Question

The management of Zigby Manufacturing prepared the following estimated balance sheet for March, 2015:

ZIGBY MANUFACTURING
Estimated Balance Sheet
March 31, 2015
Assets        
Cash   $   30,000   
Accounts receivable      464,100   
Raw materials inventory      98,505   
Finished goods inventory      450,840   
   
Total current assets      1,043,445   
Equipment, gross      620,000   
Accumulated depreciation      (160,000)
   
Equipment, net      460,000   
   
Total assets   $   1,503,445   
   
Liabilities and Equity        
Accounts payable      206,405   
Short-term notes payable      22,000   
   
Total current liabilities   $   228,405   
Long-term note payable      510,000   
     
Total liabilities      738,405   
Common stock      345,000   
Retained earnings      420,040   
   
Total stockholders’ equity      765,040   
   
Total liabilities and equity   $   1,503,445   

To prepare a master budget for April, May, and June of 2015, management gathers the following information.

  

a.  
Sales for March total 22,100 units. Forecasted sales in units are as follows: April, 22,100; May, 19,100; June, 19,500; July, 22,100. Sales of 250,000 units are forecasted for the entire year. The product’s selling price is $30.00 per unit and its total product cost is $25.50 per unit.

b.  
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 4,925 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.

c.  
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 17,680 units, which complies with the policy.

d.  
Each finished unit requires 0.50 hours of direct labor at a rate of $25 per hour.

e.  
Overhead is allocated based on direct labor hours. The predetermined variable overhead rate is $3.50 per direct labor hour. Depreciation of $25,290 per month is treated as fixed factory overhead.

f.  
Sales representatives’ commissions are 6% of sales and are paid in the month of the sales. The sales manager’s monthly salary is $4,000.

g.  
Monthly general and administrative expenses include $22,000 administrative salaries and 0.9% monthly interest on the long-term note payable.

h.  
The company expects 30% of sales to be for cash and the remaining 70% on credit. Receivables are collected in full in the month following the sale (none is collected in the month of the sale).

i.  
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.

J.  
The minimum ending cash balance for all months is $70,000. 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.

K.   Dividends of $20,000 are to be declared and paid in May.
l.  
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.

m.   Equipment purchases of $140,000 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:

a. ZIGBY MANUFACTURING

SALES

APRIL, MAY, JUNE 2015

a. sales

	Budgeted Unit Sales	Budgeted Unit Price	Budgeted Total Dollars
April 2015
May 2015
June 2015
Totals for the quarter

b. ZIGBY MANUFACTURING

PRODUCTION BUDGET

April, May, and June 2015

	April	May	June
Next month's budgeted sales (units)	19,100	19,500	22,100
Ratio of inventory to future sales	80%	80%	80%
Required units of available production
Units to be produced

c. raw materials budget

ZIGBY MANUFACTURING

Raw Materials Budgets

April, May, and June 2015

	April	May	June
Production budgets (units)
Materials needed for production
Total materials requirements (units)
Materials to purchased
Material price per unit
Total cost of direct material purchases

d. Direct Labor Budget April, May, June 2015

	April	May	June	Total
Budgeted production (units)
Total labor hours needed
Labor dollars

e. Factory overhead Budget

	April	May	June	Total
Labor hours needed
Budgeted variable overhead
Budgeted fixed overhead

Budgeted total over head:

f. Selling expense budget

	April	May	June
Budgeted Sales
Sales commissions

Answer 1

a.

Sales Budget
	Budgeted Unit Sales	Budgeted Unit Price	Budgeted Total Dollars
April	22,100	$ 30	$ 663,000
May	19,100	30	573,000
June	19,500	30	585,000
Total	60,700	30	1,821,000

b.

Production Budget
	April	May	June
Next month budgeted sales	19,100	19,500	22,100
Ratio of Inventory to future sales	80 %	80 %	80 %
Desired ending inventory	15,280	15,600	17,680
Add: Budgeted sales of current month	22,100	19,100	19,500
Total inventory needed	37,380	34,700	37,180
Less: Beginning Inventory	17,680	15,280	15,600
Units to be produced	19,700	19,420	21,580

c.

Raw Materials Budget
	April	May	June
Budgeted Production in Units	19,700	19,420	21,580
Materials Needed for Production	9,850	9,710	10,790
Add: Desired Ending Inventory	4,855	5,395	4,500
Total Material Requireents	14,705	15,105	15,290
Less: Beginning Inventory	4,925	4,855	5,395
Materials to be Purchased	9,780	10,250	9,895
Material cost per unit	$ 20	$ 20	$ 20
Total cost of direct materials purchases	$ 195,600	$ 205,000	$197,900

d.

Direct Labor Budget
	April	May	June
Budgeted production in units	19,700	19,420	21,580
Total labor hours needed	9,850	9,710	10,790
Labor hour rate	$ 25	$ 25	$ 25
Labor Dollars	$ 246,250	$ 242,750	$ 269,750