budgeted Sales (Units) Inventory Needed Less Beginning Inventory Required Production (Units) April 15,300 80% 12,240 23,000 35,240 18,400 16,840 May 20,400 80% 16,320 15,300 31,620 12,240 19,380 June 23,000 80% 18,400 20,400 38,800 16,320 22,480 18,400 Budgeted Next Months Sales (Units) * 80% 58,700 77,100 18,400 End Inv of Apr End Inv of May 58,700 Raw Materials budget Req3 Required Production (Units) Materials required per unit Raw Material Required Add Ending Inventory Raw Materials Needed Less Beginning Inventory Raw Material Purchased Raw Material Cost per unit Budgeted Raw Material Cost April 16,840 0.50 8,420 4,845 13,265 4,210 9,055 20.00 181,100 May 19,380 0.50 9,690 5,620 15,310 4,845 10,465 20.00 209,300 June 22,480 0.50 11,240 4,100 15,340 5,620 9,720 20.00 194,400 Quarter April May June 58,700 0.50 29,350 Required Production (Units) * 0.50 4,100 Next Months Raw Material Required * 50% 33,450 4,210 End Inv of Apr End Inv of May 29,240 20.00 584,800 Raw Material Purchased * Raw Material Cost per unit April May June Direct labor budget Req4 Required Production (Units) Labor requirements per unit Total Labor hours needed Direct labor rate per hour Budgeted Direct Labor Cost April 16,840 0.50 8,420 15.00 126,300 May 19,380 0.50 9,690 15.00 145,350 June 22,480 0.50 11,240 15.00 168,600 Quarter 58,700 0.50 29,350 15.00 440,250 Required Production (Units) * 0.50 Total Labor hours needed * Direct labor rate per hour Factory Overhead budget Req5 Labor hours needed Variable factory overhead rate Budgeted Variable factory overhead Budgeted Fixed factory overhead Budgeted total factory overhead April 8,420 2.80 23,576 21,520 45,096 May June 9,690 11,240 2.80 2.80 27,132 31,472 21,520 21,520 48,652 52,992 Quarter April May June 29,350 2.80 82,180 Labor hours needed * Variable factory overhead rate 64,560 146,740 May June Selling Expenses Budget Reg 6 Budgeted sales Sales commission percent Sales commission Sales salaries Total budgeted selling expenses April 542,800 10% 54,280 3,100 57,380 May 361,080 10% 36,108 3,100 39,208 June 481,440 10% 48,144 3,100 51,244 Quarter April 1,385,320 10% 138,532 Budgeted sales *10% 9,300 147,832 April May June General & Admin Expenses Budget Req7 Salaries Interest on long term note Total budgeted General & Admin expenses April 13,000 2,525 15,525 May 13,000 2,525 15,525 June 13,000 2,525 15,525 Quarter 39,000 7,575 46,575 =505,000*0.5% =505,000*0.5% =505,000*0.5%

May June Schedule of cash receipts Req 8A Cash sales Credit sales Total cash collections April 108,560 434,240 542,800 May 72,216 288,864 361,080 June 96,288 385,152 481,440 Quarter April 277,064 Budgeted sales * 20% 1,108,256 Budgeted sales * 80% 1,385,320 April May June Schedule of cash receipts Req 8B Current Months Cash sales Collections of receivables Total cash collections April 108,560 434,240 542,800 May 72,216 434,240 506,456 June 96,288 288,864 385,152 Quarter 277,064 1,157,344 1,434,408 April May June April 50,000 542,800 592,800 May 161,289 506,456 667,745 June 248,430 385,152 633,582 Quarter 50,000 1,434,408 1,484,408 Cash budget Req8 Cash balance, beginning Cash receipts from customers Total cash available Less Cash payments for Raw materials Direct labor Variable overhead Sales commissions Sales salaries General & admin salaries Dividends Loan interest Long term note interest Purchase of equipment Taxes paid Total cash payments Preliminary cash balance Additional loan (loan repayments) Ending Cash balance 196,610 126,300 23,576 54,280 3,100 13,000 181,100 145,350 27,132 36,108 3,100 13,000 11,000 209,300 168,600 31,472 48,144 3,100 13,000 587,010 440,250 82,180 138,532 9,300 39,000 11,000 120 7,575 131,000 =12,000*1% 120 2,525 2,525 2,525 131,000 419,315 248,430 419,511 173,289 (12,000) 161,289 607,141 26,441 14,559 41,000 1,445,967 38,441 2,559 41,000 -41,000-26,441 248,430 Loan Balance Loan Balance - Beginning of Month Additional loan (loan repayments) Loan Balance - End of Month April May 12,000 (12,000) June - 14,559 14,559 Quarter 12,000 2,559 14,559

1,385,320 1,174,000 211,320 Calculation =58,700*23.60 =58,700*20 Income Statement Req9 Sales Cost of goods sold Gross Profit Operating expenses Sales Commissions Sales Salaries General Administrative Salaries Interest on short term note payable Interest on long term note payable Total Operating expenses Income before taxes Income tax expense Net Income 138,532 9,300 39,000 120 7,575 =12,000*1% =505,000*0.5%*3 194,527 16,793 6,717 10,076 =16,793*40% Balance Sheet Req 10 Assets Cash Accounts Receivable Raw Material Inventory Finished goods Inventory Total Current Assets Equipment, gross Accumulated Depreciation Equipment, net Total Assets 41,000 385,152 82,000 368,000 -481,440*80% -4,100*20 =18,400*20 876,152 733,000 (215,560) =602,000+131,000 =151,000+21,520 *3 517,440 1,393,592 194,400 14,559 6,717 From Cash budget From Income Statement Liabilities & Stockholders Equity Current Liabilties Accounts Payable Short term notes payable Income taxes Payable Total Current Liabilties Long term notes payable Stockholders Equity Common Stock Retained Earnings Total Stockholders Equity Total Liabilities & Stockholders Equity 215,676 505,000 336,000 336,916 =337,840+10,076-11,000 672,916 1,393,592