Question

Actual or Projected	Month	Units
Actual	November	9,000
Actual	December	8,000
Projected	January	11,000
Projected	February	10,000
Projected	March	6,000
Projected	April	7,000
Projected	May	7,000
Projected	June	7,000

It takes ten skeins of yarn to make one sweater. Each skein costs $1.30. Past experience shows you need to have enough sweaters on-hand to fill the next month and one half of sales (approximately forty-five days). Also, you need enough yarn to manufacture the next month’s production.

You will have 12,000 sweaters in finished inventory and 80,000 skeins of yarn in raw materials inventory as of December 31, 2015. You purchased $90,000 of yarn in December that must be paid for in January. The Company incurred $7,500 of overhead cost during December 2015, and $13,500 of selling expenses in the last half of December. These also must be paid in January. The company policy is to pay prior month's charges on account on the tenth day of the following month unless otherwise designated.

Income Statements

Actual or Projected Sales	Actual	Actual	Projected	Projected	Projected
Month	November	December	January	February	March
Sales	$240,000	$270,000	$300,000	$270,000	$210,000
Cost of sales	144,000	162,000	180,000	162,000	126,000
Gross margin	96,000	108,000	120,000	108,000	84,000
Operating Expenses:
Selling	24,000	27,000	30,000	27,000	21,000
Administration	35,000	45,000	50,000	45,000	30,000
Rent	10,000	10,000	10,000	10,000	10,000
Sales salaries	20,000	20,000	20,000	20,000	20,000
Totals	89,000	102,000	110,000	102,000	81,000
Operating Income	7,000	6,000	10,000	6,000	3,000
Interest Expense	0	0	?	?	?
Net Income	$7,000	$6,000

A worker, using a knitting machine, can make five sweaters in an hour. The cost of direct labor per hour, including fringe, is $20.00. You incurred $13,000 of direct labor cost between December 16 and December 31, 2015 which will be paid on January 7, 2016. The manufacturing overhead rate is $5.00 per direct labor hour. All sweaters are sold wholesale to retail outlets at $30.00 each.

Salaries and wages are paid as follows: The pay period from the first to the fifteenth of the month is paid on the twenty-second day of each month; the pay period from the sixteenth to the thirty-first is paid on the seventh day of the following month.

Rent is paid in advance on the first day of each month. Fifty percent of the selling expenses are paid in the month incurred, and fifty percent in the following month. All manufacturing overhead and administrative costs are paid on the tenth day of the following month.

The cash in the bank on December 31, 2015 was forecast at $30,000. There were no outstanding borrowings. The company has a $500,000 line of credit at 12% per annum at the Old Rusty Bucket State Bank of Oreana. All borrowings, and any subsequent repayments, must be made on the fifteenth day of the month. All loan takedowns must be repaid by December 31, 2016. Repayments can be made when extra cash is available, but are due on the fifteenth day of any month. The company has the policy to have at least $25,000 in the bank account at the end of each month even if they have to borrow it. However, more may be required depending on cash needs during the first week of the following month.

20% of the sales are collected in the month of sale. Seventy percent are collected in the next month, and five percent are collected in the third month.

>Use the information above to complete the following chart

These relate to January

Required production in units 12,000

Required purchases of raw materials in units 105,000

Required purchases of raw materials in dollars $136,500

Cost of goods manufactured $216,000

IMPORTANT HINT: The most common error is in computing the required ending inventory for finished goods. For Jan it should be all of Feb sales and half of March. (Not 1 1/2 of Feb sales)

Excel sheet below needs to be filled out with the info from above!

Step 01: Prepare a production budget for Campus Sweaters, Inc. for each of the following months: January, February, March 2016.

Step 02: Prepare a raw materials budget for each month.

Step 03: Prepare a raw materials budget in dollars for each month.

Step 04: Prepare a cost of goods manufactured schedule for each month.

Step 05: Prepare a cash budget for each month.

G Canpus eaters, Inc. 2Production udget 3For Three ontha Bded arch1.apie Mech Aprl Ma Preid Sis Ue A44 edies lesmery Resk Raw Materialwetory Bulgeta 14 Apr Mack 1s R R Midl 26 Add Regskl ledg las y 21 23 Reskel Pndawfer bek 2Parda Delas 11 Coat of Goods Marufactured Scheduiea 2 31 Jesay ads 32 Uea Predael 33 Di i16 5136 36D er26 $26 31 46 TeadCeae Geeds bMealakiel 4 1 Sdad CeaPw Usit 44 Carmou Sreaters,inc Caah Flow Projection 46 45 Three Monthe Rnded March31,2019 41 Fbry Mad 48 S 21666 Deds Jesey ST Teds Canh Ouoa Mesodaw Dider wwbe 64 S aa istaetaRae Tesls 68 Mathloe Ouak Asd givy Canhance T 12 oahge(Rapand aNoae ce 14 Eang Cah 11 Solution to Culminating Project

Answer 1

A worker, using a knitting machine, can make five sweaters in an hour. The cost of direct labor per hour, including fringe, is $20.00. You incurred $13,000 of direct labor cost between December 16 and December 31, 2015 which will be paid on January 7, 2016. The manufacturing overhead rate is $5.00 per direct labor hour. All sweaters are sold wholesale to retail outlets at $30.00 each.

Salaries and wages are paid as follows: The pay period from the first to the fifteenth of the month is paid on the twenty-second day of each month; the pay period from the sixteenth to the thirty-first is paid on the seventh day of the following month.

ANSWER CAMPUS SWEATERS, Inc. Production Budget For Three Months Ended March 31,2016 PARTICULARS January Februay March April Мay Projected sales in Units 11,000 7,000 7,000 10,000 6,000 Add ending 15,000 10,500 9,000 10,500 Inventory Required 19,000 26,000 16,500 17,500 Law Beginning Inventory Required Products for 15,000 12,000 9,000 10,500 7,500 7,000 14,000 4,000 Month

RAW MATERIAL INVENTORY BUDGET February April 7,000 Particulars March January Required Production for 14,000 4,000 7,500 month Required Raw Material 70,000 140,000 40,000 75,000 Add Required Ending Inventory 40,000 75,000 70,000 115,000 180,000 80,000 145,000 Less Beginning Inventory 40,000 40,000 75,000 100,000 100,000 105,000 Required Purchases for 75,000 105,000 Month Purchases in $130,000 $97,500 $136,500 Dollars These flow to your cash forecast

Cost of Goods Manufactured Schedules February Particulars March January 14,000 $182,000 Units Produced 4,000 7,500 $97,500 Direct Materials $52,000 (10 S1.30) Direct Labor 30,000 56,000 16,000 CF (20 $20.00) Overhead 14,000 4,000 7,500 CF (20*S5.00) $252,000 Total Cost Of $72,000 $135,000 Goods Manufactured Standard Cost $18.00 $18.00 $18.00 Per Unit

Campus sweaters, INC Cash flow projection 3 months ended march 31, 2016 February Particulars March January 330,000 Sales 180,000 300,000 Cash inflows Collection on accounts receivable November 13,500 December 12,000 168,000 66,000 January February 231,000 16,500 210,000 60,000 March 36,000 Totals $247,500 $303,000 Cash outflows $262,500 90,000 97,500 Raw material 130,000 purchases Direct labor 36,000 41,000 7,500 23,000 4,000 Manufacturing overhead 14,000 Selling expenses 24,000 28,500 45,000 28,500 Administrative 50,000 45,000 expenses 10,000 Rent 10,000 20,000 10,000 Sale salaries 20,000 20,000 Equipment purchases Interest expenses Totals 242,000 288,500 223,500 Net inflow (out flow) Add beginning cash 39,000 5,500 14,500 30,000 35,500 50,000 balance Borrowings (repayment) of loans Ending cash balance $89,000 $35,500 $50,000