Brighton, Inc., manufactures kitchen tiles. The company recently expanded, and t

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 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 600,000 units per month in April, June, and July and at 450,000 units in May. The selling price is $4 per unit.

The inventory of finished goods on April 1 was 120,000 units. The finished goods inventory at the end of each month equals 20 percent of sales anticipated for the following month. There is no work in process.

The inventory of raw materials on April 1 was 57,000 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 $165,000 per month.

The manufacturing budget for tiles, based on normal production of 500,000 units per month, follows:

   

    

(a)

Prepare schedules computing inventory budgets by months for

  

  

  

  

  

(b)

Prepare a projected income statement for May. Cost of goods sold should equal the variable manufacturing cost per unit times the number of units sold plus the total fixed manufacturing cost budgeted for the period. When calculating net sales assume cash discounts of 1% and bad debt expense of 0.5%. (Do not round intermediate calculations.)

    

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 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.

Explanation / Answer

Inventory Budget - May

Projected income Statement

projected loss for May is $ 22000.

Items april May June Budegeted Sales 600000 450000 570000 Opening bal. 120000 20000 70000 budgeted pdn 500000 500000 500000 closing balance 20000 70000 NIL Raw Material Budget opening balance - in pounds 57000 57000 105500 requirement for pdn 125000 125000 125000 closing stock reuirement 50000 50000 50000 Purchase requirement 118000 132000 180500 shipment in trucks etc 125000 187500 187500

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