Prepare a master budget for April, May, and June of 2017, management gathers the
ID: 2783527 • Letter: P
Question
Prepare a master budget for April, May, and June of 2017, management gathers the following information:
a. Sales for March total 25,000 units. Forecasted sales in units are as follows: April 25,000: May, 16,300, June 21,100; July, 25,000. Sales of 244,000 units are forecasted for the entire year. The product’s selling price is $25.00 per unit and the total product cost is $22.20 per unit.
b. Company policy calls for a given months ending raw materials inventory to equal 50% of the next month’s materials requirements. The March 31 raw materials inventory is 4,510 units, which complies with the policy. The expected June 30 ending raw materials inventory is 4,400 units. Raw materials cost $20 per unit. Each finished unit requires .50 units of raw materials.
c. 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.
d. Each finished unit requires .50 hours of direct labor at a rate of $19 per hour.
e. Overhead is allocated based on direct labor hours. The predetermined variable overhead rate is $3.10 per direct labor hour. Depreciation of $23,920 per month is treated as fixed factory overhead.
f. Sales representatives’ commissions are 6% of sales and are paid in the month of the sales. The sales manager’s monthly salary is $3,400 per month.
g. Monthly general and administrative expenses include $16,000 administrative salaries and .8% monthly interest on the long-term note payable.
h. The company expects 20% of sales to be for cash and the remaining 80% on credit. Receivables are collected in full in the month following the sale (none is collected in the month of the sale)
i. 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.
j. The minimum ending cash balance for all months is $44,000. 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.
k. Dividends of $14,000 are to be declared and paid in May
l. 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.
m. Equipment purchases of $134,000 are budgeted for the last day of June.
Explanation / Answer
MASTER BUDGET March April May June July Sales (units) 25000 25000 16300 21100 25000 Sales Revenue(unit sales*$25) $ 625,000 $ 625,000 $ 407,500 $ 527,500 $ 625,000 Cost of sales(sales unit*$22.2) $ 555,000 $ 555,000 $ 361,860 $ 468,420 $ 555,000 Ending finished goods inventory(units) 20000 13040 16880 20000 Beginning Finished goods inventory 20000 13040 16880 Production during the month 18040 20140 24220 17600 (Sales+Ending inventory-Beginning inventory) Direct labor hours during the month(0.5*Production) 9020 10070 12110 Direct labor cost(labor hours*$19) $ 171,380 $ 191,330 $ 230,090 Variable overhead(Direct labor hour*3.1) $ 27,962 $ 31,217 $ 37,541 Depreciation $23,920 $23,920 $23,920 Ending Raw material inventory(units) 4510 5035 6055 4400 Beginning raw material inventory(units) 4510 5035 6055 4400 Raw material required in the month(units)(0.5*Production) 9020 10070 12110 ( Purchase in units 9545 11090 10455 (Requirement+(ending inventory-Beginning inventory) Purchase cost(units*20) $ 190,900 $ 221,800 $ 209,100 CASH BUDGET: Beginning Cash balance $44,000 $221,858 $332,061 Receipt from sales of March $ 125,000.0 $ 500,000 Receipt from sales of April $ 125,000 $ 500,000 Receipt from sales of May $ 81,500 $ 326,000 Receipt from sales of June $ 105,500 $ 422,000 Total Cash Available $669,000 $803,358 $763,561 Payments: Payment for raw materials purchased $ 190,900 $ 190,900 $ 221,800 $ 209,100 (Purchase of march is not mentioned, assumed same as April) Payment for Direct labor $ 171,380 $ 191,330 $ 230,090 Sales commission(6% of sales) $ 37,500 $ 24,450 $ 31,650 Sales Manager's salary $3,400 $3,400 $3,400 Administrative salaries $16,000 $16,000 $16,000 Variable Overhead $ 27,962 $ 31,217 $ 37,541 Dividend payment $14,000 Equipment purchase $134,000 Total payment $ 447,142 $ 471,297 $ 674,481 Ending Cash Balance(Total cash available-total payments) $221,858 $332,061 $89,080