Iguana, Inc., manufactures bamboo picture frames that sell for $30 each. Each fr
ID: 2556377 • Letter: I
Question
Iguana, Inc., manufactures bamboo picture frames that sell for $30 each. Each frame requires 4 linear feet of bamboo, which costs $2.50 per foot. Each frame takes approximately 30 minutes to build, and the labor rate averages $14 per hour. Iguana has the following inventory policies:
Ending finished goods inventory should be 40 percent of next month’s sales.
Ending raw materials inventory should be 30 percent of next month’s production.
Expected unit sales (frames) for the upcoming months follow:
Variable manufacturing overhead is incurred at a rate of $0.20 per unit produced. Annual fixed manufacturing overhead is estimated to be $9,000 ($750 per month) for expected production of 5,000 units for the year. Selling and administrative expenses are estimated at $800 per month plus $0.50 per unit sold.
Iguana, Inc., had $11,800 cash on hand on April 1. Of its sales, 80 percent is in cash. Of the credit sales, 50 percent is collected during the month of the sale, and 50 percent is collected during the month following the sale.
Explanation / Answer
Solution:
Part 1 --- Budgeted Cash Receipts
Budgeted Cash Receipts
April
May
June
2nd Quarter
Total Budgeted Sales
(Total Sales Unit x Selling Price per unit)
$8,700
$10,200
$13,200
Cash Sales (Total Sales x 80%) (A)
$6,960
$8,160
$10,560
$25,680
Credit Sales (Total Sales x 20%)
$1,740
$2,040
$2,640
Collection from Credit Sales:
March Credit Sales
(295 Units x $30 x 20% x 50%)
$885
April Credit Sales
$870
($1,740/2)
$870
($1,740/2)
May Credit Sales
$1,020
(2040/2)
$1,020
(2040/2)
June Credit Sale
$1,320
(2640/2)
Total Collection from Credit Sales (B)
$1,755
$1,890
$2,340
$5,985
Budgeted Cash Receipts (A+B)
$8,715
$10,050
$12,900
$31,665
Part 2 --- Budgeted Cash Payments
Budgeted Cash Payments
April
May
June
2nd Quarter
Budgeted Cash Payment for Materials Purchases (Refer Note 1)
$3,168.00
$3,822.00
$4,242.00
$11,232.00
Cash Payment for Labor (Refer Note 2)
$2,170.00
$2,660.00
$3,010.00
$7,840.00
Payment for Variable Manufacturing Overhead (Refer note 3)
$145.00
$170.00
$220.00
$535.00
Fixed Manufacturing Overhead (excluding depreciation since depreciation is a non cash item and does not involve any cash outflow) ($750 - 190)
$560.00
$560.00
$560.00
$1,680.00
Selling and Administrative Expense (Refer Note 4)
$945.00
$970.00
$1,020.00
$2,935.00
Payment for Equipment
$3,400.00
$3,400.00
Total Budgeted Cash Payments
$10,388.00
$8,182.00
$9,052.00
$27,622.00
Note 1 ---
Schedule of Cash Payment for Raw Materials Purchases
March
April
May
June
July
August
Budgeted Sales Units (Frames)
295
290
340
440
415
465
Add: Ending Finished Goods Inventory (40% of next month's sales)
116
136
176
166
186
Total Needs
411
426
516
606
601
Less: Beginning Finished Goods Inventory (ending inventory of last month)
118
116
136
176
166
Budgeted Production Units (frames)
293
310
380
430
435
Required Raw material per frame (linear feet)
4
4
4
4
4
Total Required Raw Material for Production (Linear feet)
1172
1240
1520
1720
1740
Add: Desired Ending Raw Material Inventory (30% of next month's production need)
372
456
516
522
0
Less: Estimated Beginning Raw material inventory (ending inventory of last month)
372
456
516
522
Total Budgeted Purchases Raw Material (linearfeet)
1324
1580
1726
1218
Cost per foot
$2.50
$2.50
$2.50
$2.50
Total Budgeted Purchases in dollars
$3,310
$3,950
$4,315
$3,045
Cash Payment Schedule for Merchandise Purchases:
March Purchases (2600*20% paid in april)
$520.00
April Purchases
$2,648.00
$662.00
May Purchases
$3,160.00
$790.00
June Purchases
$3,452.00
Total Cash Payment for Purchases
$3,168.00
$3,822.00
$4,242.00
$0.00
Note 2 – Cash Payment for Labor
April
May
June
2nd Quarter
Budgeted Production Units (Frames) (Refer Note 1)
310.00
380.00
430.00
1120.00
Required Labor Hour per frame
0.50
0.50
0.50
0.50
Total Required Labor Hours
155.00
190.00
215.00
560.00
Labor Rate per hour
$14.00
$14.00
$14.00
$14.00
Labor Cost Budget
$2,170.00
$2,660.00
$3,010.00
$7,840.00
Note 3 --- Variable Overhead Cost Budget
April
May
June
2nd Quarter
Budgeted Production Units (Frames) (Refer Note 1)
310.00
380.00
430.00
1120.00
Variable Overhead Rate per unit
$0.20
$0.20
$0.20
$0.20
Total Variable Budgeted Overhead Cost
$62.00
$76.00
$86.00
$224.00
Note 4--- S&A Expense
April
May
June
2nd Quarter
Units Sold
290.00
340.00
440.00
1070.00
Variable Selling & Admin Expenses per unit sold
$0.50
$0.50
$0.50
$0.50
Total Variable S&A Expense
$145.00
$170.00
$220.00
$535.00
Add: Fixed S&A Exp
$800
$800
$800
$2,400
Total S&A Exp
$945
$970
$1,020
$2,935
Part 3 --- Cash Budget
Cash Budget
April
May
June
2nd Quarter
Beginning Cash Balance
$11,800.00
$10,127.00
$11,995.00
$11,800.00
Plus: Budgeted Cash Receipt (Refer Part 1)
$8,715.00
$10,050.00
$12,900.00
$31,665.00
Less: Budgeted Cash Payments (Refer Part 2)
$10,388.00
$8,182.00
$9,052.00
$27,622.00
Preliminary Cash Balance
$10,127.00
$11,995.00
$15,843.00
$15,843.00
Cash Borrowed / Repaid
$0.00
$0.00
$0.00
$0.00
Ending Cash Balance
$10,127.00
$11,995.00
$15,843.00
$15,843.00
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Budgeted Cash Receipts
April
May
June
2nd Quarter
Total Budgeted Sales
(Total Sales Unit x Selling Price per unit)
$8,700
$10,200
$13,200
Cash Sales (Total Sales x 80%) (A)
$6,960
$8,160
$10,560
$25,680
Credit Sales (Total Sales x 20%)
$1,740
$2,040
$2,640
Collection from Credit Sales:
March Credit Sales
(295 Units x $30 x 20% x 50%)
$885
April Credit Sales
$870
($1,740/2)
$870
($1,740/2)
May Credit Sales
$1,020
(2040/2)
$1,020
(2040/2)
June Credit Sale
$1,320
(2640/2)
Total Collection from Credit Sales (B)
$1,755
$1,890
$2,340
$5,985
Budgeted Cash Receipts (A+B)
$8,715
$10,050
$12,900
$31,665