11:31 "I '2? E} 1of3 BONUS ASSIGNMENT Royal Company is preparing budgets for the 2nd quarter, which ends on June 30. Budgeted sales of the company's only product for the next five months are: April ........ 20,000 units May ......... 50,000 units June ........ 30,000 units July ......... 25,000 units August 15,000 units 0 The selling price is $10 per unit. Additional data: All sales are on account. The company collects 70% of these credit sales in the month of the sale; 25% are collected in the month following sale; and the remaining 5% are uncollectible. The accounts receivable balance on March 31 was $30,000. All of this balance was collectible. The company desires to have inventory on hand at the end of each month equal to 20% of the following month's budgeted unit sales. On March 31, 4,000 units were on hand. 5 pounds of material are required per unit of product. Management desires to have materials on hand at the end of each month equal to 10% of the following month's production needs. The beginning materials inventory was 13,000 pounds. The material costs $0.40 per pound Half of a month's purchases are paid for in the month of purchase; the other half is paid for in the following month. No discounts are given for early payment. The accounts payable balance on March 31 was $12,000. Each unit produced requires 0.05 hour of direct labor time. Each hour of direct labor time costs the company $10. Management fully adjusts the workforce to the workload each month. Royal Company uses absorption costing in its budgeted income statement and balance sheet. 0 .33.ca-central-1.amazonaws.com 6 [I] [E] 11:31 "I '2? E} uaiai run: or IGCl. 20f3 - Manufacturing overhead is applied to units of product on the basis of direct labor hours. . The company has no work in process inventories - Variable manufacturing overhead is $20 per direct labor hour. . Fixed manufacturing overhead is $50,500 per month. This includes $20,500 in depreciation. which is not a cash outflow. - Variable selling and administrative expenses are $0.50 per unit sold. a Fixed selling and administrative expenses are $70,000 per month and include $10,000 in depreciation. A line of credit is available at a local bank that allows the company to borrow up to $75,000. a. All borrowing occurs at the beginning of the month, and all repayments occur at the end of the month. b. The interest rate is 1% per month. c. The company does not have to make any payments until the end of the quarter. . Royal Company desires a cash balance of at least $30,000 at the end of each month. The cash balance at the beginning of April was $40,000. - Cash dividends of $51,000 are to be paid to stockholders in April. . Equipment purchases of $143,700 are scheduled for May and $48,800 for June. This equipment will be installed and tested during the second quarter and will not become operational until July, when depreciation charges will commence. BEGINNING BALANCE SHEET Royal Company Balance Sheet March 31 Current assets: Cash ............................... $ 40,000 Accounts receivable .......... 30,000 Raw materials inventory ..... 5200 Finished goods inventory ............................. 20 000 $ 95.200 Plant and equipment: Land ............................................................ 400,000 Buildings and equipment .. 1,610,000 Accumulated depreciation ........................... (750 000) 1,260,000 8 canvasniagara.33.cacentral-'I.amazonaws.com 11:32 .II '3' I ' Total assets .................................................... $1535; 200 Liabilities: Accounts payable ........................................ $ 12,000 Stockholders' equity: Common stock ............................................ $ 200,000 Retained earnings ................... 1 143 200 1 343 200 Total liabilities and stockholders' equity .......... $1 355 200 REQUIRED Prepare the following elements of the Master Budget: 1. Sales budget (with a schedule of expected cash collections). 2. Production budget. 3. Direct materials budget (with a schedule of expected cash disbursements for materials). Direct labor budget. Manufacturing overhead budget. Ending finished goods inventory budget. Selling and administrative expense budget. Cash budget. .."F7'.U1:'=' H .33.ca-centra|-'l.amazonaws.com G