Budget Project - Master Budget for a Garneau ManufacturerGarneau Manufacturing Ltd. produces and distributes a special typeof chemical compound called Compound WX. The information belowabout Garneau's operations has been assembled to assist budgetpreparation. The company is preparing its master budget for thefirst quarter of 2016. The budget will detail each monthâs activityand the activity for the quarter in total. The master budget willbe based on the following information:
1. Selling price is $60 per unit in 2015 and will not change forthe first two quarters of 2016. Actual and estimated sales are asfollows:
Actual 2015 Estimated 2016
November: 10 000 units January: 11 000 units
December: 12 000 units February: 10 000 units
March: 13 000 units
April: 11 000 units
May: 10 000 units
2. The company produces enough units each month to meet thatmonthâs sales plus a desired inventory level equal to 20% of nextmonthâs estimated sales. Finished Goods inventory at the end of2015 consisted of 2,200 units at a variable cost of $33 each.
3. The company purchases enough raw materials each month for thecurrent monthâs production requirement and 25% of next month'sproduction requirements. Each unit of product requires 5 kilogramsof raw material at $0.60 per kilogram. There were 13,500 kilogramsof raw materials in inventory at the end of 2015. Garneau pays 40%of raw material purchases in the month of purchase and theremaining 60% in the following month.
4. Each unit of finished product requires 1.25 labour-hours. Theaverage wage rate is $16 per hour.
5. Variable manufacturing overhead is 50% of the direct labourcost.
6. Credit sales are 60% of total sales. The company collects 50%of the credit sales during the first month following the month ofsale and 50% during the second month.
7. Fixed overhead costs (per month) are as follows:
Factory Supervisor's Salary: $75 000
Factory Insurance: $1 400
Factory Rent: $8 000
Deprciation of Factory Equipment: $1 200
8. Total fixed selling and administrative expenses are asfollows:
Advertising: $300
Depreciation: $9 000
Insurance: $250
Salaries: $4 000
Other: $14 550
9. Variable selling and administrative expenses consist of $4for shipping and 10% of sales for commissions.
10.The company will acquire assets for use in the sales officeat a cost of $300,000, which will be paid at the end of January2016. The monthly depreciation expense on the additional capitalassets will be $6,000.
11.The balance sheet as of December 31, 2015, is as follows:
Assets
Cash $80 000
Accounts Recieveable 612 000
Inventory: Raw Matrerials $8 100
add
Finished Goods 72 600 = 80 700
Plant and Equipment 1 000 000
Less: Accumulation Depreciation (100 000) 900 000
Total Assets 1 672 700
Liabilities and Equity
Accounts Payable $24 000
6% Long Term Notes Payable 900 000
Common Shares 735 000
Retained Earnings 13 700
Total Liabilites and Shareholders' Equity 1 672 700
Additional information is as follows:
⢠All cash payments except purchases of raw materials are mademonthly as incurred.
⢠All borrowings occur at the beginning of each month, and allrepayments occur at the end of the month. Borrowings and repaymentsmay occur in any amount.
⢠All interest on borrowed funds is paid at the end of eachmonth at a rate of 0.5% per month.
⢠A minimum cash balance of $30,000 is required at the end ofeach month.
Required: Prepare the following budgets for each of the firstthree months of 2016:
1. Manufacturing overhead budget.
2. Selling and administrative budget.
3. Cash budget.
Budget Project - Master Budget for a Garneau ManufacturerGarneau Manufacturing Ltd. produces and distributes a special typeof chemical compound called Compound WX. The information belowabout Garneau's operations has been assembled to assist budgetpreparation. The company is preparing its master budget for thefirst quarter of 2016. The budget will detail each monthâs activityand the activity for the quarter in total. The master budget willbe based on the following information:
1. Selling price is $60 per unit in 2015 and will not change forthe first two quarters of 2016. Actual and estimated sales are asfollows:
Actual 2015 Estimated 2016
November: 10 000 units January: 11 000 units
December: 12 000 units February: 10 000 units
March: 13 000 units
April: 11 000 units
May: 10 000 units
2. The company produces enough units each month to meet thatmonthâs sales plus a desired inventory level equal to 20% of nextmonthâs estimated sales. Finished Goods inventory at the end of2015 consisted of 2,200 units at a variable cost of $33 each.
3. The company purchases enough raw materials each month for thecurrent monthâs production requirement and 25% of next month'sproduction requirements. Each unit of product requires 5 kilogramsof raw material at $0.60 per kilogram. There were 13,500 kilogramsof raw materials in inventory at the end of 2015. Garneau pays 40%of raw material purchases in the month of purchase and theremaining 60% in the following month.
4. Each unit of finished product requires 1.25 labour-hours. Theaverage wage rate is $16 per hour.
5. Variable manufacturing overhead is 50% of the direct labourcost.
6. Credit sales are 60% of total sales. The company collects 50%of the credit sales during the first month following the month ofsale and 50% during the second month.
7. Fixed overhead costs (per month) are as follows:
Factory Supervisor's Salary: $75 000
Factory Insurance: $1 400
Factory Rent: $8 000
Deprciation of Factory Equipment: $1 200
8. Total fixed selling and administrative expenses are asfollows:
Advertising: $300
Depreciation: $9 000
Insurance: $250
Salaries: $4 000
Other: $14 550
9. Variable selling and administrative expenses consist of $4for shipping and 10% of sales for commissions.
10.The company will acquire assets for use in the sales officeat a cost of $300,000, which will be paid at the end of January2016. The monthly depreciation expense on the additional capitalassets will be $6,000.
11.The balance sheet as of December 31, 2015, is as follows:
Assets
Cash $80 000
Accounts Recieveable 612 000
Inventory: Raw Matrerials $8 100
add
Finished Goods 72 600 = 80 700
Plant and Equipment 1 000 000
Less: Accumulation Depreciation (100 000) 900 000
Total Assets 1 672 700
Liabilities and Equity
Accounts Payable $24 000
6% Long Term Notes Payable 900 000
Common Shares 735 000
Retained Earnings 13 700
Total Liabilites and Shareholders' Equity 1 672 700
Additional information is as follows:
⢠All cash payments except purchases of raw materials are mademonthly as incurred.
⢠All borrowings occur at the beginning of each month, and allrepayments occur at the end of the month. Borrowings and repaymentsmay occur in any amount.
⢠All interest on borrowed funds is paid at the end of eachmonth at a rate of 0.5% per month.
⢠A minimum cash balance of $30,000 is required at the end ofeach month.
Required: Prepare the following budgets for each of the firstthree months of 2016:
1. Manufacturing overhead budget.
2. Selling and administrative budget.
3. Cash budget.
Related questions
| The management of Zigby Manufacturing prepared the following estimated balance sheet for March, 2015: |
| ZIGBY MANUFACTURING Estimated Balance Sheet March 31, 2015 | |||||
| Assets | |||||
| Cash | $ | 65,000 | |||
| Accounts receivable | 437,760 | ||||
| Raw materials inventory | 90,200 | ||||
| Finished goods inventory | 308,028 | ||||
| Total current assets | 900,988 | ||||
| Equipment, gross | 630,000 | ||||
| Accumulated depreciation | (165,000) | ||||
| Equipment, net | 465,000 | ||||
| Total assets | $ | 1,365,988 | |||
| Liabilities and Equity | |||||
| Accounts payable | 204,500 | ||||
| Short-term notes payable | 27,000 | ||||
| Total current liabilities | $ | 231,500 | |||
| Long-term note payable | 515,000 | ||||
| Total liabilities | 746,500 | ||||
| Common stock | 350,000 | ||||
| Retained earnings | 269,488 | ||||
| Total stockholdersâ equity | 619,488 | ||||
| Total liabilities and equity | $ | 1,365,988 | |||
| To prepare a master budget for April, May, and June of 2015, management gathers the following information. |
| a. | Sales for March total 22,800 units. Forecasted sales in units are as follows: April, 22,800; May, 16,000; June, 23,000; July, 22,800. Sales of 255,000 units are forecasted for the entire year. The productâs selling price is $24.00 per unit and its total product cost is $19.30 per unit. |
| b. | Company policy calls for a given monthâs ending raw materials inventory to equal 50% of the next monthâs 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 5,500 units. Raw materials cost $20 per unit. Each finished unit requires 0.50 units of raw materials. |
| c. | Company policy calls for a given monthâs ending finished goods inventory to equal 70% of the next monthâs expected unit sales. The March 31 finished goods inventory is 15,960 units, which complies with the policy. |
| d. | Each finished unit requires 0.50 hours of direct labor at a rate of $11 per hour. |
| e. | Overhead is allocated based on direct labor hours. The predetermined variable overhead rate is $4.20 per direct labor hour. Depreciation of $35,020 per month is treated as fixed factory overhead. |
| f. | Sales representativesâ commissions are 10% of sales and are paid in the month of the sales. The sales managerâs monthly salary is $4,500. |
| g. | Monthly general and administrative expenses include $27,000 administrative salaries and 0.6% 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 monthâs raw materials purchases are fully paid in the next month. |
| J. | The minimum ending cash balance for all months is $55,000. 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 $25,000 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 $145,000 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:
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Raw materials budget.
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Direct labor budget.
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Factory overhead budget.
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Glow, Inc. is interested in purchasing some new manufacturingequipment right after the beginning of the new year. They wouldlike to finance the new equipment with cash and marketablesecurities, but if necessary they can get a short-term loan from alocal bank. You have been engaged to prepare a master budget forGlow, Inc. for the first quarter of 2016. Glow, Inc. is a small,rapidly growing manufacturer of lighting equipment. The companyâsmain product line is table lamps. The marketing manager hasrecently completed a sales forecast. She believes the companyâssales during the first quarter of 2016 will increase by 15 percenteach month over the previous monthâs sales. Then sales are expectedto remain constant for several months. Glow Inc.âs projectedbalance sheet as of December 31, 2015 is as follows:
Cash $60,000
Accountsreceivable 312,000
Marketablesecurities 30,000
Inventory 261,625
Buildings and equipment (net of accumulateddepreciation) 1,298,519
Total assets $1,962,144
Accounts payable $366,844
Bond interestpayable 12,500
Property taxespayable 4,800
Bonds payable (10%; due in2020) 600,000
Common stock 750,000
Retainedearnings 228,000
Total liabilities and stockholders' equity $1,962,144
The controller is now preparing a budget for the first quarterof 2016. In the process, the following information has beenaccumulated:
1) Projected sales for December 2015 are $650,000. Credit salesare typically 60% of total sales. Glow, Inc.âs credit experienceindicates that 20% of credit sales are collected during the monthof sale, and the remainder are collected during the followingmonth.
2) Glow, Inc.âs cost of goods sold generally runs at 70% ofsales. Inventory is purchased on account and 25% of each monthâspurchases are paid during the month of purchase. The remainder ispaid during the following month. In order to have adequate stocksof inventory on hand, the company attempts to have inventory onhand at the end of each month equal to half of the next monthâsprojected cost of goods sold.
3) The controller has estimated that Glow Inc.âs other monthlyexpenses will be as follows:
Sales salaries $20,000
Advertising andpromotion 25,000
Administrativesalaries 35,000
Depreciation 15,000
Interest onbonds 2,500
Propertytaxes 1,200
In addition, sales commissions run at the rate of 3 percent ofsales and are paid in the same month as the sale.
4) The company president has indicated that the company shouldinvest $275,000 in state of the art manufacturing equipment justafter the new year begins. This equipment purchase will be financedprimarily from the companyâs cash and marketable securities.However, the president believes the company needs to keep a minimumcash balance of $50,000. If necessary, the remainder of theequipment purchase will be financed using short-term credit from alocal bank. The minimum period for such a loan is three months. Thecurrent short-term interest rates are 8 percent per year and areexpected to remain at this rate through the time the equipment ispurchased. If a loan is necessary, the president has decided itshould be paid off by the end of the first quarter if possible.
5) Glow, Inc.âs board of directors has indicated an intention todeclare and pay dividends of $100,000 on the last day of eachquarter.
6) The interest on any short-term borrowing will be paid whenthe loan is repaid. Interest on Glow, Inc.âs bonds is paidsemiannually on January 31 and July 31 for the preceding six-monthperiod.
7) Property taxes are paid semiannually on February 28 andAugust 31 for the preceding six-month period.
Required: Prepare Glow, Inc.âs master budget for thefirst quarter of 2016 by completing the following schedules andstatements. Round all answers to the nearest dollar (do not includecents).
1.) | Sales budget: | 2015 | 2016 | |||||||||||
Decemeber | January | February | March | 1st Quarter | ||||||||||
Total sales | ||||||||||||||
Cash sales | ||||||||||||||
Sale on account | ||||||||||||||
2.) | Cash receipts budget: | 2016 | ||||||||||||
January | February | March | 1st Quarter | |||||||||||
Cash sales | ||||||||||||||
Cash collections from credit sales made | ||||||||||||||
During current month | ||||||||||||||
Cash collections from credit sales made | ||||||||||||||
During preceding month | ||||||||||||||
Total cash receipts | ||||||||||||||
3.) | Purchse budget: | 2015 | 2016 | |||||||||||
Decemeber | January | February | March | 1st Quarter | ||||||||||
Budgeted cost of goods sold | ||||||||||||||
Add: Desired ending | ||||||||||||||
Inventory | ||||||||||||||
Total goods needed | ||||||||||||||
Less: Expected beginning | ||||||||||||||
Inventory | ||||||||||||||
Purchases | ||||||||||||||
4.) | Cash disbursements budget: | 2016 | ||||||||||||
January | February | March | 1st Quarter | |||||||||||
Inventory purchses: | ||||||||||||||
Cash payments for puschases during the current month | ||||||||||||||
Cash payments for puschases during the preceding month | ||||||||||||||
Total cash payments for inventory purchases | ||||||||||||||
Other expenses: | ||||||||||||||
Sales salaries | ||||||||||||||
Advertising and promotion | ||||||||||||||
Administrative salaries | ||||||||||||||
Interest on bonds | ||||||||||||||
Property taxes | ||||||||||||||
Sales commissions | ||||||||||||||
Total cash payments for other expenses | ||||||||||||||
Total cash disbursements | ||||||||||||||
Complete the first three lines of the summary budget. Then dothe analysis of short-term financing needs in requirement (6). Usethis answer to help complete requirement (5) | ||||||||||||||
5.) | Summary cash budget: | 20x1 | ||||||||||||
Cash receipts (sch 2) | January | February | March | 1st Quarter | ||||||||||
Less: Cash disbursements (sch 4) | ||||||||||||||
Change in cash balance during period due to operations | ||||||||||||||
Sale of marketable securities (1/2/16) | ||||||||||||||
Proceeds from bank loan (1/2/16) | ||||||||||||||
Purchase of equipment | ||||||||||||||
Repayment of bank loan (3/31/16) | ||||||||||||||
Interest on bank loan | ||||||||||||||
Payment of dividends | ||||||||||||||
Change in cash balance during first quarter | XXXXX | XXXXX | XXXXX | |||||||||||
Cash balance, 1/1/16 | XXXXX | XXXXX | XXXXX | |||||||||||
Cash balance, 3/31/16 | XXXXX | XXXXX | XXXXX | |||||||||||
6.) Analysis of short-term financing needs: | ||||||||||||||
Projected cash balance as of December 31, 2015 | $ | |||||||||||||
Less: minimum cash balance | ||||||||||||||
Cash available for equipment purchases | $ | |||||||||||||
Projected proceeds from sale of marketable securities | ||||||||||||||
Cash available | $ | |||||||||||||
Less: Cost of investment in equipment | ||||||||||||||
Required short-term borrowing | $ | |||||||||||||
7) Prepare Glow, Inc.âs budgeted income statement for the firstquarter of 2016. (Ignore income taxes.)
8) Prepare Glow, Inc.âs budgeted statement of retained earningsfor the first quarter of 2016.
9) EXTRA CREDIT (5 points): Prepare Glow, Inc.âs budgetedbalance sheet as of March 31, 2016. (Hint: On March 31, 2016, BondInterest Payable is $5,000 and Property Taxes Payable is$1,200.)
Please show details for 1-6
| The management of Zigby Manufacturing prepared the following estimated balance sheet for March, 2015: |
| ZIGBY MANUFACTURING Estimated Balance Sheet March 31, 2015 | |||||
| Assets | |||||
| Cash | $ | 65,000 | |||
| Accounts receivable | 437,760 | ||||
| Raw materials inventory | 90,200 | ||||
| Finished goods inventory | 308,028 | ||||
| Total current assets | 900,988 | ||||
| Equipment, gross | 630,000 | ||||
| Accumulated depreciation | (165,000) | ||||
| Equipment, net | 465,000 | ||||
| Total assets | $ | 1,365,988 | |||
| Liabilities and Equity | |||||
| Accounts payable | 204,500 | ||||
| Short-term notes payable | 27,000 | ||||
| Total current liabilities | $ | 231,500 | |||
| Long-term note payable | 515,000 | ||||
| Total liabilities | 746,500 | ||||
| Common stock | 350,000 | ||||
| Retained earnings | 269,488 | ||||
| Total stockholdersâ equity | 619,488 | ||||
| Total liabilities and equity | $ | 1,365,988 | |||
| To prepare a master budget for April, May, and June of 2015, management gathers the following information. |
| a. | Sales for March total 22,800 units. Forecasted sales in units are as follows: April, 22,800; May, 16,000; June, 23,000; July, 22,800. Sales of 255,000 units are forecasted for the entire year. The productâs selling price is $24.00 per unit and its total product cost is $19.30 per unit. |
| b. | Company policy calls for a given monthâs ending raw materials inventory to equal 50% of the next monthâs 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 5,500 units. Raw materials cost $20 per unit. Each finished unit requires 0.50 units of raw materials. |
| c. | Company policy calls for a given monthâs ending finished goods inventory to equal 70% of the next monthâs expected unit sales. The March 31 finished goods inventory is 15,960 units, which complies with the policy. |
| d. | Each finished unit requires 0.50 hours of direct labor at a rate of $11 per hour. |
| e. | Overhead is allocated based on direct labor hours. The predetermined variable overhead rate is $4.20 per direct labor hour. Depreciation of $35,020 per month is treated as fixed factory overhead. |
| f. | Sales representativesâ commissions are 10% of sales and are paid in the month of the sales. The sales managerâs monthly salary is $4,500. |
| g. | Monthly general and administrative expenses include $27,000 administrative salaries and 0.6% 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 monthâs raw materials purchases are fully paid in the next month. |
| J. | The minimum ending cash balance for all months is $55,000. 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 $25,000 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 $145,000 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: Cash budget.
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Budgeted income statement for the entire first quarter (not for each month separately).
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Budgeted balance sheet.
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