c q PART 3 Objective The objective of Part 3 is to reinforce your understanding of the preparation of Operating and Financial Budgets Chris has become concemed about the profitability and cash needs for the business as it grows. You have been ere budgets for the first quarter of 2020: the three months of January, February and March and the quarter in sotal. Chris would like to begin the process with a production budget and re materials. Since the first quarter of the year is the sowest in terns of sales, Cheis has asked you to also cash budget for each month and the quarter in to prepare a budgeted quarterly income tocal in order to ensure he has adequate cash. He would also like you e satement. The following sales-related information is provided 2020 Unit Sales: Pairs of lip 1 8,000 Additional information for your budget preparation is as follows a) Given the sales mix expected for 2020, the weighted average sales price per pair of flip-flops for the budget period will be $12.50 b) All sales are on account (credit) and are collected 30% in the month of sale and 70% in the month following the month of sale. Accounts receivable from December 2019 credit sales are expected to be $145,600 on 12/31/19 c) Fashion Forward Flip-flops has a policy that each month's ending inventory of finished goods (pairs of flip-nops) should be l5% ofthe following month's sales in units. Ending inventory on December 31, 2019 followed this patern d) Ending inventory of rubber pellets (direct materials) should be 20% of the next month's production needs in pounds. On average, each pair of flip flops will take 0.40 pounds of rubber pellets. The expected price for material is $3.50 per pound. The firm's December 2019 ending inventory is expected to be 20% of January's production needs in pounds. Considering the April production schedule, the desired ending inventory of materials in March is 1,200 pounds. Because the firm has redesigned their sandals to eliminate the bottom sole, no rubber sheets will be purchased during the first quarter of 2020 e) Materials purchases are paid in the month following the month of purchase. Accounts Payable for purchases on 12/31/19 balance sheet is expected to be $22,600 Each unit produced will take 0.08 DLH. The estimated wage rate for 2020 is $20.00 per hour. Direct 0 labor costs are paid 80% in the month in which the work is performed and 20% in the following month. Amounts owed (wages payable) for direct labor were expected to be $5,000 on the 12/31/19 balance sheet. This amount will be paid in January 8) Manufacturing overhead (MOH) for 2020 is budgeted to be $431,250, based on 18,750 DLH, resulting in an overhead rate of $23.00 per direct labor hour. Depreciation on the plant (included in total MOH) is $240,006 per year. The remaining fixed MOH, exclusive of depreciation, is paid in the month incurred and is $153,744 per year or $12,812 per month. The budgeted MOH rate for fixed overhead (including depreciation) is $21.00 per DI.H. Variable overhead for the plant is budgeted at $2.00 per direct labor hour and is paid in the month incurred In 2020 Chris's sales staff will be paid entirely on commission at a rate of 4% of sales. All commissions are paid in the month of the sale h) ) Administrative salaries are paid in the month incurred, and are $624,000 per year or $52,000 per month. i) Chris will incur a $14,000 cash expenditure in January to provide training for his sales staff. k) Chris plans to buy a series of ads in several magazines that will cost $13,000 per month. The ads will begin to run in February and at that time he will pay cash for both the January and February ads. D Depreciation on the fixed assets used for selling and administration will be $5,000 per month. Rent on administrative space will be $4,000 per month. Chris will prepay the first six month's rent in January. m) Chris will pay a cash dividend of $4,000 in January n) Chris intends to purchase costing $178,000 for packaging nip-fops in March. The equipment ni use of the equipment will not begin until April, so no depreciation will be equipment will be installed in March but the on the new equipment in the first quarter of the year o) Fashion Forward F lip-flops has a line of credit with a local bank and a policy that the ending cash balance at least $10,000. The cash balance on December 31, 2019 was expected to be $10,800. inerements of $1,000 at the beginning of the month. The fiem pays The company accumulated interest minimum balance to can n est or 1% per month at the end of each quarter and will use any excess cash hove the pay down on the line of credit balance at the end of the quarter p) The tax rate for Fashion Forward Flip-flops is 25% of income before tax (operating income less interest). A tax payment of $17,000 will be made in January pare your answers to the following requirements in Packet 2 Hint: See the formats in problem 9-57 A and adjust as needed.i March and for the quarter in total Prepare a production budget to calculate production in units for the months of January, Pebray, and Prepare a direct materials budget for pounds of material for January, February, and March and for the n e ebudget showing units and dollars and a cash collections budget for the meeths of January, qurter in total. Multiply pounds by price at the bottom of the budget to get the dollar valoe of purchases Prepare a sales Prepare a labor budget in hours and dollars and a cash payments for labor budget for the months of snary Using the information from parts 3. through 5. and the additional information presented above, prepare a February, and March and for the quarter in total. combined cash budget for the months of January, February, and March and for the quarter in total. Any cash flows that are not summarized in requirements 3. through 5. should be shown as separate l 6. Prepare a schedule calculating the budgeted manufacturing cost per unit using the information provided above. Use the variable and fixed manufacturing overhead rates to cakeulate overhead cost per unit. Remember line items in the budget that the rates are expressed per DLH, not per unit 7.Prepare a budgeted income statement for the first quarter of 2020. Compute cost of goods sold using the budgeted manufacturing cost per unit calculated in 7. above. You do not need to do a separate schedule of cost of goods manufactured and sold 8. Calculate the following amounts that would appear on the 3/31/20 budgeted balance sheet Accounts Receivable Accounts Payable for Material and Labor Direct Materials Inventory in Dollars Cash Fashion Forward Flip-flops Production Budget-Pairs of fnip-Nops For the Quarter Ended March 31, 2020 Quarter March February 2. Fashion Forward Flip-flops Direet Materials Budget For the Quarter Ended March 31, 2020 March Quarter January February 3. Fashion Forward Flip-flops Sales Budget in Units and Dollars For the Quarter Ended March 31, 2020 January February MarchQuarter January 12 Fashion Forward Flip-fleps Cash Collections Budget For the Quarter Ended March 31, 2020 anuary February March Fashion Forward Flip-lops Direct Labor Budget For the Quarter Ended March 31, 2020 Quarter March February January Fashion Forward Flip-flops Cash Payments for Direct Labor Budget For the Quarter Ended March 31, 2020 March Quarter February January 13 Fashion Forward Flip-flops Combined Cash Budget For the Quarter Ended March 31,2020 March February Quarter anuary 14 Fashion Forward Flip flops Budgeted Manufacturing Cost per Unit For the Quarter Ended March 31, 2020 Cost Per Uni Fashion Forward Flip-nops Budgeted Income Statement For the Quarter Ended March 31. 2020 8. Balance sheet values 3/31/20 Accounts Receivable Accounts Payable (material and labor) Direct Materials Inventory (dollars) Cash 15