Question

1 Master budget                                                                                                                                   60 points

ABC Company requests you to prepare a budget for the third quarter ending September 30 2020. You are required to prepare the following budgets:

Sales

Sales receipt schedule

Production

Purchases

Materials payment schedule

Labor

Overheads

General admin and selling

Capital

Cash

Sales Budget

Budgeted sales of the company's product for the month of June was 28,000 units at $5/unit:

It is anticipated that sales units will grow by 5% monthly from the previous month's level, to end August 2020 then stay unchanged for the rest of the calendar year.

There will be a single unit price increase of 20% from 7/01/2020 to December 2020. Sales will be 10% cash and 90% credit.

Schedule of Cash Collection for Sales

The company collects 70% of credit sales in the month of sale; 25% in the month following sale; and the remaining 5% is uncollectible, written off at point of sale.

The accounts receivable balance on 6/30 was $35,000. All of this balance was collectible.

Production Budget

The company desires to have monthly ending inventory of finished goods of 20% of the following month's budgeted sales.

On 6/30, inventory of finished goods was 5,500 units.

Direct Materials Budget

5 pounds of material are required per unit of product.

Management desires to have month ending materials inventory of 10% of following month's production needs.

Beginning materials inventory for the quarter was 13,000 pounds.

Material cost is $0.40 per pound.

Schedule of Cash Disbursement for Materials

50% of materials monthly purchase are paid for in the month of purchase; the balance is paid for in the following month.

The accounts payable balance on June 30 was $12,000.

Direct Labor Budget

Each unit of product requires 0.05 hour of direct labor at the rate of $12 per hour. There will be no overtime budgeted.

Manufacturing Overhead Budget

Variable manufacturing overhead is $8 per direct labor hour.

Fixed manufacturing overhead is $25,500 per month; which includes $4,500 depreciation.

Selling and Admin Expenses Budget

Variable selling and administrative expenses are $0.50 per unit sold.

Fixed selling and administrative expenses are $15,000 per month and include $5,000 in depreciation.

Cash Budget

Available line of credit up to $50,000, in multiples of $10,000.

All borrowings will be at beginning of month and repayments at end of calendar quarter.

Interest paid for short term funding is 3% per month.

Company desires minimum monthly cash balance of $30,000. Ending cash balance 6/30 was $36,500

Cash dividends of $40,000 are to be paid to stockholders in July.

The company plans equipment purchase of $70,000 during the period, to be paid $30,000 in July, $40,000 in August, The equipment will not become operational until October, when depreciation expense will kick in.

Answer 1

Sales Budget
	Jun	Jul-20	Aug.	Sep.2020	Total
Sales units budgeted	28000	29400	30870	30870	91140
Sales $ at $ 5*1.20=$ 6/unit	168000	176400	185220	185220	546840
Cash sales(10%)	16800	17640	18522	18522	54684
Credit sales(90%)	151200	158760	166698	166698	492156

Sales receipt schedule
Cash sales		17640	18522	18522	54684
Credit sales of :
June		35000			35000
July(70%, 25%)		111132	39690		150822
Aug.(70%,25%)			116688.6	41674.5	158363.1
Sep.(70%)				116688.6	116688.6
Total sales collections		163772	174900.6	176885.1	515557.7

Production Budget						Oct.
Sales units budgeted	28000	29400	30870	30870	91140	30870
Add:Desired ending inv.(next mth. Sales*20%)		6174	6174	6174	6174	6174
Total units needed		35574	37044	37044	97314	37044
Less: Beg. Inv. Avail.		5500	6174	6174	5500	6174
Prodution needed		30074	30870	30870	91814	30870
Direct Materials Budget(units)
Prodution needed		30074	30870	30870	91814	30870
DM reqd. at 5 pds./unit		150370	154350	154350	459070	154350
Add:Ending DM desired		15435	15435	15435	15435
Total Pds. needed		165805	169785	169785	474505
Less: Beg. Pds.Avail.		13000	15435	15435	13000
DM purchases reqd.		152805	154350	154350	461505

DM Purchases $ budget
Total DM cost at $ 0.40/pd.		61122	61740	61740	184602
Materials payment schedule
June		12000			12000
July		30561	30561		61122
Aug.			30870	30870	61740
Sep.				30870	30870
Total DM pmts.		42561	61431	61740	165732

Direct Labor Budget
Prodution needed	0	30074	30870	30870	91814
DL hrs. reqd. at 0.05hrs./unit		1503.7	1543.5	1543.5	4590.7
DL $ at $12/DL hr.		18044.4	18522	18522	55088.4
Manufacturing Overhead Budget
Prodution needed	0	30074	30870	30870	91814
DL hrs. reqd. at 0.05hrs./unit	0	1503.7	1543.5	1543.5	4590.7
VMOH at $ 8/DL hr.		12029.6	12348	12348	36725.6
Cash FMOH		21000	21000	21000	63000
Total cash MOH		33029.6	33348	33348	99725.6
Depreciation		4500	4500	4500	13500
Total MOH budgeted		37529.6	37848	37848	113225.6
Selling and Admin Expenses Budget
Sales units budgeted		29400	30870	30870	91140
VS&A OH at $0.50/unit sold		14700	15435	15435	45570
CashFS& A OH		10000	10000	10000	30000
Total cash S&A OH		24700	25435	25435	75570
Depreciation		5000	5000	5000	15000
Total S& A OH budgeted		29700	30435	30435	90570

Cash Budget
Beginning balance		36500	31887	37977	36500
Total sales collections		163772	174901	176885	515558
Total cash available		200272	206788	214862	552058
Less: Disbursements for:
DM purchases		42561	61431	61740	165732
Direct labor		18044.4	18522	18522	55088
Mfg. OH		33029.6	33348	33348	99726
Sell. & admn. OH		24700	25435	25435	75570
Dividends		40000			40000
Eqpt. Purchase		30000	40000		70000
Total disbursements		188335	178736	139045	506116
Surplus/(Deficit)		11937	28052	75817	45942
Add: Borrowings		20000	10000		30000
Less: Repayments				30000	30000
Less: interest		50	75	75	200
Ending balance		31887	37977	45742	45742

July interest--

20000*3%/12=50

Aug.--(20000*3%/12)+(10000*3%/12)=75

Sep.--(20000*3%/12)+(10000*3%/12)=75

Assmed interest is paid at end of month