Information for 2016: 1. Sales forecast: January: 2,100 units; February: 2,900 u
ID: 2451636 • Letter: I
Question
Information for 2016:
1. Sales forecast: January: 2,100 units; February: 2,900 units; March: 3,300 units; April: 3,500 units. The unit sales price is $50. All sales are on credit and collections are 20% in the month of sale and 80% the following month. Accounts receivable as of December 31, 2015 is $15,000 and this amount is expected to be collected in January 2016.
2. End of month inventory must equal 60% of next month’s sales. The inventory at the end of December 2015 was 1,260 units.
3. The following are the expected costs for direct materials, direct labor and manufacturing overhead:
DM DL Overhead
January $10/unit $17/unit $5,500 + $3.00 per unit produced
February $10/unit $17/unit $5,500 + $3.00 per unit produced
March $10/unit $17/unit $5,500 + $3.00 per unit produced
A. Direct materials are paid 30% in the month incurred and 70% in the following month.
Account payable for materials as of December 31, 2015 is $6,100; this amount will be paid in January 2016.
B. Direct labor is paid in the month incurred.
C. Overhead costs are paid in the month incurred. Fixed overhead includes depreciation of $2,100 per month.
4. Selling costs are sales commissions: $1.50 per unit sold; shipping costs: $1.20 per unit sold. Administrative costs per month are: salaries: $10,500; rent: $1,500; depreciation: $2,000. All costs are paid in month incurred.
5. The company plans to buy equipment costing $5,000 in January.
6. The cash balance as of December 31, 2015 is $11,100. The company borrows money only if the cash balance falls below $2,000 at the end of the month. The company has a revolving credit with US Bank to borrow in increments of $1,000 at the beginning of each month at interest of 12% annual rate. The company repays interest at the end of each month and principle (or portion) at the end of the month when they have the resources to do so. As of December 31, 2015 the company has no outstanding loans.
Required:
Based on the information given, prepare the following budgets for each month of the first quarter of 2016 and the quarter totals:
1.Sales Budget, including a schedule of expected cash collections;
2.Production Budget (in units);
3.Direct materials budget, including schedule of expected cash disbursements;
4.Direct labor budget;
5.Manufacturing Overhead Budget;
6.Selling and Administrative Expenses Budget;
7.Cash Budget.
Explanation / Answer
(‘1) Sales Budget and Cash Collection Schedule for First Quarter -2016
Particulars
Jan
Feb
March
Total
Sales Units
2,100
2,900
3,300
8,300
Total sales @ $ 50
105,000
145,000
165,000
415,000
Collection of Last Month Sales ( Last Month Sales x 0.8)
15,000
84,000
116,000
215,000
Collection of Current Sales
(Current Sales x 0.2)
21,000
29,000
33,000
83,000
Total Collection
36,000
113,000
149,000
298,000
(‘2) Production Budgets ( units)
Particulars
Jan
Feb
Mar
Total
Budgeted Sales Units
2,100
2,900
3,300
8,300
Add: Planned Ending Units ( Next month planes sales x 0.60)
1,740
1,980
2,100
(3500 x 0.60)
5,820
Less: Beginning Units
1,260
(given)
1,740
1,980
4,980
Production (units)
2,580
3,140
3,420
9,140
(‘3) Direct Material Budget including schedule of cash disbursement
Particulars
Jan
Feb
March
Total
Production Units
2580
3140
3420
9140
Total material cost @ $ 10 per unit
25,800
31,400
34,200
91,400
Payment of Last Month Production ( Last Month Production x 0.7)
6100
(given)
18,060
21,980
46,140
Payment of Current production
(Current Production x 0.3)
7740
9420
10260
27,420
Total Payment for Material
13,840
27,480
32,240
73,560
(‘4) Direct Labor Budget
Particulars
Jan
Feb
March
Total
Production Units
2580
3140
3420
9140
Total labor cost @ $ 17 per unit
43,860
53,380
58,140
155,380
(‘5) Manufacturing Overhead Budget
Particulars
Jan
Feb
March
Total
Production Units
2580
3140
3420
9140
Fixed Manufacturing Overhead (excluding depreciation)
3400
3400
3400
10,200
Variable Manufacturing Overhead @ $ 3 per unit
7740
9420
10260
27,420
Total Manufacturing overhead ( Excluding depreciation)
11,140
12,820
13,660
37,620
Particulars
Jan
Feb
March
Total
Sales Units
2,100
2,900
3,300
8,300
Total sales @ $ 50
105,000
145,000
165,000
415,000
Collection of Last Month Sales ( Last Month Sales x 0.8)
15,000
84,000
116,000
215,000
Collection of Current Sales
(Current Sales x 0.2)
21,000
29,000
33,000
83,000
Total Collection
36,000
113,000
149,000
298,000