The management of Zigby Manufacturing prepared the following estimated balance s
ID: 2577805 • 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 25,000 units. Forecasted sales in units are as follows: April, 25,000; May, 17,000; June, 22,400; and July, 25,000. Sales of 259,000 units are forecasted for the entire year. The product’s selling price is $26.00 per unit and its total product cost is $21.65 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 4,650 units, which complies with the policy. The expected June 30 ending raw materials inventory is 5,900 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 20,000 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 $4.60 per direct labor hour. Depreciation of $39,710 per month is treated as fixed factory overhead.
Sales representatives’ commissions are 5% of sales and are paid in the month of the sales. The sales manager’s monthly salary is $4,900.
Monthly general and administrative expenses include $34,000 administrative salaries and 0.8% monthly interest on the long-term note payable.
The company expects 25% of sales to be for cash and the remaining 75% 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 $98,000. 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 $29,000 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 $149,000 are budgeted for the last day of June.
Required:
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 $ 59,000 Accounts receivable 487,500 Raw materials inventory 93,010 Finished goods inventory 433,000 Total current assets 1,072,510 Equipment, gross 638,000 Accumulated depreciation (169,000 ) Equipment, net 469,000 Total assets $ 1,541,510 Liabilities and Equity Accounts payable $ 215,410 Short-term notes payable 31,000 Total current liabilities 246,410 Long-term note payable 530,000 Total liabilities 776,410 Common stock 354,000 Retained earnings 411,100 Total stockholders’ equity 765,100 Total liabilities and equity $ 1,541,510
Explanation / Answer
Sales Budget April May June Total Sales in Units 25,000 17,000 22,400 64,400 Sp Per Unit 26.00 26.00 26.00 26.00 Total Sales in $ 650,000 442,000 582,400 1,674,400 Cash Sales - 25% 162,500 110,500 145,600 418,600 Credit Sales - 75% 487,500 331,500 436,800 1,255,800 Schedule of Expected Cash Collections from Sales April May June Total Cash Sales - 25% 162,500 110,500 145,600 418,600 Collection from Accounts Receivables Accounts Receivable - Mar 31, 2017 487,500 487,500 April Sales 487,500 487,500 May Sales 331,500 331,500 June Sales Sales - - Total cash Collections 650,000 598,000 477,100 1,725,100 Merchandise Production Budget April May June Total Sales In units 25,000 17,000 22,400 64,400 Add: Closing Inventory in units 13,600 17,920 20,000 20,000 Total Needs 38,600 34,920 42,400 115,920 Less: Beginning Inventory in uints (20,000) (13,600) (17,920) (20,000) Required Units Produced 18,600 21,320 24,480 64,400 Direct Material Budget April May June Total Required Units Produced 18,600 21,320 24,480 64,400 Raw Material required per Unit 0.50 0.50 0.50 0.50 Total Raw Material Required 9,300 10,660 12,240 32,200 Add: Ending Inventory 5,330 6,120 5,900 5,900 Total Needs 14,630 16,780 18,140 38,100 Less: Beginning Inventory (4,650) (5,330) (6,120) (4,650) Total Raw Material Purchased 9,980 11,450 12,020 33,450 Cost per Unit - Raw Material 20 20 20 20 Cost of Raw Material Purchased 199,600 229,000 240,400 669,000 Schedule of Cash payments to Suppliers April May June Total Cash Payment Accounts Payable - March 31, 2015 215,410 215,410 April Purchases 199,600 199,600 May Purchases 229,000 229,000 Total Cash Payment to Suppliers 215,410 199,600 229,000 644,010 Direct Labor Budget April May June Total Required Units Produced 18,600 21,320 24,480 64,400 Direct Labor Hour per Unit 0.50 0.50 0.50 0.50 Total Direct Labor Hours Required 9,300 10,660 12,240 32,200 Cost per Direct Labor Hour 15 15 15 15 Direct Labor Cost 139,500 159,900 183,600 483,000 Manufacturing Overhead Budget April May June Total Variable Overhead - $4.60 per DLH 42,780 49,036 56,304 148,120 Fixed Overhead - Depreciation 39,710 39,710 39,710 119,130 Selling & Admn. Budget April May June Total Sales Comm. - 5% 32,500 22,100 29,120 83,720 Sales Manager Salary 4,900 4,900 4,900 14,700 Administrative Salaries 34,000 34,000 34,000 102,000 Total 71,400 61,000 68,020 200,420 Cash budget April May June Total Opening cash Balance 59,000 204,360 299,584 59,000 Add: receipts Collection from Customers 650,000 598,000 477,100 1,725,100 Total Cash available 709,000 802,360 776,684 1,784,100 Less: Disbursements Cash Disbursement - Accounts Payable 215,410 199,600 229,000 644,010 Payment of Direct Labor 139,500 159,900 183,600 483,000 Payment of Variable Overhead 42,780 49,036 56,304 148,120 Selling & Admn. Exp. 71,400 61,000 68,020 200,420 Purchase of Equipment - - 149,000 149,000 Dividend Paid - 29,000 - 29,000 Interest on Long Term Notes 4,240 4,240 4,240 12,720 Total Disbursement 473,330 502,776 690,164 1,666,270 Cash Balance Closing 235,670 299,584 86,520 117,830 Add: Finance from Bank - - - - Less: Payment to Bank (31,000) - - (31,000) Less: Payment of interet - Bank loan (310) - - - Net Cash Balance Closing 204,360 299,584 86,520 86,830 Answer 9. ZIGBY MANUFACTURING Budgeted Income Statement For Three Months Ended June 30, 2017 Sales 1,674,400 Cost of Goods Sold - 64,400 Units X $21.65 1,394,260 Gross Margin 280,140 Operating Expenses Sales Comm. - 5% 83,720 Sales Manager Salary 14,700 Administrative Salaries 102,000 200,420 Bank Interest Loan 310 Total Operating Expenses 200,730 Net Operating Income 79,410 Interest on Long Term Notes 12,720 Net Income before Tax 66,690 Income Tax - 40% 26,676 Net Income 40,014 Answer 10. ZIGBY MANUFACTURING Budgeted Balance Sheet June 30, 2017 Assets Current Assets Cash 86,520 Accounts Receivable 436,800 Raw Material Inventory - 5,900 Units X $20 118,000 Finished Goods Inventory - 20,000 Units X $21.65 433,000 Total Current Assets 1,074,320 Property, Plant & Equipment Equipment 787,000 Accumulated Dep. (288,130) 498,870 Total Assets 1,573,190 Liabilities & Stockholders' Equity Liabilities Current Liabilities Accounts Payable 240,400 Income Tax Payable 26,676 267,076 Long Term Notes Payable 530,000 Total Liabilities 797,076 Stockholders' Equity Common Stock 354,000 Retained Earnings 422,114 Total Stockholders' Equity 776,114 Total Liabilities & Stockholders' Equity 1,573,190 - Retained Earnings Statement June 30, 2017 Beginning Balance 411,100 Add: Net Income 40,014 Sub-total 451,114 Less: Dividend Paid 29,000 Ending Balance 422,114
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