Question

Decker Manufacturing is preparing its master budget for the first quarter of the upcoming year. The following data pertain to deckers manufacturing s operation

Current Assets as of December 31 (prior year):
Cash	4600
Accounts receivable, net	47000
Inventory	15100
Property, plant, and equipment, net	123000
Accounts payable.	43000
Capital stock.	123500
Retained earnings.	23100

a. Actual sales in December were $71,000. Selling price per unit is projected to remain stable at $12

per unit throughout the budget period. Sales for the first five months of the upcoming year are budgeted to be as​ follows

January. . . . . . . . .$99,600

February. . . . . . . .$118,800

March. . . . . . . . . .$115,200

April. . . . . . . . . . . .$108,000

May. . . . . . . . . . . .$103,20

b. Sales are 35​% cash and 65​% credit. All credit sales are collected in the month following the sale

c. Manufacturing has a policy that states that each​ month's ending inventory of finished goods should be 10​%of the following​ month's sales​ (in units).

d. Of each​ month's direct material​ purchases, 20​% are paid for in the month of​ purchase, while the remainder is paid for in the month following purchase. Three pounds of direct material is needed per unit at $2.00 per pound. Ending inventory of direct materials should be 20 % of next​ month's production needs.

e.

Most of the labor at the manufacturing facility is​ indirect, but there is some direct labor incurred. The direct labor hours per unit is 0.05 The direct labor rate per hour is $ 9 per hour. All direct labor is paid for in the month in which the work is performed. The direct labor total cost for each of the upcoming three months is as​ follows:

f.

Monthly manufacturing overhead costs are $5,500 for factory​ rent, $2,900 for other fixed manufacturing​ expenses, and $ 1.10 per unit for variable manufacturing overhead. No depreciation is included in these figures. All expenses are paid in the month in which they are incurred.

g. Computer equipment for the administrative offices will be purchased in the upcoming quarter. In​ January,rDecker

Manufacturing will purchase equipment for 5,000 (cash), while​ February's cash expenditure will be $12,200

and​ March's cash expenditure will be $16,600.

h.	Operating expenses are budgeted to be $ 1.25 per unit sold plus fixed operating expenses of $1,800 per month. All operating expenses are paid in the month in which they are incurred.

i.	Depreciation on the building and equipment for the general and administrative offices is budgeted to be $4,400 for the entire​ quarter, which includes depreciation on new acquisitions.

j.

Decker Manufacturing has a policy that the ending cash balance in each month must be at least $4,000. It has a line of credit with a local bank. The company can borrow in increments of $1,000 at the beginning of each​ month, up to a total outstanding loan balance of $125,000. The interest rate on these loans is 1​%per month simple interest​ (not compounded). The company would pay down on the line of credit balance in increments of $1,000 if it has excess funds at the end of the quarter. The company would also pay the accumulated interest at the end of the quarter on the funds borrowed during the quarter.

k. The​ company's income tax rate is projected to be​ 30% of operating income less interest expense. The company pays $10,000 cash at the end of February in estimated taxes.

Requirement:

1.	Prepare a schedule of cash collections for​ January, February, and​ March, and for the quarter in total.
2.	Prepare a production budget.​ (Hint: Unit sales​ = Sales in dollars​ / Selling price per​ unit.)
3.	Prepare a direct materials budget.
4.	Prepare a cash payments budget for the direct material purchases from Requirement 3.
5.	Prepare a cash payments budget for direct labor.
6.	Prepare a cash payments budget for manufacturing overhead costs.
7.	Prepare a cash payments budget for operating expenses.
8.	Prepare a combined cash budget.
9.	Calculate the budgeted manufacturing cost per unit​ (assume that fixed manufacturing overhead is budgeted to be $0.80 per unit for the​ year).
10.	Prepare a budgeted income statement for the quarter ending March 31.​ (Hint: Cost of goods sold​ = Budgeted cost of manufacturing one unit x Number of units​ sold.)

Answer 1

Cash Collection Budget
S.No	Particulars	January	February	March
A	Total Sales made during the Month	$99,600	$1,18,800	$1,15,200
B	Cash Sales during the Month( A*35%)	$34,860	$41,580	$40,320
C	Credit Sales of Previous Month Collected(Note-1)	$46,150	$64,740	$77,220
D	Toatl Cash Collections	$81,010	$1,06,320	$1,17,540
Production Budget
S.No	Particulars	January	February	March
A	Budgeted Sales during the Month	$99,600	$1,18,800	$1,15,200
B	Selling Price Per Unit	$12	$12	$12
C	Budgeted Sales in Units ( A/B )	8300	9900	9600
D	Opening Stock of Finished Goods (C*10%)(Units)	830	990	960
E	Budgeted Sales of Following Month	$1,18,800	$1,15,200	$1,08,000
F	Budgeted Sales Units of Following Month(E/B)	9900	9600	9000
G	Closing Stock to be maintained ( F*10%)	990	960	900
H	Budgeted Production ( C-D+G) (Units )	8460	9870	9540
Direct Materials Budget
S.No	Particulars	January	February	March
A	Budgeted Sales in Units during the Month	8300	9900	9600
B	Raw Material Required for each unit (Pounds)	3	3	3
C	Raw Material Required for Budgeted Sales (A*B )	24900	29700	28800
D	Opening Stock of Raw material(A*B*20%)(Pounds)	4980	5940	5760
E	Budgeted Sales Units of Following Month	9900	9600	9000
G	Raw Material Required for Budgeted Sales of Following Month(E*2 Pounds)	19800	19200	18000
H	Closing Stock to be maintained ( G*10%)	1980	1920	1800
I	Material to be Purchased during the Month (C-D+H)(Pounds)	21900	25680	24840
J	Material Price Per Pound	$2	$2	$2
K	Material to be Purchased during the Month (I*J)(Value)	$43,800	$51,360	$49,680
Cash Payment Budget for Direct Material
S.No	Particulars	January	February	March
A	Material to be Purchased during the Month (Pounds)	21900	25680	24840
B	Material Perice Per Pound	$2	$2	$2
C	Material to be Purchased during the Month (A*B)(Value)	$43,800	$51,360	$49,680
D	Cash Purchases ( C*20% )	$8,760	$10,272	$9,936
E	Credit Purchase of previous month paid in Current Month ( Note -2 )	$43,000	$35,040	$41,088
F	Total Cash Payments for Direct Materials during the Month	$51,760	$45,312	$51,024

Note -1 :

Credit Sales of December Month Collected in January :

Total Sales made in December: $71,000

Credit Sales of December Collected in January : $71,000 * 65% = $46,150

Note-2 :

Credit Purchases of December month paid in January :

It is Assumed that Accounts payables balance standing on Dec'31 is of creditors for the credit purchases made during December. Therefore Credit Purchases of December month paid in January is $43,000.

Note -3 :

It is assumed that the company has followed its manufacturing policy, of maintaining Inventory of Finished Goods and Material Purchases, in the month of December also.

Cash Payment Budget for Direct Labour
S.No	Particulars	January	February	March
A	Budgeted Production (Units )	8460	9870	9540
B	Direct Labour required per Unit (Hrs)	0.05	0.05	0.05
C	Total Labour Hours Requiered (A*B)	423	494	477
D	Labour Rate per Hour	$9	$9	$9
E	Cash Payment for Direct Labour (C*D)	$3,807	$4,442	$4,293

Cash Payment Budget for Manufacturing Overheads
S.No	Particulars	January	February	March
A	Factory Rent	$5,500	$5,500	$5,500
B	Other Fixed Manufacturing Overheads	$2,900	$2,900	$2,900
C	Budgeted Production (Units )	8460	9870	9540
D	Variable Manufacturing Overheads at $1.1 per unit ( C * $1.1 )	$9,306	$10,857	$10,494
E	Total Cash Payments for Manufacturing Overheads during the Month ( A+B+D)	$17,706	$19,257	$18,894

Cash Payment Budget for operating Expenses
S.No	Particulars	January	February	March
A	Budgeted Sales in Units	8300	9900	9600
B	Operating Expenses at $1.25 per Unit Sold(A*$1.25)	$10,375	$12,375	$12,000
C	Fixed operating Expenses	$1,800	$1,800	$1,800
D	Total Cash Payment for operating Expenses(B+C)	$12,175	$14,175	$13,800