The management of Zigby Manufacturing prepared the following estimated balance s
ID: 2573643 • 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 22,800 units. Forecasted sales in units are as follows: April, 22,800; May, 16,000; June, 23,000; July, 22,800. Sales of 255,000 units are forecasted for the entire year. The product’s selling price is $24.00 per unit and its total product cost is $19.30 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 4,510 units, which complies with the policy. The expected June 30 ending raw materials inventory is 5,500 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 70% of the next month’s expected unit sales. The March 31 finished goods inventory is 15,960 units, which complies with the policy.
Each finished unit requires 0.50 hours of direct labor at a rate of $11 per hour.
Overhead is allocated based on direct labor hours. The predetermined variable overhead rate is $4.20 per direct labor hour. Depreciation of $35,020 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 $4,500.
Monthly general and administrative expenses include $27,000 administrative salaries and 0.6% 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 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 $55,000. 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:
Sales budget.
Production budget.
Raw materials budget.
Direct labor budget.
Factory overhead budget.
The management of Zigby Manufacturing prepared the following estimated balance sheet for March, 2015:
Explanation / Answer
Zigby Manufacturing
Sales Budget
April, May and june 2015
Budgeted unit sales
Budgeted unit price
Budgeted Total dollars
Apr-15
22800
24
547200
May-15
16000
24
384000
Jun-15
23000
24
552000
61800
1483200
Zigby Manufacturing
Production Budget
April, May and june 2015
April
May
June
Total
Next Month's Budgeted sales(units)
16000
23000
22800
Ratio of future sales
70%
70%
70%
Budgeted ending inventory (units)
11200
16100
15960
Budgeted unit sales for month
22800
16000
23000
Required units of available production
34000
32100
38960
Beginning inventory (units)
-15960
-11200
-16100
Units to be produced
18040
20900
22860
61800
Zigby Manufacturing
Raw Material Budget
April, May and june 2015
April
May
June
Total
Production Budget (units)
18040
20900
22860
Materials requirements per unit
0.5
0.5
0.5
Materials needed for production
9020
10450
11430
Budgetory ending inventory
5225
5715
5500
Total material requirements(units)
14245
16165
16930
Beginning inventory
-4510
-5225
-5715
Materials to be purchased
9735
10940
11215
31890
Material price per unit
$20
20
20
20
Total cost of direct material purchases
194700
218800
224300
637800
Zigby Manufacturing
Direct Labor Budget
April, May and june 2015
Budgeted production in units
18040
20900
22860
Labor requirement per unit
0.5
0.5
0.5
Total labour hours needed
9020
10450
11430
30900
Labor rate per hour
11
11
11
11
99220
114950
125730
339900
Zigby Manufacturing
Factory overhead Budget
April, May and june 2015
April
May
June
Total
Labor overhead needed
9020
10450
11430
Variable factory overhead rate
4.2
4.2
4.2
Budgeted variable overhead
37884
43890
48006
Budgeted fixed overhead
35020
35020
35020
Budgeted total overhead
2864
8870
12986
24720
Zigby Manufacturing
Sales Budget
April, May and june 2015
Budgeted unit sales
Budgeted unit price
Budgeted Total dollars
Apr-15
22800
24
547200
May-15
16000
24
384000
Jun-15
23000
24
552000
61800
1483200
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