The management of Zigby Manufacturing prepared the following estimated balance s
ID: 2436814 • Letter: T
Question
The management of Zigby Manufacturing prepared the following estimated balance sheet for March 2017:
To prepare a master budget for April, May, and June of 2017, management gathers the following information:
Sales for March total 22,500 units. Forecasted sales in units are as follows: April, 22,500; May, 19,500; June, 21,700; and July, 22,500. Sales of 254,000 units are forecasted for the entire year. The product’s selling price is $22.50 per unit and its total product cost is $18.50 per unit.
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 5,025 units, which complies with the policy. The expected June 30 ending raw materials inventory is 5,400 units. Raw materials cost $20 per unit. Each finished unit requires 0.50 units of raw materials.
Company policy calls for a given month’s ending finished goods inventory to equal 80% of the next month’s expected unit sales. The March 31 finished goods inventory is 18,000 units, which complies with the policy.
Each finished unit requires 0.50 hours of direct labor at a rate of $10 per hour.
Overhead is allocated based on direct labor hours. The predetermined variable overhead rate is $4.10 per direct labor hour. Depreciation of $30,790 per month is treated as fixed factory overhead.
Sales representatives’ commissions are 6% of sales and are paid in the month of the sales. The sales manager’s monthly salary is $4,400.
Monthly general and administrative expenses include $26,000 administrative salaries and 0.5% monthly interest on the long-term note payable.
The company expects 30% of sales to be for cash and the remaining 70% on credit. Receivables are collected in full in the month following the sale (none are collected in the month of the sale).
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.
The minimum ending cash balance for all months is $54,000. 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.
Dividends of $24,000 are to be declared and paid in May.
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.
Equipment purchases of $144,000 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.):
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 for each month separately).
10. Budgeted balance sheet.
Estimated Balance Sheet
March 31, 2017 Assets Cash $ 54,000 Accounts receivable 354,375 Raw materials inventory 100,495 Finished goods inventory 333,000 Total current assets 841,870 Equipment, gross 628,000 Accumulated depreciation (164,000 ) Equipment, net 464,000 Total assets $ 1,305,870 Liabilities and Equity Accounts payable $ 212,195 Short-term notes payable 26,000 Total current liabilities 238,195 Long-term note payable 514,000 Total liabilities 752,195 Common stock 349,000 Retained earnings 204,675 Total stockholders’ equity 553,675 Total liabilities and equity $ 1,305,870
Explanation / Answer
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Sales budget Budgeted unit sales budgeted unit price budgeted sales dollar April 22500 22.5 506250 May 19500 22.5 438750 June 21700 22.5 4882502.
Production budget April May June Next month budgeted sales unit 19500 21700 22500 Ratio of inventory to future sales 80% 80% 80% Budgeted ending inventory 15600 17360 18000 Budgeted unit sales for month 22500 19500 21700 Required units of available production 38100 36860 39700 Beginning inventory -18000 -15600 -17360 Units to be produced 20100 21260 22340 3. Raw materials budget April May June Production budget(a) 20100 21260 22340 Material req. per unit(b) 0.5 0.5 0.5 Materials needed for production (c = a X b) 10050 10630 11170 Budget ending inventory(d) 5315 5585 5400 (50% X 10630) (50 % X 11170) given Total material requirement (e = c + d) 15365 16215 16570 beg. Inventory(f) 5025 5315 5585 given april closing may closing Materials to be purchased(g = e-f) 10340 10900 10985 Material price per unit(h) 20 20 20 budgeted raw material purchases(g X h) 206,800 218,000 219,7004.
direct labor budget April May June Budgeted production (a) 20100 21260 22340 Labor hr. required per unit(b) 0.5 0.5 0.5 Total labor hrs needed(c = a x b) 10050 10630 11170 Labor rate per hr (d) 10 10 10 Budgeted direct labor cost (c X d) 100,500 106,300 111,7005.
Factory overhead budget April May June Labor hours needed(a) 10050 10630 11170 Variable overhead rate per hr.(b) 4.1 4.1 4.1 Budgeted variable overhead(c = a x b) 41205 43583 45797 budgeted fixed overhead(d) 30790 30790 30790 Budgeted total overhead(c+d) 71995 74373 765876.
Selling expense budget April May June Budgeted sales(a) 506250 438750 488250 commision rate(b) 6% 6% 6% Sales commission(c = axb) 30375 26325 29295 sales manager salary(d) 4400 4400 4400 Total selling expense(c+d) 34775 30725 336957.
General & administrative expense budget April May June G&A salary 26000 26000 26000 Interes on long term note payable (514000 X .5%) 2570 2570 2570 Total budgeted G&A expense 28570 28570 28570Related Questions
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