Chapter 20: Q12DQ (page 913)
Would a manager of an Apple retail store participate more in budgeting than a manager at the corporate offices? Explain
Budgeting is to be done with the help of a corporate manager.
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Apple regularly uses budgets. What is the difference between a production budget and a manufacturing budget?
The management of Zigby Manufacturing prepared the following estimated balance sheet for March 2017:
To prepare a master budget for April, May, and June of 2017, management gathers the following information:
a. Sales for March total 20,500 units. Forecasted sales in units are as follows: April, 20,500; May, 19,500; June, 20,000; and July, 20,500. Sales of 240,000 units are forecasted for the entire year. The product’s selling price is \(23.85 per unit and its total product cost is \)19.85 per unit.
b. Company policy calls for a given month’s ending raw materials inventory to equal 50% of the next month’s materials requirements. The March 31 raw materials inventory is 4,925 units, which complies with the policy. The expected June 30 ending raw materials inventory is 4,000 units. Raw materials cost \(20 per unit. Each finished unit requires 0.50 units of raw materials.
c. Company policy calls for a given month’s ending finished goods inventory to equal 80% of the next month’s expected unit sales. The March 31 finished goods inventory is 16,400 units, which complies with the policy.
d. Each finished unit requires 0.50 hours of direct labor at a rate of \)15 per hour.
e. Overhead is allocated based on direct labor hours. The predetermined variable overhead rate is \(2.70 per direct labor hour. Depreciation of \)20,000 per month is treated as fixed factory overhead.
f. Sales representatives’ commissions are 8% of sales and are paid in the month of the sales. The sales manager’s monthly salary is \(3,000.
g. Monthly general and administrative expenses include \)12,000 administrative salaries and 0.9% monthly interest on the long-term note payable.
h. The company expects 30% of sales to be for cash and the remaining 70% on credit. Receivables are collected in full in the month following the sale (none are 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 \(40,000. If necessary, the company borrows enough cash using a short-term note to reach the minimum. Short-term notes require an interest payment of 1% at each month-end (before any repayment). If the ending cash balance exceeds the minimum, the excess will be applied to repaying the short-term notes payable balance.
k. Dividends of \)10,000 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 35% in the quarter and paid in the third calendar quarter.
m. Equipment purchases of $130,000 are budgeted for the last day of June.
Required
Prepare the following budgets and other financial information as required. All budgets and other financial information should be prepared for the second calendar quarter, except as otherwise noted below. Round calculations up to the nearest whole dollar, except for the amount of cash sales, which should be rounded down to the nearest whole dollar.
1. Sales budget.
2. Production budget.
3. Raw materials budget.
4. Direct labor budget.
5. Factory overhead budget.
6. Selling expense budget.
7. General and administrative expense budget.
8. Cash budget.
9. Budgeted income statement for the entire second quarter (not for each month separately).
10. Budgeted balance sheet as of the end of the second calendar quarter.
The production budget for Manner Company shows units to be produced as follows: July, 620; August, 680; and September, 540. Each unit produced requires two hours of direct labor. The direct labor rate is currently \(20 per hour but is predicted to be \)21 per hour in September. Prepare a direct labor budget for the months July, August, and September.
Jasper Company has sales on account and for cash. Specifically, 70% of its sales are on account and 30% are for cash. Credit sales are collected in full in the month following the sale. The company forecasts sales of \(525,000 for April, \)535,000 for May, and \(560,000 for June. The beginning balance of accounts receivable is \)400,000 on April 1. Prepare a schedule of budgeted cash receipts for April, May, and June.
X-Tel budgets sales of \(60,000 for April, \)100,000 for May, and \(80,000 for June. In addition, sales are 40% cash and 60% on credit. All credit sales are collected in the month following the sale. The April 1 balance in accounts receivable is \)15,000. Prepare a schedule of budgeted cash receipts for April, May, and June.
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