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Asahi Glass Inc. produces and distributes different kinds of glasses. The information below about Asahis operations has been assembled to assist budget preparation. The company
Asahi Glass Inc. produces and distributes different kinds of glasses. The information below about Asahis operations has been assembled to assist budget preparation. The company is preparing its master budget for the first quarter of 2021. The budget will detail each months activity and the activity for the quarter in total. The master budget will be based on the following information: a. Selling price was $40 per unit in 2019 and will not change during 2020. Actual and Estimated Sales are as follows Estimated 2020 January: 30,000 units February: 32,000 units March: 27,000 units April: 25,000 units May: 20,000 units b. The company produces enough units each month to meet that months sales plus a desired inventory level equal to 20% of next months estimated sales. Finished goods inventory at the end of 2019 consisted of 2,000 units. c. The company purchases enough raw materials each month for the current months production requirement and 20% of next months production requirement. Each unit of product requires 4 kilograms of raw material at $0.50 per kilogram. There were 25,000 kilograms of raw materials in inventory at the end of 2019. Asahi pays 40% of the raw material purchases in the month of purchase and the remaining 60% in the following month. d. Each unit of finished product requires 1.6 labor-hours. The average wage rate is $20 per hour. e. Variable manufacturing overhead is 40% of the direct labor cost. f. Sales are 30% in cash and 70% in credit. Credit sales are collected in the month following sale. g. Fixed manufacturing overhead costs (per month) are as follows Factory Managers Salary $ 6,500 Factory Insurance $ 3,400 Factory Rent $45,000 Depreciation of factory equipment $ 2,000 h. Total fixed S & A expenses are as follows Advertising Depreciation Insurance Salaries Other $ 3,000 $ 8,000 $ 750 $ 5,000 $ 2,950 i. Variable selling and administrative expenses consist of $3.5/unit for shipping and 12% of sales for commissions. j. The balance sheet as of December 31, 2019 is as follows Assets Liabilities and Equity Accounts Payable Long-Term Notes payable Common Shares Retained Earnings Total Liabilities and Shareholders Equity Additional information is as follows Cash Accounts Receivable Inventory: Raw Materials Inventory: Finished Goods Plant and Equipment Less: Accumulated Depreciation Total Assets $ 12,500 82,000 $1,100,000 (180,000) $ 70,000 512,000 94,500 920,000 $1,596,500 $ 27,500 819,000 635,000 115,000 $1,596,500 All cash payments except purchases of raw materials are made monthly as incurred All borrowings occur at the beginning of each month, and all repayments occur at the end of the month. Ignore interest rates and income tax. A minimum cash balance of $60,000 is required at the end of each month. Required: 1. Prepare the following budgets for each of the first three months of 2020. [21 marks] a. Sales budget. b. Production budget. c. Raw materials purchases budget. d. Direct labour and manufacturing overhead budget. e. Ending finished goods inventory budget f. Selling and administrative budget. g. Cash budget.
Asahi Glass Inc. produces and distributes different kinds of glasses. The information below about Asahis operations has been assembled to assist budget preparation. The company is preparing its master budget for the first quarter of 2021. The budget will detail each months activity and the activity for the quarter in total. The master budget will be based on the following information:
a. Selling price was $40 per unit in 2019 and will not change during 2020. Actual and Estimated Sales are as follows
Estimated 2020
January: 30,000 units February: 32,000 units March: 27,000 units April: 25,000 units May: 20,000 units
b. The company produces enough units each month to meet that months sales plus a desired inventory level equal to 20% of next months estimated sales. Finished goods inventory at the end of 2019 consisted of 2,000 units.
c. The company purchases enough raw materials each month for the current months production requirement and 20% of next months production requirement. Each unit of product requires 4 kilograms of raw material at $0.50 per kilogram. There were 25,000 kilograms of raw materials in inventory at the end of 2019. Asahi pays 40% of the raw material purchases in the month of purchase and the remaining 60% in the following month.
d. Each unit of finished product requires 1.6 labor-hours. The average wage rate is $20 per hour.
e. Variable manufacturing overhead is 40% of the direct labor cost.
f. Sales are 30% in cash and 70% in credit. Credit sales are collected in the month following sale.
g. Fixed manufacturing overhead costs (per month) are as follows
Factory Managers Salary $ 6,500 Factory Insurance $ 3,400 Factory Rent $45,000 Depreciation of factory equipment $ 2,000
h. Total fixed S & A expenses are as follows
Advertising Depreciation Insurance Salaries Other
$ 3,000 $ 8,000 $ 750 $ 5,000 $ 2,950
i. Variable selling and administrative expenses consist of $3.5/unit for shipping and 12% of sales for commissions.
j. The balance sheet as of December 31, 2019 is as follows
Assets
Liabilities and Equity
Accounts Payable
Long-Term Notes payable
Common Shares
Retained Earnings
Total Liabilities and Shareholders Equity
Additional information is as follows
Cash
Accounts Receivable
Inventory: Raw Materials Inventory: Finished Goods
Plant and Equipment
Less: Accumulated Depreciation Total Assets
$ 12,500 82,000 $1,100,000 (180,000)
$ 70,000 512,000
94,500
920,000 $1,596,500
$ 27,500 819,000 635,000 115,000
$1,596,500
All cash payments except purchases of raw materials are made monthly as incurred
All borrowings occur at the beginning of each month, and all repayments occur at the end of the
month.
Ignore interest rates and income tax.
A minimum cash balance of $60,000 is required at the end of each month.
Required:
1. Prepare the following budgets for each of the first three months of 2020. [21 marks] a. Sales budget.
b. Production budget.
c. Raw materials purchases budget.
d. Direct labour and manufacturing overhead budget. e. Ending finished goods inventory budget
f. Selling and administrative budget.
g. Cash budget.
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