Osborne Manufacturing is preparing its master budget for the first quarter of the upcoming year. The following data pertain to Osborne Manufacturing€™s operations:
Current assets as of December 31 (prior year):
Cash.............................................................................................................. $ 4,640
Accounts receivable, net............................................................................... $ 57,600
Inventory...................................................................................................... $ 15,600
Property, plant, and equipment, net.............................................................. $121,500
Accounts payable.......................................................................................... $ 42,800
Capital stock................................................................................................. $124,500
Retained earnings.......................................................................................... $ 22,800
a. Actual sales in December were $72,000. Selling price per unit is projected to remain stable at $12 per unit throughout the budget period. Sales for the first five months of the upcoming year are budgeted to be as follows:
January................................................................................................. $104,400
February................................................................................................ $108,000
March................................................................................................... $112,800
April...................................................................................................... $109,200
May...................................................................................................... $105,600
b. Sales are 20% cash and 80% credit. All credit sales are collected in the month following the sale.
c. Osborne Manufacturing has a policy that states that each month€™s ending inventory of finished goods should be 10% of the following month€™s sales (in units).
d. Of each month€™s direct material purchases, 20% are paid for in the month of purchase, while the remainder is paid for in the month following purchase. Three kilograms of direct material is needed per unit at $2.00 per kilogram. Ending inventory of direct materials should be 30% of next month€™s production needs.
e. Monthly manufacturing conversion costs are $4,500 for factory rent, $2,800 for other fixed manufacturing expenses, and $1.10 per unit for variable manufacturing overhead. No depreciation is included in these figures. All expenses are paid in the month in which they are incurred.
f. Computer equipment for the administrative offices will be purchased in the upcoming quarter. In January, Osborne Manufacturing will purchase equipment for $6,000 (cash), while February€™s cash expenditure will be $12,800, and March€™s cash expenditure will be $15,600.
g. Operating expenses are budgeted to be $1.30 per unit sold plus fixed operating expenses of $1,800 per month. All operating expenses are paid in the month in which they are incurred.
h. Depreciation on the building and equipment for the general and administrative offices is budgeted to be $4,600 for the entire quarter, which includes depreciation on new acquisitions.
i. Osborne Manufacturing has a policy that the ending cash balance in each month must be at least $4,200. The company has a line of credit with a local bank. It can borrow in increments of $1,000 at the beginning of each month, up to a total outstanding loan balance of $130,000. The interest rate on these loans is 2% per month simple interest (not compounded). Osborne Manufacturing pays down on the line of credit balance if it has excess funds at the end of the quarter. The company also pays the accumulated interest at the end of the quarter on the funds borrowed during the quarter.
j. The company€™s income tax rate is projected to be 30% of operating income less interest expense. The company pays $10,800 cash at the end of February in estimated taxes.
Requirements
1. Prepare a schedule of cash collections for January, February, and March, and for the quarter in total.

2. Prepare a production budget. (Hint:Unit sales = Sales in dollars / Selling price per unit.)

3. Prepare a direct materials budget.

4. Prepare a cash payments budget for the direct material purchases from Requirement 3.

5. Prepare a cash payments budget for conversion costs.

6. Prepare a cash payments budget for operating expenses.

7. Prepare a combined cash budget.

8. Calculate the budgeted manufacturing cost per unit (assume that fixed manufacturing overhead is budgeted to be $0.80 per unit for the year).
Budgeted Manufacturing Cost per Unit
Direct materials cost per unit
Conversion costs per unit
Fixed manufacturing overhead per unit
Budgeted cost of manufacturing each unit
9. Prepare a budgeted income statement for the quarter ending March 31. (Hint:Cost of goods sold = Budgeted cost of manufacturing each unit  Number of units sold)
Budgeted Income Statement
For the Quarter Ended March 31
Sales..............................................................................
Cost of goods sold.........................................................
Gross profit...................................................................
Operating expenses.......................................................
Depreciation expense....................................................
Operating income..........................................................
Less interest expense.....................................................
Less provision for income taxes.....................................
Net income....................................................................
10. Prepare a partial budgeted balance sheet for March 31. Follow the same format as the original balance sheet provided for December 31, adding Loans Payable and Income Tax Payable.

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Cash Collections Budget FebruaryMrh Quarter Cash sales Credit sales Total cash collections Production Budget JanuarFeb February March Quarter Unit sales Plus: Desired ending inventory Total needed Less: Beginning inventory Units to produce Direct Materials Budget January February March Quarter Units to be produced x kg of DM needed per unit Quantity (kg) needed for production Plus: Desired ending inventory of DM Total quantity (kg) needed Less: Beginning inventory of DM Quantity (kg) to purchase x Cost per kg Total cost of DM purchases Cash Payments for Direct Material Purchases Budget January February March Quarter December purchases (from Accounts Payable) January purchases February purchases March purchases Total cash payments for DM purchases Cash Payments for Conversion Costs Budget January FebruaryMarchQuarter Variable conversion costs Rent (fixed) Other fixed MOH Total payments for conversion costs Cash Payments for Operating Expenses Budget JanuaryFebruary March Quarter Variable operating expenses Fxed operatinng expenses Total payments for operating expenses Combined Cash Budget January FebruaryMarch Quarter Cash balance, beginning Add cash collections Total cash available Less cash payments: Direct material purchases Conversion costs eTmses Equipment purchases Tax payment Total disbursenents Ending cash balance before financing Financing Borrowings Repayments Interest payments Total financing Cash halance, ending