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 inventory		313,920
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 payable		25,000
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’ equity		569,120
Total liabilities and equity	$	1,318,920

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

1. 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.
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 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.
3. 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.
4. Each finished unit requires 0.50 hours of direct labor at a rate of $9 per hour.
5. 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.
6. 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.
7. Monthly general and administrative expenses include $25,000 administrative salaries and 0.7% monthly interest on the long-term note payable.
8. 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).
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 $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.
11. Dividends of $23,000 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 $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.

ZIGBY MANUFACTURING Sales Budget April, May, and June 2017 Budgeted Budgeted Budgeted Unit Sales Unit Price Sales Dollars April 2017 May 2017 June 2017 Totals for the second quarter

Answer 1

ZIGBY Manufacturing Sales Budget April, May and June 2017 Budgeted Particulars Unit Sales April, 2017 21,800 May, 2017 18,700 June, 2017 21,000 Totals for the Second Quarter 61,500 Budgeted Unit Price $ 22.50 $ 22.50 $ 22.50 Budgeted Sales Dollars 4,90,500 4,20,750 4,72,500 13,83,750 ZIGBY Manufacturing Production Budget April, May and June 2017 Particulars April Next Month Budgeted Sales (In Units) 18,700 Ratio of Inventory to future sales 80% Budgeted Ending Inventory (Units) 14,960 Budgeted Unit Sales for the month 21,800 Required Units of available production 36,760 Less : Beginning Finished goods Inventory (17,440) Units to be produced 19,320 May 21,000 80% 16,800 18,700 35,500 (14,960) 20,540 June 21,800 80% 17,440 21,000 38,440 (16,800) 21,640 ZIGBY Manufacturing Raw Materials Budget April, May and June 2017 Particulars April Production Budget (Units) 19,320 Raw Materials per Unit 0.50 Material needed for Production 9,660 Budgeted Ending Inventory 5,135 Total Raw Material requirement (Units) 14,795 Beginning Inventory (4,830) Materials to be purchased 9,965 Material Price per Unit Budgeted Raw Material Purchases 1,99,300 May 20,540 0.50 10,270 5,410 15,680 (5,135) 10,545 June 21,640 0.50 10,820 5,300 16,120 (5,410) 10,710 20 20 20 2,10,900 2,14,200

Total ZIGBY Manufacturing Direct Labour Budget April, May and June 2017 Particulars April Budgeted Production (Units) 19,320 Labor hours requirement per unit (hours) 0.50 Total Labour Hours needed 9,660 Labour Cost Rate (per hour) Budgeted Labour Cost 86,940 May 20,540 0.50 10,270 June 21,640 0.50 10,820 30,750 92,430 97,380 2,76,750 Total ZIGBY Manufacturing Factory Overhead Budget April, May and June 2017 Particulars April Labour Hours Needed 9,660 Variable Factory Overhead Rate 4.00 Budgeted Variable Overhead 38,640 Budgeted Fixed Overhead 30,750 Budgeted Total Overhead 69,390 May 10,270 4.00 41,080 30,750 71,830 June 10,820 4.00 43,280 30,750 74,030 1,23,000 92,250 2,15,250