Question

7. Developing a Master Budget Heartbreaker Inc. manufactures a product with a selling price of $60 per unit. Units and monthly cost data follow: Variable: Selling and administrative............ Direct materials.............. Direct labor.. Variable manufacturing overhead...... Fixed: Selling and administrative....... Manufacturing (including depreciation of $11,000)............ $ 5 per unit sold 12 per unit manufactured 12 per unit manufactured 6 per unit manufactured $17,000 per month 34,000 per month Heartbreaker pays all bills in the month incurred. All sales are on account with 50 percent collected the month of sales and the balance collected the following month. There are no sales discounts or bad debts. Heartbreaker desires to maintain an ending finished goods inventory equal to 20 percent of the following month's sales and a raw materials inventory equal to 10 percent of the following month's production. January 1, 2017, inventories are in line with those policies. Actual unit sales for December and budgeted unit sales for January, February and March of 2017 are as follows: December January February March Sales - Units 11,250 10,000 15,000 13,000 Sales - Dollars $675,000 $600,000 $900,000 $780,000 Additional Information: • The January 1 beginning cash balance is projected to be $6,000 . For the purpose of operational budgeting, units in the January 1 inventory of finished goods are valued at variable manufacturing cost • Each unit of finished product requires one unit of raw materials. • Heartbreaker intends to pay a cash dividend of $12,000 in January Required: a. Prepare a production budget for January and February b. Prepare a purchases budget in units for January c. Prepare a manufacturing cost budget for January d. Prepare a cash budget for January

1. Prepare a production budget for January and February

Answer 1

Feb Dec Jan Mar Sales 675000 600000 900000 780000 10000 Units 11250 15000 13000 Selling price per Unit 60 60 60 60 Opening Finished Goods 2250 2000 3000 2600 20% of Dec Sales Closing Finished Goods 2000 3000 2600 20% of Following months sale Production units 11000 11000 14600 Closing+ Sales Opening Raw material units (for every finis 14600 11000 11000 Opening raw material 1100 1100 10% of Dec Production Closing raw material 1100 1460 Purchase of Raw Material (units) 11000 11360 Closing + Sales Opening

Sales Cash 50% 337500 300000 450000 390000 Credit 50% 300000 337500 450000 390000 Variable Costs Direct Material 12 per unit Direct Lanour 12 per unit 132000 132000 175200 132000 132000 175200 Variable Manufacturing Overhead 87600 66000 66000 Selling and Administrative 5 per u 56250 50000 75000 Total 380000 386250 513000 Fixed Costs Manufacturing Selling and Administrative 34000 34000 34000 17000 17000 17000 Total 51000 51000 51000 Depreciation 11000 11000 11000

Cash Budget Opening cash 6000 Inflow Sales Cash 300000 Credit sales of last month 337500 Total Cash Inflow 643500 outflow Variable Cost Refer above schedule 380000 Fixed Cost Refer above schedule 51000 Less: Depreciation 11000 Total Outflow 420000 Closing Cash 223500