Preparation of a complete master budget
The management of Zigby Manufacturing prepared the followingestimated balance sheet for March, 2015:
ZIGBY MANUFACTURING | | |
Estimated Balance Sheet | | |
March 31, 2015 | | |
ASSETS | | |
Cash.......................................................... | | $ 40,000 |
Accountsreceivable................................ | | 342,248 |
Raw materialsinventory.......................... Finished goodsinventory........................ | | 98,500 325,540 |
Total currentassets................................. | | 806,288 |
Equipment................................................ | $600,000 | |
Less accumulated depreciation.............. | 150,000 | 450,000 |
Totalassets.............................................. | | $1,256,288 |
| | |
LIABILITIES AND EQUITY | | |
Accountspayable.................................... | | $ 200,500 |
Short-term notespayable.................................... | | 12,000 |
Taxespayable.......................................... | | 0 |
Total currentliabilities............................. | | 212.500 |
Long-term notepayable........................... Commonstock......................................... | $335,000 | 500,000 |
Retainedearnings.................................... | 208,788 | |
Total stockholders’equity....................... | | 543,788 |
Total liabilities andequity........................ | | $1,256,288 |
| | |
To prepare a master budget for April, May, and June of 2015,management gathers the following information:
- Sales for March total 20,500 units. Forecasted sales inunits are as follows: April, 20,500; May, 19,500; June, 20,000; andJuly, 20,500. Sales of 240,000 units are forecasted for the entireyear. The product's selling price is $23.85 per unit and its totalproduct cost is $19.85 per unit
- Company policy calls for a given month's ending rawmaterials inventory to equal 50% of the next month's materialsrequirements. The March 31 raw materials inventory is 4,925 units,which complies with the policy. The expected June 30 ending rawmaterials inventory is 4,000 units. Raw materials cost $20 perunit. Each finished unit requires 0.50 units of rawmaterials.
- Company policy calls for a given month's endingfinished goods inventory to equal 80% of the next month's expectedunit sales. The March 31 finished goods inventory is 16,400 units,which complies with the policy.
- Each finished unit requires 0.50 hours of direct laborat a rate of $15 per hour.
- Overhead is allocated based on direct labor hours. Thepredetermined variable overhead rate is $2.70 per direct laborhour. Depreciation of $20,000 per month is treated as fixed factoryoverhead.
- Sales representatives' commissions are 8% of sales andare paid in the month of the sales. The sales manager's monthlysalary is $3,000.
- Monthly general and administrative expenses include$12,000 administrative salaries and 0.9% monthly interest on thelong-term note payable.
- The company expects 30% of sales to be for cash and theremaining 70% on credit. Receivables are collected in full in themonth following the sale (none is collected in the month of thesale).
- All raw materials purchases are on credit, and nopayables arise from any other transactions. One month's rawmaterials purchases are fully paid in the next month.
- The minimum ending cash balance for all months is$40,000. If necessary, the company borrows enough cash using ashort-term note to reach the minimum. Short-term notes require aninterest payment of 1% at each month-end (before any repayment). Ifthe ending cash balance exceeds the minimum, the excess will beapplied to repaying the short-term notes payablebalance.
- Dividends of $10,000 are to be declared and paid inMay.
- No cash payments for income taxes are to be made duringthe second calendar quarter. Income tax will be assessed at 35% inthe quarter and paid in the third calendar quarter.
- Equipment purchases of $130,000 are budgeted for thelast day of June.
Required
Prepare the following budgets and other financial information asrequired. All budgets and other financial information should beprepared for the second calendar quarter, except as otherwise notedbelow. Round calculations up to the nearest whole dollar, exceptfor the amount of cash sales, which should be rounded down to thenearest whole dollar.
- General and administrative expensebudget.
- Cash budget.
Check??
(2) Units to produce: April, 19,700; May, 19,900
(3) Cost of raw materials purchases, April, $198,000
(5) Total overhead cost, May, $46,865
(8) Ending cash balance: April, $83,346; May, $124,295
(10) Budgeted total assets, June 30: $1,299,440
