The management of Zigby Manufacturing prepared the following estimated balance s
ID: 2485699 • Letter: T
Question
The management of Zigby Manufacturing prepared the following estimated balance sheet for March, 2015:
To prepare a master budget for April, May, and June of 2015, management gathers the following information.
Sales for March total 21,000 units. Forecasted sales in units are as follows: April, 21,000; May, 15,800; June, 21,600; July, 21,000. Sales of 256,000 units are forecasted for the entire year. The product’s selling price is $25.00 per unit and its total product cost is $20.10 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 4,210 units, which complies with the policy. The expected June 30 ending raw materials inventory is 5,600 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 16,800 units, which complies with the policy.
Each finished unit requires 0.50 hours of direct labor at a rate of $12 per hour.
Overhead is allocated based on direct labor hours. The predetermined variable overhead rate is $4.30 per direct labor hour. Depreciation of $37,960 per month is treated as fixed factory overhead.
Sales representatives’ commissions are 7% of sales and are paid in the month of the sales. The sales manager’s monthly salary is $4,600.
Monthly general and administrative expenses include $28,000 administrative salaries and 0.5% monthly interest on the long-term note payable.
The company expects 35% of sales to be for cash and the remaining 65% on credit. Receivables are collected in full in the month following the sale (none is 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 $56,000. 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.
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.
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:
The management of Zigby Manufacturing prepared the following estimated balance sheet for March, 2015:
Explanation / Answer
1) Sales Budget Month April May June Total forecasted Sale units 21000 15800 21600 58400 Selling price = 25 per unit 525000 395000 540000 1460000 2) Production Budget Month April May June July forecasted Sale units 21000 15800 21600 21000 Add: Ending inventory of finshed goods 12640 17280 16800 = 80 % of next month sales Required units 33640 33080 38400 Less: Beginning Inventory of finished goods 16800 12640 17280 Units to be produced 16840 20440 21120 beginning inventory for april has been given in question 3) Raw material purchase budget Month April May June Units to be produced 16840 20440 21120 Raw material required = 0.50 units per finished unit 8420 10220 10560 Add: Ending Raw material inventory 5110 5280 5600 Required units 13530 15500 16160 Less: Beginning Inventory of raw material 4210 5110 5280 Raw material Units to be purchased 9320 10390 10880 beginning inventory for april and ending inventory for june has been given in question 4) Raw material cost budget Month April May June Raw material Units to be purchased 9320 10390 10880 purchase cost = 20 per unit 186400 207800 217600 Amount paid on raw material purchased 189800 186400 207800 = 1 month credit Accounts payable as on end of march will be paid in april
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