11. Cherry Company has prepared the following budget for January:

Selling price per unit, variable cost per unit, total fixed costs, work-in-process inventory, and finished goods inventory are anticipated to remain constant each month. Raw materials inventory is always 10% of the following month’s production needs. Unit sales have increased 5%
each month for the last 6 months, and that trend is expected to continue through the first half of next year.
The cash balance at the beginning of January is $500,000. Cherry collects 50% of revenues in the month of sale, 30% in the following month, 15% in the second month following sale, and 5% are uncollectible. Materials costs are paid in the month following purchase, and all other costs are paid for as incurred. Cherry is hoping to reduce direct labor cost per unit in the future by 2% each month.

a. Prepare a cash budget for January.

b. Prepare a flexible budget for January for sales levels 5% and 10% above and below expectations.

c. Prepare a Kaizen budget for direct labor for the first 6 months of the year.

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Sales revenue (for 300,000 units) Cost of goods sold Direct materials used Direct labor Variable factory overhead Fixed factory overhead Gross margin Variable Fixed Operating income Operating expenses $17,400,000 $ 1,350,000 1,500,000 1,275,000 1,500,000 5,625,000 $11,775,000 $1,275,000 550,000 1,825,000 $9,950,000