Question

The management of Zigby Manufacturing prepared the following estimated balance sheet for March 2017 ZIGBY MANUFACTURING Estimated Balance Sheet March 31, 2017 Assets Cash $ 53,000 Accounts receivable 392,400 Raw materials inventory 96,600 Finished goods 313, 920 inventory Total current assets 855,920 Equipment, gross 626,000 Accumulated depreciation (163,000) Equipment, net 463.000 Total assets $1,318.920 Liabilities and Equity Accounts payable $ 204,800 Short-term notes 25,000 payable Total current liabilities 229,800 Long-term note payable – 520,000 Total liabilities 749,800 Common stock 348,000 Retained earnings 221, 120 Total stockholders' 569,120 equity Total liabilities and $1,318,920 equity To prepare a master budget for April, May, and June of 2017, management gathers the following information: a. Sales for March total 21,800 units. Forecasted sales in units are as follows: April, 21,800; May, 18,700: June, 21,000; and July, 21,800. Sales of 253,000 units are forecasted for the entire year. The product's selling price is $22.50 per unit and its total product cost is $18.00 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 4,830 units, which complies with the policy. The expected June 30 ending raw materials inventory is 5,300 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 17,440 units, which complies with the policy. d. Each finished unit requires 0.50 hours of direct labor at a rate of $9 per hour. e. Overhead is allocated based on direct labor hours. The predetermined variable overhead rate is $4.00 per direct labor hour. Depreciation of $30,750 per month is treated as fixed factory overhead. f. Sales representatives' commissions are 8% of sales and are paid in the month of the sales. The sales manager's monthly salary is $4,300. g. Monthly general and administrative expenses include $25,000 administrative salaries and 0.7% monthly interest on the long-term note payable. h. 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). 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 $53,000. 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 $23,000 are to be declared and paid in May. I. 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 $143.000 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

Solution 1:

ZIGBY MANUFACTURING
Sales Budget
April, May, and June 2017
	Budgeted Unit Sales	Budgeted Unit Price	Budgeted Sales Dollars
Apr-17	21800	$22.50	$490,500.00
May-17	18700	$22.50	$420,750.00
Jun-17	21000	$22.50	$472,500.00
Totals for the second quarter	61500	$22.50	$1,383,750.00

Solution 2:

ZIGBY MANUFACTURING
Production Budget
April, May, and June 2017
	April	May	June
Next month's budgeted sales (units)	18700	21000	21800
Ratio of inventory to future sales	80%	80%	80%
Desired ending inventory	14960	16800	17440
Budgeted sales units	21800	18700	21000
Required units of available production	36760	35500	38440
Beginning inventory	17440	14960	16800
Units to be produced	19320	20540	21640

Solution 3:

ZIGBY MANUFACTURING
Raw Materials Budget
April, May, and June 2017
	April	May	June
Production budget (units)	19320	20540	21640
Raw material per unit	0.5	0.5	0.5
Materials needed for production	9660	10270	10820
Desired ending inventory	5135	5410	5300
Total materials requirements (units)	14795	15680	16120
Beginning inventory	4830	5135	5410
Materials to be purchased	9965	10545	10710
Material price per unit	$20.00	$20.00	$20.00
Budgeted raw material purchases	$199,300.00	$210,900.00	$214,200.00

Solution 4:

ZIGBY MANUFACTURING
Direct Labor Budget
April, May, and June 2017
	April	May	June	Total
Budgeted production (units)	19320	20540	21640	61500
Direct labor hour per unit	0.5	0.5	0.5	0.5
Total labor hours needed	9660	10270	10820	30750
Direct labor rate per hour	$9.00	$9.00	$9.00	$9.00
Budgeted direct labor cost	$86,940.00	$92,430.00	$97,380.00	$276,750.00

Solution 5:

ZIGBY MANUFACTURING
Factory overhead Budget
April, May, and June 2017
	April	May	June	Total
Labor hours needed	9660	10270	10820	30750
Variable overhead rate per hour	$4.00	$4.00	$4.00	$4.00
Budgeted variable overhead	$38,640.00	$41,080.00	$43,280.00	$123,000.00
Budgeted fixed overhead	$30,750.00	$30,750.00	$30,750.00	$92,250.00
Budgeted total overhead	$69,390.00	$71,830.00	$74,030.00	$215,250.00

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