The management of Zigby Manufacturing prepared the following estimated balance s
ID: 2552339 • 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 23,000 units. Forecasted sales in units are as follows: April, 23,000; May, 15,300; June, 20,400; and July, 23,000. Sales of 241,000 units are forecasted for the entire year. The product’s selling price is $23.60 per unit and its total product cost is $20.00 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 4,100 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 18,400 units, which complies with the policy.
Each finished unit requires 0.50 hours of direct labor at a rate of $15 per hour.
Overhead is allocated based on direct labor hours. The predetermined variable overhead rate is $2.80 per direct labor hour. Depreciation of $21,520 per month is treated as fixed factory overhead.
Sales representatives’ commissions are 10% of sales and are paid in the month of the sales. The sales manager’s monthly salary is $3,100.
Monthly general and administrative expenses include $13,000 administrative salaries and 0.5% monthly interest on the long-term note payable.
The company expects 20% of sales to be for cash and the remaining 80% 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 $41,000. 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 $11,000 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 $131,000 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 $ 50,000 Accounts receivable 434,240 Raw materials inventory 84,210 Finished goods inventory 368,000 Total current assets 936,450 Equipment, gross 602,000 Accumulated depreciation (151,000 ) Equipment, net 451,000 Total assets $ 1,387,450 Liabilities and Equity Accounts payable $ 196,610 Short-term notes payable 12,000 Total current liabilities 208,610 Long-term note payable 505,000 Total liabilities 713,610 Common stock 336,000 Retained earnings 337,840 Total stockholders’ equity 673,840 Total liabilities and equity $ 1,387,450
Explanation / Answer
Answer: Requirement 1 Sales Budget Unit Unit Price Total April 23000 $ 23.60 $ 542,800.00 (23000*23.60) May 15300 $ 23.60 $ 361,080.00 (15300*23.60) June 20400 $ 23.60 $ 481,440.00 (20400*23.60) Total 58700 $ 23.60 $ 1,385,320.00 Requirement 2 Production Budget April May June Budgeted Sales 23,000 15,300 20,400 23000 Add: Ending Inventory 80% of next month Sales 12,240 16,320 18,400 (23000*80%) Total needs 35,240 31,620 38,800 Less: Beginning inventory 18,400 12,240 16,320 Units required for production 16,840 19,380 22,480 Requirement 3 Raw materials Budget April May June a Budgeted Production 16,840 19,380 22,480 b Raw material per unit 0.50 0.50 0.50 c=a*b Required raw material 8,420 9,690 11,240 Add: Ending raw material inventory 50% of next onth Sales 4,845 5,620 4,100 Total needs 13,265 15,310 15,340 Less: Beginning raw material inventory 4,210 4,845 5,620 d Raw material requirement 9,055 10,465 9,720 e Rate per unit $ 20.00 $ 20.00 $ 20.00 d*e Total raw material in dollars $ 181,100.00 $ 209,300.00 $ 194,400.00 Requirement 4 Direct labour budget April May June a Budgeted Sales 23,000 15,300 20,400 b Required labour per unit 0.50 0.50 0.50 c=a*b Labour hours required 11,500 7,650 10,200 d Rate per Hour $ 15.00 $ 15.00 $ 15.00 e=c*d Total labour $ $ 172,500.00 $ 114,750.00 $ 153,000.00
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