The management of Zigby Manufacturing prepared the following estimated balance s
ID: 2436706 • Letter: T
Question
The management of Zigby Manufacturing prepared the following estimated balance sheet for March 2017:
To prepare a master budget for April, May, and June of 2017, management gathers the following information:
Sales for March total 23,000 units. Forecasted sales in units are as follows: April, 23,000; May, 15,300; June, 20,400; and July, 23,000. Sales of 241,000 units are forecasted for the entire year. The product’s selling price is $23.60 per unit and its total product cost is $20.00 per unit.
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 4,210 units, which complies with the policy. The expected June 30 ending raw materials inventory is 4,100 units. Raw materials cost $20 per unit. Each finished unit requires 0.50 units of raw materials.
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 18,400 units, which complies with the policy.
Each finished unit requires 0.50 hours of direct labor at a rate of $15 per hour.
Overhead is allocated based on direct labor hours. The predetermined variable overhead rate is $2.80 per direct labor hour. Depreciation of $21,520 per month is treated as fixed factory overhead.
Sales representatives’ commissions are 10% of sales and are paid in the month of the sales. The sales manager’s monthly salary is $3,100.
Monthly general and administrative expenses include $13,000 administrative salaries and 0.5% monthly interest on the long-term note payable.
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).
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.
The minimum ending cash balance for all months is $41,000. 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.
Dividends of $11,000 are to be declared and paid in May.
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.
Equipment purchases of $131,000 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.
Estimated Balance Sheet
March 31, 2017 Assets Cash $ 50,000 Accounts receivable 434,240 Raw materials inventory 84,210 Finished goods inventory 368,000 Total current assets 936,450 Equipment, gross 602,000 Accumulated depreciation (151,000 ) Equipment, net 451,000 Total assets $ 1,387,450 Liabilities and Equity Accounts payable $ 196,610 Short-term notes payable 12,000 Total current liabilities 208,610 Long-term note payable 505,000 Total liabilities 713,610 Common stock 336,000 Retained earnings 337,840 Total stockholders’ equity 673,840 Total liabilities and equity $ 1,387,450 Raw materials budget. (Round per unit values to 2 decimal places.) Sales budget. (Round Budgeted unit price to 2 decimal places.) ZIGBY MANUFACTURING Raw Materials Budget April, May, and June 2017 ZIGBY MANUFACTURING Sales Budget April, May, and June 2017 May Production budget (units) Materia's requirements per unit Materia's needed for production Budgeted ending inventory Total materials requirements (units) Beginning inventory Materials to be purchased Material price per unit Budgeted raw material purchases 16,840 0.50 8,420 19,380 0.50 9,690 Budgeted Budgeted Budgeted Unit Sales Unit Price Sales Dollars 23-000? S 23 60?$ 542.800 361,080 481,440 S 1,385,320 11,240 April 2017 May 2017 June 2017 Totals for the second quarter 15,300 20,400 58,700 23.60 (4.210) 23.60 20 Production budget. Direct labor budget. (Round per unit values to 2 decimal places.) ZIGBY MANUFACTURING Production Budget April, May, and June 2017 Direct Labor Budget April, May, and June 2017 April Total April May Total 15,300 80% 12,240 23,000 35,240 (18,400 16,840 20,400 80% 16,320 15,300 31,620 (12,240) 19,380 23,000 80% 18,400 20,400 38,800 (16,320) 22,480 Next month's budgeted sales (units) Ratio of inventory to future sales Budgeted production (units) Total labor hours needed ending inventory (units) units sales for month Budgeted direct labor cost Required units of available production inventory (units) Units to be produced 58,700
Explanation / Answer
Raw materials budget April May June Production budget(a) 16840 19380 22480 Material req. per unit(b) 0.5 0.5 0.5 Materials needed for production (c = a X b) 8420 9690 11240 Budget ending inventory(d) 4845 5620 4100 (50% X 9690) (50 % X 11240) given Total material requirement (e = c + d) 13265 15310 15340 beg. Inventory(f) 4210 4845 5620 given april closing may closing Materials to be purchased(g = e-f) 9055 10465 9720 Material price per unit(h) 20 20 20 budgeted raw material purchases(g X h) 181,100 209,300 194,400 direct labor budget April May June Budgeted production (a) 16840 19380 22480 Labor hr. required per unit(b) 0.5 0.5 0.5 Total labor hrs needed(c = a x b) 8420 9690 11240 Labor rate per hr (d) 15 15 15 Budgeted direct labor cost (c X d) 126,300 145,350 168,600 Factory overhead budget April May June Labor hours needed(a) 8420 9690 11240 Variable overhead rate per hr.(b) 2.8 2.8 2.8 Budgeted variable overhead(c = a x b) 23576 27132 31472 budgeted fixed overhead(d) 21520 21520 21520 Budgeted total overhead(c+d) 45096 48652 52992 Selling expense budget April May June Budgeted sales(a) 542800 361080 481440 commision rate(b) 10% 10% 10% Sales commission(c = axb) 54280 36108 48144 sales manager salary(d) 3100 3100 3100 Total selling expense(c+d) 57380 39208 51244 General & administrative expense budget April May June G&A salary 13000 13000 13000 Interes on long term note payable (505000 X .5%) 2525 2525 2525 Total budgeted G&A expense 15525 15525 15525
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