The management of Zigby Manufacturing prepared the following estimated balance s
ID: 2577872 • 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 25,000 units. Forecasted sales in units are as follows: April, 25,000; May, 17,000; June, 22,400; and July, 25,000. Sales of 259,000 units are forecasted for the entire year. The product’s selling price is $26.00 per unit and its total product cost is $21.65 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 4,650 units, which complies with the policy. The expected June 30 ending raw materials inventory is 5,900 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 20,000 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 $4.60 per direct labor hour. Depreciation of $39,710 per month is treated as fixed factory overhead.
Sales representatives’ commissions are 5% of sales and are paid in the month of the sales. The sales manager’s monthly salary is $4,900.
Monthly general and administrative expenses include $34,000 administrative salaries and 0.8% monthly interest on the long-term note payable.
The company expects 25% of sales to be for cash and the remaining 75% 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 $98,000. 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 $29,000 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 $149,000 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.
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ZIGBY MANUFACTURINGEstimated Balance Sheet
March 31, 2017 Assets Cash $ 59,000 Accounts receivable 487,500 Raw materials inventory 93,010 Finished goods inventory 433,000 Total current assets 1,072,510 Equipment, gross 638,000 Accumulated depreciation (169,000 ) Equipment, net 469,000 Total assets $ 1,541,510 Liabilities and Equity Accounts payable $ 215,410 Short-term notes payable 31,000 Total current liabilities 246,410 Long-term note payable 530,000 Total liabilities 776,410 Common stock 354,000 Retained earnings 411,100 Total stockholders’ equity 765,100 Total liabilities and equity $ 1,541,510
Explanation / Answer
7 ZIGBY MANUFACTURING General And Administrative Expense Budgets April, May, and June 2017 April May June Total Interest on long-term note 4240 4240 4240 12720 Salaries 34000 34000 34000 102000 Total budgeted G&A expenses 38240 38240 38240 114720 8 Total cash receipts from customers April May June Current month's cash sales 162500 110500 145600 Collections of receivables 487500 487500 331500 Total cash receipts 650000 598000 477100 ZIGBY MANUFACTURING Cash Budget April, May, and June 2017 April May June Beginning cash balance 59000 204360 299584 Cash receipts from customers 650000 598000 477100 Total cash available 709000 802360 776684 Cash payments for: Sales salaries 4900 4900 4900 Direct labor 139500 159900 183600 Dividends 0 29000 0 General & administrative salaries 34000 34000 34000 Loan interest 310 0 0 Long-term note interest 4240 4240 4240 Purchases of equipment 0 0 149000 Raw materials 215410 199600 229000 Variable overhead 42780 49036 56304 Sales commissions 32500 22100 29120 Total cash payments 473640 502776 690164 Preliminary cash balance 235360 299584 86520 Additional loan (loan repayment) 31000 0 11480 Ending cash balance 204360 299584 98000 Loan balance April May June Loan balance - Beginning of month 31000 0 0 Additional loan (loan repayment) -31000 0 11480 Loan balance - End of month 0 0 11480 9 ZIGBY MANUFACTURING Budgeted Income Statement For Three Months Ended June 30, 2017 Sales 1674400 Cost of goods sold (64400 X $21.65) 1394260 Gross profit 280140 Operating expenses Depreciation expense ($39710 x 3) Selling expenses 98420 General and administrative expenses 114720 Bank loan interest expense 310 Total operating expenses 213450 Net operating income 66690 Income taxes expense @ 40% 26676 Net income 40014 10 ZIGBY MANUFACTURING Budgeted Balance Sheet June 30, 2017 Assets Cash 98000 Accounts receivable 436800 Raw materials inventory (5900 x $20) 118000 Finished goods inventory (20000 x $21.65) 433000 Total current assets 1085800 Equipment, gross(638000 + 149000) 787000 Accumulated depreciation [169000 + (39710 x 3) -288130 Equipment, net 498870 Total assets 1584670 Liabilities and Equity Accounts payable 240400 Short-term notes payable 11480 Income taxes payable 26676 Total current liabilities 278556 Long-term note payable 530000 Total liabilities 808556 Common stock 354000 Retained earnings (411100 + 40014 - 29000) 422114 Total stockholders' equity 776114 Total liabilities and equity 1584670
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