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home / study / business / accounting / questions and answers / information for 2016: 1. sales forecast: january: ... Question Information for 2016: 1. Sales forecast: January: 5,100 units; February: 6,900 units; March: 7,300 units; April: 7,500 units. The unit sales price is $49. All sales are on credit and collections are 30% in the month of sale and 70% the following month. Accounts receivable as of December 31, 2015 is $18,000 and this amount is expected to be collected in January 2016. 2. End of month inventory must equal 30% of next month’s sales. The inventory at the end of December 2015 was 1,530 units. 3. The following are the expected costs for direct materials, direct labor and manufacturing overhead: DM DL Overhead January $12/unit $15/unit $7,500 + $2.60 per unit produced February $12/unit $15/unit $7,500 + $2.60 per unit produced March $12/unit $15/unit $7,500 + $2.60 per unit produced A. Direct materials are paid 40% in the month incurred and 60% in the following month. Account payable for materials as of December 31, 2015 is $5,100; this amount will be paid in January 2016. B. Direct labor is paid in the month incurred. C. Overhead costs are paid in the month incurred. Fixed overhead includes depreciation of $5,500 per month. 4. Selling costs are sales commissions: $2.10 per unit sold; shipping costs: $0.50 per unit sold. Administrative costs per month are: salaries: $15,000; rent: $2,000; depreciation: $1,900. All costs are paid in month incurred. 5. The company plans to buy equipment costing $19,000 in January and to pay dividends of $35,000 in March 6. The cash balance as of December 31, 2015 is $25,000. The company requires a minimum cash balance of $2,000. The company has a revolving credit with US Bank to borrow in increments of $1,000 at the beginning of each month at interest of 12% annual rate. The company may borrow any amount at the beginning of any month and repays its loans, or any parts of its loans, at the end of any month. Interest payments are due on any principle at the time it is repaid (the amount repaid does not have to be in increments of $1,000). For simplicity, assume that interest is not compounded. As of December 31, 2015 the company has no outstanding loans. Required: Based on the information given, prepare the following budgets for each month of the first quarter of 2016 and the quarter totals: Sales Budget, including a schedule of expected cash collections; Production Budget (in units); Direct materials budget, including schedule of expected cash disbursements; Direct labor budget; Manufacturing Overhead Budget; Selling and Administrative Expenses Budget; Cash Budget.
Explanation / Answer
Sales budget including collection of cash from sales in the quarter is as under: January February March April Sales in units 5,100 6,900 7,300 7,500 Sales in dollars(@ $49 per unit) $ 249,900 $ 338,100 $ 357,700 $ 367,500 Collection of sales 30% in the month of sale $ 74,970 $ 101,430 $ 107,310 $ 110,250 70% in the following month $ 18,000 $ 174,930 $ 236,670 $ 250,390 Total cash collected $ 92,970 $ 276,360 $ 343,980 $ 360,640 Total cash collected in the quarter $ 713,310 January February March April Sales in units 5,100 6,900 7,300 7,500 Ending Inventory(30% of next month sale) 2,070 2,190 2,250 Opening Inventory 1530 2,070 $ 2,190 $ 2,250 Production budget: Calculation of purchases in the month of Jan., Feb, and Mar. are as under: January February March April Sales 5,100 6,900 7,300 7,500 Ending Inventory 2,070 2,190 2,250 Less: Beginning Inventory -1530 -2070 -2190 -2250 Produced 5,640 7,020 7,360 5,250 Cost of material (@ $12) $ 67,680 $ 84,240 $ 88,320 Direct material cost per unit $ 12.00 Direct labor cost per unit $ 15.00 Variable oh cost per unit $ 2.60 Fixed overhead $ 7,500.00 Direct material Budget and disbursement of cash: Direct material are paid 40% in the same month of purchase and 60% in the following month. January February March Cost of purchases $ 67,680 $ 84,240 $ 88,320 Payment for purchases @40% in same month $ 27,072 $ 33,696 $ 35,328 next month 60% $ 5,100 $ 16,243.20 $ 20,217.60 Total payment $ 32,172 $ 49,939 $ 55,546 Direct labor budget: January February March No. of units produced 5,640 7,020 7,360 Direct labor @ $15 per unit $ 84,600 $ 105,300 $ 110,400 Manufacturing Overhead Budget: January February March No. of units produced 5,640 7,020 7,360 Variable manufacturing overhead ($2.60 per unit) $ 14,664 $ 18,252 $ 19,136 Fixed manufacturing overhead $ 7,500 $ 7,500 $ 7,500 Manufacturing Overhead: $ 22,164 $ 25,752 $ 26,636 Less: Depreciation $ (5,500) $ (5,500) $ (5,500) Cash paid for manufacturing exp. $ 16,664 $ 20,252 $ 21,136 Selling and administrative expenses Budget: January February March sales in units 5,100 6,900 7,300 Sales commission @ $2.10 per units sold $ 10,710 $ 14,490 $ 15,330 Shipping cost @0.50 per units sold $ 2,550 $ 3,450 $ 3,650 Administrative cost: Salaries $ 15,000 $ 15,000 $ 15,000 Rent $ 2,000 $ 2,000 $ 2,000 depreciation $ 1,900 $ 1,900 $ 1,900 Selling and administrative cost $ 32,160 $ 36,840 $ 37,880 Less: Depreciation $ (1,900) $ (1,900) $ (1,900) Cash paid for selling and administrative cost $ 30,260 $ 34,940 $ 35,980 Cash Budget: January February March Total Cash collected from customers $ 92,970 $ 276,360 $ 343,980 $ 713,310 Borrowed from bank $ 67,000 Less: Cash paid for purchases $ (32,172) $ (49,939) $ (55,546) $ (137,657) Cash paid for direct labor $ (84,600) $ (105,300) $ (110,400) $ (300,300) Cash paid for manufacturing overhead $ (16,664) $ (20,252) $ (21,136) $ (58,052) Cash paid for selling and administrative exp. $ (30,260) $ (34,940) $ (35,980) $ (101,180) Payment for Equipment purchase $ (19,000) Payment of dividend $ (35,000) $ (35,000) Repaid principle $ (64,905) $ (2,095) $ (67,000) Repayment of interest @ 1% for 2 months $ (1,298) $ (63) $ (1,361) Cash available during the month $ (22,726) $ (274) $ 83,760 $ 81,121 Opening balance $25,000 $ 2,274.00 $ 2,000 Ending balance $ 2,274.00 $ 2,000 $ 85,760 Jan. Feb. Borrowed from bank: Opening balance $ 25,000 $ 2,274 Cash collected $92,970 $ 276,360 Less: Cash disbursed $ (182,696) $ (210,431) Less: Minimum cash bal, required $ (2,000) $ (2,000) Borrowed from bank: ($66,726) Borrowed increments of $1,000 $ 67,000.00 Available cash for repayment of loan and interest: $ 66,203 Repayment of loan $ (64,905) Repayment of interest on loan of $65,547 @12% P.a for 2 month $ (1,298) Interest for 2 months are due (for january and February) as loan has been taken in the beginning of the month and paid at the end of the next month that is February. $66,203/(1+0.02)=$64,905 Interest on principal amount of $64,905=[($64,905*12%)/12]*2 =$1298 In the month of March the cash available for repayment of loan was $85,918. Principal amount of loan remained for repayment($67,000-$64,905)=$2,095 Interest on $2,095 @ 12% pa for 3 months(Jan., Feb., and Mar.)=[($2,095*12%)/12]*3 =$62.85 =$63
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