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 $ 42,000 Accounts receivable 364,000 Raw materials inventory 107,200 Finished goods inventory 349,440 Total current assets 862,640 Equipment, gross 604,000 Accumulated depreciation (152,000) Equipment, net 452,000 Total assets $1,314,640 Liabilities and Equity Accounts payable $ 211,300 Short-term notes payable 14,000 Total current liabilities 225,300 Long-term note payable 510,000 Total liabilities 735,300 Common stock 337,000 Retained earnings 242,340 Total stockholders' equity 579,340 Total liabilities and $1,314,640 equity To prepare a master budget for April, May, and June of 2017, management gathers the following information: a. Sales for March total 20,800 units. Forecasted sales in units are as follows: April, 20,800; May, 21,600: June, 20,900, and July, 20,800. Sales of 242.000 units are forecasted for the entire year. The product's selling price is $25.00 per unit and its to product cost is $21.00 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 5,360 units, which complies with the policy. The expected June 30 ending raw materials inventory is 4,200 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 16,640 units, which complies with the policy. d. Each finished unit requires 0.50 hours of direct labor at a rate of $17 per hour. e. Overhead is allocated based on direct labor hours. The predetermined variable overhead rate is $3.00 per direct labor hour. Depreciation of $21500 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 $3,200. g. Monthly general and administrative expenses include $14,000 administrative salaries and 0.7% 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 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 materiais purchases are fully paid in the next month. J. The minimum ending cash balance for all months is $42,000. 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 $12.000 are to be declared and paid in May. 1. 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 $132.000 are budgeted for the last day of June.

Answer 1

ZIGBY MANUFACTURING

Step 1: SALES BUDGET

  April,May and June 2017

particulars	budgeted sales $	budgeted unit price $	budgeted tota $
april 17	20800	25	520000
may 17	21600	25	540000
june 17	2000	25	522500
			1582500

Step 2:

PRODUCTION BUDGET

april,may,june 17

particulars	april	may	june	total
next month's budgeted sales[units]	21600	20900	20800
ratio of inventory to future sales	80%	80%	80%
budgeted ending inventory[units]	17280	16720	16640
budgeted units sales for the month	20800	21600	20900
required units of available production	30080	38320	37540
beginning inventory[units]	16640	17280	16720
units to be produced	13440	21040	20820	55300

Step 3:

RAW MATERIAL BUDGETED

particulars	april	may	june	total
production budget[units]	13440	21040	202820
material required per units	0.5	0.5	0.5
material need for production	6720	10520	10410
budgeted ending inventory	5260[10520*50%]	5205[10410*50]	5200
total material required[units]	11980	15725	14610
beginning inventory	5360	5260	5205
material to be purchased	6620	10465	9405
material price/unit	20	20	20
total cost of direct material purchased	132400[6620*20]	209300	188100	529800

Step 4:

DIRECT LABOUR BUDGET

particulars	april	may	june
budgeted production[units]	13440	21040	20820
labour required per units[hrs]	0.5	0.5	0.5
total labour hour needed	6720	10520	10410
labour rate[per hr]	17	17	17
labour total[$]	114240	178840	176970

Step 5:

FACTORY OVERHEAD BUDGET

particulars	april	may	june	total
lab hrs received	6720[13440*50%]	10520	10410
variable factory OH rate	3	3	3
budgeted VOH	20160	31560	31230	82950
budgeted FOH	21100	21100	21100	63300
budgeted total OH				146250

Step 6:

SELLING EXPENSES BUDGET

particulars	april	may	june	total
budgeted sales	520000	540000	522500
sales commission%	8%	8%	8%
sales comm	41600	43200	41800	126600
salary	3200	3200	3200	9600
total selling exp	44800	46400	45000	13620

​​​Step 7:

GENERAL AND ADMIN EXPENSE BUDGET

particulars	april	may	june	total
salary	14000	14000	14000	42000
interest on long term loan[510000*0.7%]	3570	3570	3570	10710
total exp	17570	17570	17570

Step 8:

CALCULATION OF CASH RECEIPT FROM CUSTOMER

PARTICULARS	april	may	june
total budgeted sales	520000	540000	522500
cash sal [30%]	156000	162000	156750
credit sales[70%]	364000	378000	365750

Step 9:TOTAL CASH RECEIPTS FROM CUSTOMER AND CASH BUDGET IS ALREADY WORKEDOUT.

Step 10:

BUDGETED INCOME STATEMENT

1 A B 1 Budgeted income statement 2 Sales =(20800+21600+20900)*25 3 COGS =63300*21 4 Gross profit =B2-B3 5 Less: Expenses 6 Sales commission 126600 7 Sales salaries 96 8 General administartive salaries 42000 9 Long term note interest 10710 10 Bank loan interest 140 11 Total expense =SUM(B6:B10) 12 Income before taxes =B4-B11 13 Less: Tax 25660 14 Net income =B12-B13

Result:

B B 1,582,500.00 1,329,300.00 253,200.00 А 1 Budgeted income statement 2 Sales $ 3 COGS $ 4 Gross profit $ 5 Less: Expenses 6 Sales commission $ 7 Sales salaries $ 8 General administartive salaries $ 9 Long term note interest $ 10 Bank loan interest $ 11 Total expense $ 12 Income before taxes $ 13 Less: Tax $ 14 Net income $ 126,600.00 9,600.00 42,000.00 10,710.00 140.00 189,050.00 64,150.00 25,660.00 38,490.00

Step 11:

Budgeted balance sheet

Prepare the budgeted balance sheet as follows

B A B 1 Budgeted balance sheet 2 Current asset 3 Cash 42000 4 Accounts receivable 365750 5 Finished goods inventory =16640*21 6 Raw material inventory =4200*20 7 Total current assets =SUM(B3:36) 8 Equipment =604000+132000 9 less: Accumulated depreciation =152000+63300 10 Net equipment =B8-B9 11 12 Total assets =B7+B10 13 14 Liabilities & equity 15 Liabilities: 16 Accounts payable 188100 17 Bank loan payable 32300 18 Income tax payable 25660 19 Total current liabilities =B16+B17+B18 20 Long term note payable 510000 21 Stockholders equity: 22 Common stock 337000 23 Retained earnings =242340+38490-12000 24 Total equity =B22+B23 25 Total liabilities and equity =B19+B20+B24

Result:

А B 1 Budgeted balance sheet 2 Current asset 3 Cash $ 42,000.00 4 Accounts receivable $ 365,750.00 5 Finished goods inventory $ 349,440.00 6 Raw material inventory $ 84,000.00 7 Total current assets $ 841,190.00 8 Equipment $ 736,000.00 9 less: Accumulated depreciation $ 215,300.00 10 Net equipment $ 520,700.00 11 12 Total assets $ 1,361,890.00 13 14 Liabilities & equity 15 Liabilities: 16 Accounts payable $ 188,100.00 17 Bank loan payable $ 32,300.00 18 Income tax payable $ 25,660.00 19 Total current liabilities $ 246,060.00 20 Long term note payable $ 510,000.00 21 Stockholders equity: 22 Common stock $ 337,000.00 23 Retained earnings $ 268,830.00 24 Total equity $ 605,830.00 25 Total liabilities and equity $ 1,361,890.00