The management of Zigby Manufacturing prepared the following estimated balance s
ID: 2437172 • 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.):
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 Required 1 Required 2 Required 3 Required 4 Required 5 Required 6 Sales budget. (Round Budgeted unit price to 2 decimal places.) 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 23,000 23.60S 542,800 15,300 20,400 58,700 23.60 361,080 481,440 S 1,385,320 23.60
Explanation / Answer
CALCULATION OF CASH RECEIPTS FROM CUSTOMERS APRIL MAY JUNE TOTAL BUDGETED SALES 542800 361080 481440 CASH SALES 20% 108560 72216 96288 SALES ON CREDIT 80% 434240 288864 385152 TOTAL CASH RECEIPTS FROM CUSTOMERS APRIL MAY JUNE CURRENT MONTH CASH SALES 108560 72216 96288 COLLECTIONS OF RECEIVABLE 434240 108560 72216 542800 180776 168504 ZIGBY MANUFACTURING CASH BUDGET APRIL MAY JUNE BEGINNING CASH BALANCE 50000 159769 41000 CASH RECEIPTS FROM CUSTOMERS 542800 180776 168504 TOTAL CASH AVAILABLE 592800 340545 209504 CASH PAYMENTS FOR: RAW MATERIAL 196610 181100 209300 DIRECT LABOUR COST 126300 145350 168600 BUDGETED TOTAL OVERHEAD 45096 48652 52992 SELLING EXPENSE 37380 39208 51244 GENERAL AND ADMINISTRATIVE EXPENSE 15525 15525 15525 DIVIDEND 11000 INTEREST ON LOAN 120 1412.9 EQUIPMENT PURCHASE 131000 TOTAL CASH PAYMENTS 421031 440835 497661 PRELIMINARY CASH BALANCE 171769 -100290 -288157 Repayment/ Loan Taken -12000 141290 329157 470447 ENDING CASH BALANCE 159769 41000 41000 Zigby Manufacturing Budgeted Income Statement For Three months Ended June 30, 2017 SALES 1385320 LESS COST OF GOODS SOLD -1109430 58700 GROSS PROFIT 275890 10 LESS 7.5 DEPRECIATION 64560 1.4 SALES COMMISSION 118532 18.9 SALES SALARIES 9300 1109430 SALARIES 39000 INTEREST ON LONG TERM NOTE 7575 INTEREST ON SHORT TERM NOTE 1532.9 240499.9 NET INCOME BEFORE TAX 35390.1 LESS : TAX @ 40% 14156.04 NET INCOME AFTER TAX 21234.06 DIVIDEND 11000 TRF TO RETAINED EARNINGS 10234.06 Zigby Manufacturing BUDGETED BALANCE SHEET JUNE 30, 2017 ASSETS CASH 41000 ACCOUNTS RECEIVABLE 385152 RAW MATERIALS INVENTORY 82000 FINISHED GOODS INVENTORY 347760 TOTAL CURRENT ASSETS 855912 EQUIPMENT , GROSS 602000 ACCUMULATED DEPRECIATION -215560 EQUIPMENT , NET 386440 TOTAL ASSETS 1242352 LIABILITIES AND EQUITY ACCOUNTS PAYABLE 194400 SHORT TERM NOTES PAYABLE 349721.9 INCOME TAX PAYABLE 14156.04 TOTAL CURRENT LIABILITIES 558277.9 LONG TERM NOTE PAYABLE 505000 TOTAL LIABILITIES COMMON STOCK 336000 RETAINED EARNINGS 348074.1 TOTAL STOCKHOLDER'S EQUITY 684074.1 TOTAL LIABILITIES AND EQUITY 1242352
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