Problem 20-4A Manufacturing: Preparation of a complete masterbudget LO P1, P2, P3

The management of Zigby Manufacturing prepared the followingestimated balance sheet for March 2017:

ZIGBY MANUFACTURING Estimated Balance Sheet March 31, 2017
Assets
Cash	$	80,000
Accounts receivable		364,000
Raw materials inventory		96,000
Finished goods inventory		364,800
Total current assets		904,800
Equipment, gross		610,000
Accumulated depreciation		(155,000	)
Equipment, net		455,000
Total assets	$	1,359,800
Liabilities and Equity
Accounts payable	$	195,500
Short-term notes payable		17,000
Total current liabilities		212,500
Long-term note payable		510,000
Total liabilities		722,500
Common stock		340,000
Retained earnings		297,300
Total stockholders’ equity		637,300
Total liabilities and equity	$	1,359,800

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

1. Sales for March total 20,000 units. Forecasted sales in unitsare as follows: April, 20,000; May, 19,000; June, 19,500; and July,20,000. Sales of 245,000 units are forecasted for the entire year.The product’s selling price is $26.00 per unit and its totalproduct cost is $22.80 per unit.
2. Company policy calls for a given month’s ending raw materialsinventory to equal 50% of the next month’s materials requirements.The March 31 raw materials inventory is 4,800 units, which complieswith the policy. The expected June 30 ending raw materialsinventory is 4,500 units. Raw materials cost $20 per unit. Eachfinished unit requires 0.50 units of raw materials.
3. Company policy calls for a given month’s ending finished goodsinventory to equal 80% of the next month’s expected unit sales. TheMarch 31 finished goods inventory is 16,000 units, which complieswith the policy.
4. Each finished unit requires 0.50 hours of direct labor at arate of $20 per hour.
5. Overhead is allocated based on direct labor hours. Thepredetermined variable overhead rate is $3.20 per direct laborhour. Depreciation of $23,400 per month is treated as fixed factoryoverhead.
6. Sales representatives’ commissions are 6% of sales and are paidin the month of the sales. The sales manager’s monthly salary is$3,500.
7. Monthly general and administrative expenses include $17,000administrative salaries and 0.9% monthly interest on the long-termnote payable.
8. 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 are collected in the month of thesale).
9. All raw materials purchases are on credit, and no payablesarise from any other transactions. One month’s raw materialspurchases are fully paid in the next month.
10. The minimum ending cash balance for all months is $45,000. Ifnecessary, the company borrows enough cash using a short-term noteto reach the minimum. Short-term notes require an interest paymentof 1% at each month-end (before any repayment). If the ending cashbalance exceeds the minimum, the excess will be applied to repayingthe short-term notes payable balance.
11. Dividends of $15,000 are to be declared and paid in May.
12. No cash payments for income taxes are to be made during thesecond calendar quarter. Income tax will be assessed at 35% in thequarter and paid in the third calendar quarter.
13. Equipment purchases of $135,000 are budgeted for the last dayof 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.):

1. Sales budget.
2. Production budget.
3. Raw materials budget.
4. Direct labor budget.
5. Factory overhead budget.
6. Selling expense budget.
7. General and administrative expense budget.
8. Cash budget.
9. Budgeted income statement for the entire second quarter (not foreach month separately).
10. Budgeted balance sheet.