The management of Zigby Manufacturing prepared the following estimated balance s

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 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.

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.

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.

Each finished unit requires 0.50 hours of direct labor at a rate of $9 per hour.

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.

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.

Monthly general and administrative expenses include $25,000 administrative salaries and 0.7% 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 $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.

Dividends of $23,000 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 $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.

Budgeted balance sheet. (Round your final answers to the nearest whole dollar.)

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

Explanation / Answer

Calculation of Cash receipts from customers April May June July Total Budgeted Sales 490500 420750 472500 1383750 Cash sales --20% 98100 84150 94500 276750 Sales On credit-- 80% 392400 336600 378000 1107000 Total cash receipts from customers Current month's cash sales 98100 84150 94500 276750 Collection of receivables 392400 392400 336600 1121400 378000 Total 490500 476550 431100 1398150 Production Budget Sales(units) 21800 18700 21000 61500 Add: Ending inventory reqd. 14960 16800 17440 17440 Total needed 36760 35500 38440 78940 Less: Avail. In Op.Inv. 17440 14960 16800 17440 Production needed 19320 20540 21640 61500 Raw materials Units Inventory Budget Issues to prodn. 9660 10270 10820 30750 Add:Ending inventory reqd. 5135 5410 5300 5300 Total needed 14795 15680 16120 36050 Less: Avail. In Op.Inv. 4830 5135 5410 4830 Purchases needed 9965 10545 10710 31220 Raw Material purchases budget Purchases In $ 199300 210900 214200 624400 at $ 20 Payment for purchases: 204800 199300 210900 615000 Direct labor cost budget Production needed 19320 20540 21640 61500 Lab.hrs. reqd at 0.50 hr. 9660 10270 10820 30750 Lab. Cost at $9/hr. 86940 92430 97380 276750 Factory OH Budget Lab.hrs. reqd at 0.50 hr. 9660 10270 10820 30750 FOH DLhrs. *$4 38640 41080 43280 123000 Depn. 30750 30750 30750 92250 Total 69390 71830 74030 215250 Cash budget Op. bal. 53000 154330 249550 53000 Cash collections from customers 490500 476550 431100 1398150 Total cash available 543500 630880 680650 1451150 Less: Disbursements: Payment for purchases: 204800 199300 210900 615000 Lab. Cost at $9/hr. 86940 92430 97380 276750 Sales commn. 8%*sales 39240 33660 37800 110700 Sales mgr. salary 4300 4300 4300 12900 G&A salaries 25000 25000 25000 75000 Int.on L/T loan at 0.7% 3640 3640 3640 10920 Dividends 23000 23000 Equipment 143000 143000 Total disbursements 363920 381330 522020 1267270 Surplus/Deficit 179580 249550 158630 183880 Add: ST Loan 0 Less: Repayments -25000 -25000 Less: Int. at 1% on ST loan -250 -250 Ending Cash balance 154330 249550 158630 158630 Budgeted Income statement Sales Revenue 1383750 Less: COGS 61500*18= 1107000 Gross Margin 276750 Less: Operating Expenses Sales commn. 8%*sales 110700 Sales mgr. salary 12900 G&A salaries 75000 Total opg. Exp. 198600 Opg.Income 78150 Less: Non-opg. Exp: Int.on L/T loan at 0.7% 10920 Less: Int. at 1% on ST loan 250 11170 Income before tax 66980 Less: Tax at 40% 26792 Income after tax 40188 Less: Dividends 23000 Income trf. To Ret. Earn. 17188 ZIGBY MANUFACTURING Estimated Balance Sheet 31-Mar-18 Assets Cash 158,630 Accounts receivable 378,000 Raw materials inventory5300*20 106,000 Finished goods inventory17440*18 313,920 Total current assets 956,550 Equipment, gross 769,000 Accumulated depreciation -255250 Equipment, net 513,750 Total assets 1,470,300 Liabilities and Equity Accounts payable 214,200 Accrued liability for Variable OH 123,000 Income tax payable 26792 Total current liabilities 363,992 Long-term note payable 520,000 Total liabilities 883,992 Common stock 348,000 Retained earnings(221120+17188) 238,308 Total stockholders’ equity 586,308 Total liabilities and equity 1,470,300

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