You are an managerial accountant for Blackmore Industries, and you are preparing

Question

You are an managerial accountant for Blackmore Industries, and you are preparing the 2018 budget. Consider the following information, and prepare the required budgets according to the instructions that follow: Sales Information November 2017 unit sales (actual) 119,062 December 2017 unit sales (actual) 120,896 January 2018 unit sales (planned) 123,000 Sales price per unit $13.00 For all months in 2018, unit sales are expected to increase 1.1% over the previous month with the exception of March, when a planned unit price increase to $13.55 is expected to decrease March unit sales (compared to February) by 1.8%. The price increase will remain in effect for the rest of the year. Finished Goods Inventory Planning Blackmore plans to keep 25% of the following month's unit sales on hand in finished goods inventory at the end of any given month. Blackmore has that percentage of January's planned sales (above) on hand at December 31, 2017. Accounts Receivable and Collections All sales are on account. Generally, 44% of each month's sales are collected in the month after the sale, while 1.4% are never collected, and eventually written off. All other sales are collected in the month of the sale. Net (collectible) accounts receivable balance at December 31, 2017: $691,525.00 Material Inventory Costs and Planning Each unit of finished product is made from 2 pounds of a metallic raw material that costs $3.63 per pound. Blackmore plans to keep 5% of the following month's raw materials production needs in inventory at the end of any given month, and has 9,600 pounds of raw material on hand at December 31, 2017. Accounts Payable and Disbursements All material purchases are on account. 32% of purchases are paid for in the month following the purchase, with the remainder paid for in the month of purchase. Accounts payable balance at December 31, 2017: $360,250.00 Direct Labor and Costs Direct labor time per unit of finished goods 10 minutes Direct labor cost $14.45 per hour Manufacturing Overhead Costs Indirect materials $0.25 per direct labor hour Indirect labor 0.46 per direct labor hour Maintenance 0.26 per direct labor hour Utilities 0.44 per direct labor hour Depreciation $9,700 per month Insurance 4,800 per month Property taxes 2,100 per month All items except depreciation are paid in the month incurred. Selling and Administrative Costs Advertising $8,900 per month Insurance 4,800 per month Salaries 74,200 per month Depreciation 5,400 per month Other fixed costs 3,200 per month All items except depreciation are paid in the month incurred. Other Budgeting Items Income tax expense is recorded at 25% of pretax net income. The company makes estimated payments monthly for these amounts. A budgeted purchase of fixed assets in the amount of $475,000 is planned for February, 2017. Because the company uses a mid-year convention for depreciation calculations, this purchase will not affect budgeted depreciation expense in the first quarter. At December 31, 2017, Blackmore has $297,500 in cash. Hendrix maintains a minimum balance of $250,000 in cash at all times, and any projected cash shortfall will be covered via a borrowing on a line of credit. The line of credit accrues interest at 6% annualy (0.5% per month), and is repaid as soon as Hendrix has sufficient cash to repay it while staying above the $250,000 minimum. For the first quarter of 2018, do the following. (a) Prepare a sales budget. This is similar to Illustration 21-3 on page 1088 of your textbook. (b) Prepare a production budget. This is similar to Illustration 21-5 on page 1089 of your textbook. (c) Prepare a direct materials budget. (Round to nearest dollar) This is similar to Illustration 21-7        on page 1091 of your textbook. (d) Prepare a direct labor budget. (For calculations, round to the nearest hour.) This is similar to        Illustration 21-9 on page 1094 of your textbook. (e) Prepare a manufacturing overhead budget. (Round intermediate amounts to the nearest        dollar.) This is similar to Illustration 21-10 on page 1094 of your textbook. (f) Prepare a selling and administrative budget. This is similar to Illustration 21-11 on page 1095        of your textbook. (g) Prepare a budgeted income statement. (Round intermediate calculations to the nearest        dollar.) This is similar to Illustration 21-13 on page 1096 of your textbook. (h) Prepare a cash budget. This is similar to Illustration 21-17 on page 1100 of your textbook.      (You will need to prepare schedules for expected collections from customers and expected       payments to vendors first. See Illustrations 21-15 and 21-16 on page 1099 of your textbook       for guidance.) You are an managerial accountant for Blackmore Industries, and you are preparing the 2018 budget. Consider the following information, and prepare the required budgets according to the instructions that follow: Sales Information November 2017 unit sales (actual) 119,062 December 2017 unit sales (actual) 120,896 January 2018 unit sales (planned) 123,000 Sales price per unit $13.00 For all months in 2018, unit sales are expected to increase 1.1% over the previous month with the exception of March, when a planned unit price increase to $13.55 is expected to decrease March unit sales (compared to February) by 1.8%. The price increase will remain in effect for the rest of the year. Finished Goods Inventory Planning Blackmore plans to keep 25% of the following month's unit sales on hand in finished goods inventory at the end of any given month. Blackmore has that percentage of January's planned sales (above) on hand at December 31, 2017. Accounts Receivable and Collections All sales are on account. Generally, 44% of each month's sales are collected in the month after the sale, while 1.4% are never collected, and eventually written off. All other sales are collected in the month of the sale. Net (collectible) accounts receivable balance at December 31, 2017: $691,525.00 Material Inventory Costs and Planning Each unit of finished product is made from 2 pounds of a metallic raw material that costs $3.63 per pound. Blackmore plans to keep 5% of the following month's raw materials production needs in inventory at the end of any given month, and has 9,600 pounds of raw material on hand at December 31, 2017. Accounts Payable and Disbursements All material purchases are on account. 32% of purchases are paid for in the month following the purchase, with the remainder paid for in the month of purchase. Accounts payable balance at December 31, 2017: $360,250.00 Direct Labor and Costs Direct labor time per unit of finished goods 10 minutes Direct labor cost $14.45 per hour Manufacturing Overhead Costs Indirect materials $0.25 per direct labor hour Indirect labor 0.46 per direct labor hour Maintenance 0.26 per direct labor hour Utilities 0.44 per direct labor hour Depreciation $9,700 per month Insurance 4,800 per month Property taxes 2,100 per month All items except depreciation are paid in the month incurred. Selling and Administrative Costs Advertising $8,900 per month Insurance 4,800 per month Salaries 74,200 per month Depreciation 5,400 per month Other fixed costs 3,200 per month All items except depreciation are paid in the month incurred. Other Budgeting Items Income tax expense is recorded at 25% of pretax net income. The company makes estimated payments monthly for these amounts. A budgeted purchase of fixed assets in the amount of $475,000 is planned for February, 2017. Because the company uses a mid-year convention for depreciation calculations, this purchase will not affect budgeted depreciation expense in the first quarter. At December 31, 2017, Blackmore has $297,500 in cash. Hendrix maintains a minimum balance of $250,000 in cash at all times, and any projected cash shortfall will be covered via a borrowing on a line of credit. The line of credit accrues interest at 6% annualy (0.5% per month), and is repaid as soon as Hendrix has sufficient cash to repay it while staying above the $250,000 minimum. For the first quarter of 2018, do the following. (a) Prepare a sales budget. This is similar to Illustration 21-3 on page 1088 of your textbook. (b) Prepare a production budget. This is similar to Illustration 21-5 on page 1089 of your textbook. (c) Prepare a direct materials budget. (Round to nearest dollar) This is similar to Illustration 21-7        on page 1091 of your textbook. (d) Prepare a direct labor budget. (For calculations, round to the nearest hour.) This is similar to        Illustration 21-9 on page 1094 of your textbook. (e) Prepare a manufacturing overhead budget. (Round intermediate amounts to the nearest        dollar.) This is similar to Illustration 21-10 on page 1094 of your textbook. (f) Prepare a selling and administrative budget. This is similar to Illustration 21-11 on page 1095        of your textbook. (g) Prepare a budgeted income statement. (Round intermediate calculations to the nearest        dollar.) This is similar to Illustration 21-13 on page 1096 of your textbook. (h) Prepare a cash budget. This is similar to Illustration 21-17 on page 1100 of your textbook.      (You will need to prepare schedules for expected collections from customers and expected       payments to vendors first. See Illustrations 21-15 and 21-16 on page 1099 of your textbook       for guidance.)

Explanation / Answer

a) Sales budget

b) Production budget

c) Direct material budget

d) Direct labour budget

Sales Budget for 1st quarter 2018 January February March Quarter Sales units        1,23,000        1,36,530     1,34,072.5     3,93,602.5 Selling price per unit $13 $13 $13.55 Budgeted sales revenue $15,99,000 $17,74,890 $18,16,681.8 $51,90,571.8

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