Brighton, Inc., manufactures kitchen tiles. The company recently expanded, and t
ID: 2573412 • Letter: B
Question
Brighton, Inc., manufactures kitchen tiles. The company recently expanded, and the controller believes that it will need to borrow cash to continue operations. It began negotiating for a one-month bank loan of $500,000 starting May 1. The bank would charge interest at the rate of 1.25 percent per month and require the company to repay interest and principal on May 31. In considering the loan, the bank requested a projected income statement and cash budget for May.
The following information is available:
The company budgeted sales at 650,000 units per month in April, June, and July and at 500,000 units in May. The selling price is $4 per unit.The inventory of finished goods on April 1 was 162,500 units. The finished goods inventory at the end of each month equals 25 percent of sales anticipated for the following month. There is no work in process. The inventory of raw materials on April 1 was 61,250 pounds. At the end of each month, the raw materials inventory equals no less than 40 percent of production requirements for the following month. The company purchases materials in quantities of 62,500 pounds per shipment. Selling expenses are 10 percent of gross sales. Administrative expenses, which include depreciation of $2,500 per month on office furniture and fixtures, total $160,000 per month. The manufacturing budget for tiles, based on normal production of 500,000 units per month, follows:
Materials (0.25 pound per tile, 125,000 pounds, $4 per pound) $ 500,000 Labor 400,000 Variable overhead 180,000 Fixed overhead (includes depreciation of $210,000) 410,000 Total $ 1,490,000
Explanation / Answer
Brighton Inc. Sales Budget Particuler April May June July Units 650000 500000 650000 650000 Selling Price in $ 4 4 4 4 Total Sales Revene 2600000 2000000 2600000 2600000 Manufacturing Budget Particuler April May June July Beginning Inventory In units (A) 162500 125000 162500 162500 Units to be sold (B) 650000 500000 650000 650000 Closing Inventory eqauls 25% of sales anticipated in the following month (C) 125000 162500 162500 Units to be Manufactured(C+B-A) 612500 537500 650000 Materials=Units to be manufactured*0.25*$4 612500 537500 650000 Labour = Units to be manufactured*400000/500000 490000 430000 520000 Variable Overhead=Units to be manufactured*180000/500000 220500 193500 234000 Fixed Overhead -Depreciation 210000 210000 210000 -Other Fixed Overhead 200000 200000 200000 Raw Material Budget Beginning Inventory of Materials=units to be manufactured*40%*0.25 of the month (A) 61250 95625 65000 Inventory to be consumed during Month=Inventory to be Manufactured*0.25(B) 153125 134375 162500 Inventory to be Purchased with condition that ending inventory will be no less than 40% of following month Production(C) 187500 125000 Ending Inventory (A+C-B) 95625 86250 Units to be Purchased (C+B-A) 187500 125000 Total Inventory Value of Purchase 750000 500000 Projected Income Statement Revenue from Operations 2600000 2000000 Ending Inventory of Kitchen Tiles=Units of ending Inventory*14900000/500000 372500 484250 Less : Inventory Consumed Beginning Inventory*$4* (A) 245000 382500 Inventory Purchased*$4*(B) 750000 500000 Less :Ending Inventory*$4*(C) 382500 345000 Inventory Consumed(A+B-C) 612500 537500 Labour 490000 430000 Variable Overhead 220500 193500 Fixed Overhead -Depreciation 210000 210000 -Other Fixed Overhead 200000 200000 Selling Expenses =10% of Gross Sales 260000 200000 Administrative Expenses -Depreciation 2500 2500 -Other 157500 157500 Total of Expenses 2153000 1931000 Net Income 447000 69000 It will be not possible to prepare cash Budget since Opening Balance of Cash and other details like cash sales etc. are not given in the question. 0 Brighton Inc. Sales Budget Particuler April May June July Units 650000 500000 650000 650000 Selling Price in $ 4 4 4 4 Total Sales Revene 2600000 2000000 2600000 2600000 Manufacturing Budget Particuler April May June July Beginning Inventory In units (A) 162500 125000 162500 162500 Units to be sold (B) 650000 500000 650000 650000 Closing Inventory eqauls 25% of sales anticipated in the following month (C) 125000 162500 162500 Units to be Manufactured(C+B-A) 612500 537500 650000 Materials=Units to be manufactured*0.25*$4 612500 537500 650000 Labour = Units to be manufactured*400000/500000 490000 430000 520000 Variable Overhead=Units to be manufactured*180000/500000 220500 193500 234000 Fixed Overhead -Depreciation 210000 210000 210000 -Other Fixed Overhead 200000 200000 200000 Raw Material Budget Beginning Inventory of Materials=units to be manufactured*40%*0.25 of the month (A) 61250 95625 65000 Inventory to be consumed during Month=Inventory to be Manufactured*0.25(B) 153125 134375 162500 Inventory to be Purchased with condition that ending inventory will be no less than 40% of following month Production(C) 187500 125000 Ending Inventory (A+C-B) 95625 86250 Units to be Purchased (C+B-A) 187500 125000 Total Inventory Value of Purchase 750000 500000 Projected Income Statement Revenue from Operations 2600000 2000000 Ending Inventory of Kitchen Tiles=Units of ending Inventory*14900000/500000 372500 484250 Less : Inventory Consumed Beginning Inventory*$4* (A) 245000 382500 Inventory Purchased*$4*(B) 750000 500000 Less :Ending Inventory*$4*(C) 382500 345000 Inventory Consumed(A+B-C) 612500 537500 Labour 490000 430000 Variable Overhead 220500 193500 Fixed Overhead -Depreciation 210000 210000 -Other Fixed Overhead 200000 200000 Selling Expenses =10% of Gross Sales 260000 200000 Administrative Expenses -Depreciation 2500 2500 -Other 157500 157500 Total of Expenses 2153000 1931000 Net Income 447000 69000 It will be not possible to prepare cash Budget since Opening Balance of Cash and other details like cash sales etc. are not given in the question. Thank you
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