Question

he management of Zigby Manufacturing prepared the following estimated balance sheet for March 2017:

ZIGBY MANUFACTURING Estimated Balance Sheet March 31, 2017
Assets
Cash	$	99,000
Accounts receivable		500,250
Raw materials inventory		101,000
Finished goods inventory		402,500
Total current assets		1,102,750
Equipment, gross		618,000
Accumulated depreciation		(159,000	)
Equipment, net		459,000
Total assets	$	1,561,750
Liabilities and Equity
Accounts payable	$	209,700
Short-term notes payable		21,000
Total current liabilities		230,700
Long-term note payable		505,000
Total liabilities		735,700
Common stock		344,000
Retained earnings		482,050
Total stockholders’ equity		826,050
Total liabilities and equity	$	1,561,750

To prepare a master budget for April, May, and June of 2017, management gathers the following information:

1. Sales for March total 23,000 units. Forecasted sales in units are as follows: April, 23,000; May, 19,000; June, 18,800; and July, 23,000. Sales of 249,000 units are forecasted for the entire year. The product’s selling price is $29.00 per unit and its total product cost is $25.00 per unit.
2. 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 5,050 units, which complies with the policy. The expected June 30 ending raw materials inventory is 4,500 units. Raw materials cost $20 per unit. Each finished unit requires 0.50 units of raw materials.
3. Company policy calls for a given month’s ending finished goods inventory to equal 70% of the next month’s expected unit sales. The March 31 finished goods inventory is 16,100 units, which complies with the policy.
4. Each finished unit requires 0.50 hours of direct labor at a rate of $24 per hour.
5. Overhead is allocated based on direct labor hours. The predetermined variable overhead rate is $3.60 per direct labor hour. Depreciation of $24,320 per month is treated as fixed factory overhead.
6. Sales representatives’ commissions are 10% of sales and are paid in the month of the sales. The sales manager’s monthly salary is $3,900.
7. Monthly general and administrative expenses include $10,000 administrative salaries and 0.8% monthly interest on the long-term note payable.
8. The company expects 25% of sales to be for cash and the remaining 75% on credit. Receivables are collected in full in the month following the sale (none are collected in the month of the sale).
9. 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.
10. The minimum ending cash balance for all months is $110,000. 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.
11. Dividends of $19,000 are to be declared and paid in May.
12. No cash payments for income taxes are to be made during the second calendar quarter. Income tax will be assessed at 40% in the quarter and paid in the third calendar quarter.
13. Equipment purchases of $139,000 are budgeted for the last day of June.

Required:
Prepare the following budgets and other financial information as required. All budgets and other financial information should be prepared for the second calendar quarter, except as otherwise noted below. (Round calculations up to the nearest whole dollar, except for the amount of cash sales, which should be rounded down to the nearest whole dollar.):


9. Budgeted income statement for the entire second quarter (not for each month separately).
10. Budgeted balance sheet.

Answer 1

Budgeted unitBudgeted Unit Budgeted total dollars 29.00 $ 667,000 23000 29.00 551,000 18800 545,200 une Production Budget Next months budgeted sales 19,000 23,000 Ratio of inventory to future sales 70% Budgeted endin 13,300 13,160 16,100 Budgeted unit sales 23,000 19,000 18,800 Required units available for production 36,300 32,160 34,900 16,100 13,300 13,160 Units to be produced 20,200 60,800 Raw materials budget Ma une Production budget units) Material requirements per unit 20,200 18,860 21,740 Materials needed for production Budgeted endin 4,715 5,435 Total materials requirementsfunit 14,865 5,050 0,765 Materials to be purchased 10,150 29,850 Material price per unit Total cost of direct material purchases 195,300 597,000 Direct Labor budget Budget Productionunits 20,200 Labor requirements per unithours) total labor hours needed 10,100 9,430 10,870 30,400 er hour Labor dollars 242,400 226,320 260,880 729,600 overhead budget Labor hours needed 9,430 Variable factory overhead rate $36,360 $33,948S 39,132 $24,32024,320$ 24,320$72,960 Budgeted variable overhead 109,440 Budgeted fixed overhead Budgeted total overhead 58,268 63,452 182,400 Selling expense budget $667,000551,000 545,200 Budgeted sales Sales commission percent Sales commissi $ 66,700$55,100$ 54,520176,320 3,900 3,90011,700 59,000 Total selling expenses 70,600 188,020 General & Admn expense budget 10000 10000 10000 30000 Interest on long term loan 4040 4040 4040 2120 total expenses 14040 14040 14040 42120

Ques 8 ril Ma June 667,000$551,000$ 545,200 166,750$137,750 136,300 Total budgeted sales Cash sales(25%) S 500,250$413,250 408,900 Credit sales(75%) Total cash receipts from customers ril Ma June $ 166,750137,750$ 136,300 500,250$500,250 413,250 Current month cash receipts collections of receivables $ 667,000638,000 549,550 total cash receipts Cash Budget ril May June $ 99,000$171,690 262,082 Beginning cash balance Cash receipts from customers 667,000$638,000 549,550 $ 766,000$809,690$ 811,632 Total cash available Cash disbursements: $ 209,700$195,300$ 203,000 Raw materials 242,400$226,320 260,880 36,360$33,948$39,132 Direct labor variable overhead $66,70055,10054,520 $3,900 $ sales commisiions 3,900 $ 3,900 sales salaries 10,000$10,000$ 10,000 general & admn S19,000 Dividends Loan interest 210 4,040 $ 4,040$ 4,040 $ 139,000 Long term note interest Purchases of equipment 573,310547,608$ 714,472 192,690$262,082$ 97,160 Total cash disbursements Preliminary cash balance $ (21,000) $ 171,690$262,082 $ 110,000 12,840 Additional loan(loan repayment) Ending cash balance Loan Balance May une ri Loan Balance-Beginning of montlh 21,000 $ (21,000) Additional loan/(repayment) $12,840 $ 12,840 Loan balance-end of month

Income statement Sales 1,763,2000 Cost of goods sold (1,520,000) Gross Profit 243,200 Operating Expenses General and adminstrative salaries 30,000 210 Interest expense 12,120 Long term note expense 176,320 Sales commissions Sales salaries 11,700 Depticiation Tota; operating expenses 230,350 Income before taxes 12,850 5,140 Income tax @40% Net income 7,710 Balance sheet Cash 110,000 Accounts receivable 408,900 Raw Material Inventory(4500 20) 90,000 Finished goods inventory(16100 25.00 402,500 Total current assets 1,011,400 Equioment, gross 757,000 (618000+139000) (231,960) Acc. Dep(159000+24320*3) Equipment,net 525,040 Total assets 1,536,440 Accounts Payable 198,700 Short term Notes 12,840 5,140 Income tax Pavable Ttoal Current Liabilities 216,680 Long term notes payable 505000 Total Liabilties 721,680 344000 Common Stock Retaines earnings 470,760 (482050+7632-19000) 814,760 Total Equity Total Liabilties Equit 1,536,440