Information for 2016: 1. Sales forecast: January: 2,100 units; February: 2,900 u
ID: 2451658 • 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
January February March Unit sales 2,100 2,900 3,300 Sales price 50 50 50 Sales revenue 105,000 145,000 165,000 opening inventory units 1,260 ending invntory @ 60% of next month sales 1,740 1,980 2,100 Actual units produced 2,580 4,880 5,400 Opening accounts receivables 15,000 collection in current month 21,000 29,000 33,000 collection in next month 84,000 116,000 Direct material cost @ 10 per units 25,800 48,800 54,000 Cash payment of material @ 30% 7,740 14,640 16,200 Cash payment of material @ 70% 18,060 34,160 Accounts payablepaid in cash 6,100 Direct Labor cost @ 17 per unit 43,860 82,960 91,800 Payment for direct labor 43,860 82,960 91,800 Overhead cost 5500 + 3 per unit 13,240 20,140 21,700 payment for overhead 13,240 20,140 21,700 Fixed overhead 2,100 2,100 2,100 Selling cost @ 1.5 per unit sold 3,150 4,350 4,950 shipping cost @ 1.2 per unit sold 2,520 3,480 3,960 salaries 10,500 10,500 10,500 rent 1,500 1,500 1,500 depreciation 2,000 2,000 2,000 Total cash inflows 36,000 113,000 149,000 Total cashoutflows 92,710 159,730 188,870