Question

Cash	$	99,000
Accounts receivable		500,250
Raw materials inventory		101,000
Finished goods inventory		402,500
Total current assets		1,102,750
Equipment, gross		618,000
Accumulated depreciation		(159,000	)
Equipment, net		459,000
Total assets	$	1,561,750
Liabilities and Equity
Accounts payable	$	209,700
Short-term notes payable		21,000
Total current liabilities		230,700
Long-term note payable		505,000
Total liabilities		735,700
Common stock		344,000
Retained earnings		482,050
Total stockholders’ equity		826,050
Total liabilities and equity	$	1,561,750

To prepare a master budget for April, May, and June of 2017, management gathers the following information:

1. Sales for March total 23,000 units. Forecasted sales in units are as follows: April, 23,000; May, 19,000; June, 18,800; and July, 23,000. Sales of 249,000 units are forecasted for the entire year. The product’s selling price is $29.00 per unit and its total product cost is $25.00 per unit.
2. 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 5,050 units, which complies with the policy. The expected June 30 ending raw materials inventory is 4,500 units. Raw materials cost $20 per unit. Each finished unit requires 0.50 units of raw materials.
3. 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 16,100 units, which complies with the policy.
4. Each finished unit requires 0.50 hours of direct labor at a rate of $24 per hour.
5. Overhead is allocated based on direct labor hours. The predetermined variable overhead rate is $3.60 per direct labor hour. Depreciation of $24,320 per month is treated as fixed factory overhead.
6. Sales representatives’ commissions are 10% of sales and are paid in the month of the sales. The sales manager’s monthly salary is $3,900.
7. Monthly general and administrative expenses include $10,000 administrative salaries and 0.8% monthly interest on the long-term note payable.
8. 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).
9. 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.
10. The minimum ending cash balance for all months is $110,000. 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.
11. Dividends of $19,000 are to be declared and paid in May.
12. 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.
13. Equipment purchases of $139,000 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.

Answer 1

1. Sales Budget

Particulars	April	May	June	Total
Sales units	23000	19000	18800	60800

2. Production Budget

Particulars	April	May	June	Total
Sales units	23000	19000	18800	60800
Add: Closing stock (70% of next month sales)	13300	12600	16100 (0.7*23000)	16100
Less:Opening Stock	(16100 )	(13300)	(12600)	(16100)
Units Produced	20200	18300	22300	60800

3. Raw Materials Budget

Particulars	April	May	June	Total
Raw Materials used in production	10100	9150	11150	30400
Add: Closing stock of Raw Materials (     )	4575	5575	4500	4500
Less:Opening Stock of Raw Materials	(5050)	(4575)	(5575)	(5050)
Raw Materials Purchased	9625	10150	10075	29850

4. Direct Labour Budget

Particulars	April	May	June	Total
Units Produced	20200	18300	22300	60800
Direct Labor Hours(0.5 hours/unit)	10100	9150	11150	30400
Direct Labor Cost($)( $ 24 per hour)	242400	219600	267600	729600