As you know from the previous problem, Sudsy Days manufactures white label soaps that other companies customize with their own logo. Sudsy Days is planning for the upcoming year by developing a master budget by quarters. Using the balance sheet and additional information below you will need to: a. Prepare Sudsy's operating budget and cash budget for the year by quarter. Required schedules and budgets include: a. Sales budget b. Production budget c. Direct materials budget d. Direct labor budget e. Manufacturing overhead budget f. Cost of goods sold budget g. Selling and administrative expense budget h. Schedule of cash receipts i. Schedule of cash payments j. Cash budget b. Prepare Sudsy Days annual financial budget, including: a. Budgeted Income Statement b. Budgeted Balance Sheet **Note that manufacturing overhead costs are allocated based on DL hours.

Sudsy Days

Balance Sheet

December 31, 2018

Assets

Current Assets:

Cash

$ 58,000

A/R

22,000

Raw Materials Inventory

1,200

Finished Goods Inventory

5,400

Total Current Assets

$ 86,600

Plant Property & Equipment:

Equipment

142,000

Less: Accumulated Depreciation

(47,000)

95,000

Total Assets

181,600

Liabilities

Current Liabilities:

Accounts Payable

$ 8,000

Stockholders' Equity

Common Stock, no par

$ 120,000

Retained Earnings

53,600

Total stockholders' equity

173,600

Total Liabilities and Stockholders' Equity

$ 181,600

Additional Information

a.

Budgeted sales are 1,400 soap jugs for the first quarter and are expected to increase by 150 jugs per quarter. Cash sales are expected to make up 30% of total sales, the remainder will be on account. The expected sales price per soap jug is $90.

b.

Finished goods inventory on December 31, 2018, consists of 200 soap jugs at $27 each.

c.

Desired ending finished goods inventory is 40% of the next quarters sales; first-quarter sales for 2020 are expected to be 2,000 soap jugs; FIFO inventory costing is used.

d.

Raw Materials Inventory on December 31, 2018, consists of 600 gallons of the required components used to manufacture the soap.

e.

Direct materials requirements are 3 gallons of material per soap jug. The cost of each gallon is $2.

f.

Desired ending Raw Materials Inventory is 10% of the next quarters direct materials needed for production; desired ending inventory for December 31, 2019, is 600 gallons; indirect materials are insignificant and not considered for budgeting purposes.

g.

Each soap jug requires 0.30 hours of direct labor; direct labor costs average $12 per hour.

h.

Variable manufacturing overhead is $$3.60 per soap jug.

i.

Fixed manufacturing overhead includes $7,000 per quarter in depreciation and $2,585 per quarter for other costs, such as utilities, insurance, and property taxes.

j.

Fixed selling and administrative expenses include $11,000 per quarter for salaries; $1,500 per quarter for rent; $1,350 per quarter for insurance; and $1,500 per quarter for depreciation.

k.

Variable selling and administrative expenses include supplies at 2% of sales.

l.

Capital expenditures include $45,000 for new manufacturing equipment to be purchased and paid in the first quarter.

m.

Cash receipts for sales on account are 40% in the quarter of the sale and 60% in the quarter following the sale; December 31, 2018, Accounts Receivable is received in the first quarter of 2019; uncollectible accounts are considered insignificant and not considered for budgeting purposes.

n.

Direct materials purchases are paid 90% in the quarter purchased and 10% in the following quarter; December 31, 2018, Accounts Payable is paid in the first quarter of 2019.

o.

Direct labor, manufacturing overhead, and selling and administrative costs are paid in the quarter incurred.

p.

Income tax expense is projected at $3,500 per quarter and is paid in the quarter incurred.

q.

Sudsy desires to maintain a minimum cash balance of $55,000 and borrows from the local bank as needed in increments of $1,000 at the beginning of the quarter; principal repayments are made at the beginning of the quarter when excess funds are available and in increments of $1,000; interest is 10% per year and paid at the beginning of the quarter based on the amount outstanding from the previous quarter.