Brighton, Inc., manufactures kitchen tiles. The company recently expanded, and the controller believes that it will need to borrow cash to continue operations. It began negotiating for a one-month bank loan of $500,000 starting May 1. The bank would charge interest at the rate of 1 percent per month and require the company to repay interest and principal on May 31. In considering the loan, the bank requested a projected income statement and cash budget for May.

The following information is available:

• The company budgeted sales at 600,000 units per month in April, June, and July and at 450,000 units in May. The selling price is $4 per unit.
• The inventory of finished goods on April 1 was 120,000 units. The finished goods inventory at the end of each month equals 20 percent of sales anticipated for the following month. There is no work in process.
• The inventory of raw materials on April 1 was 57,000 pounds. At the end of each month, the raw materials inventory equals no less than 40 percent of production requirements for the following month. The company purchases materials in quantities of 62,500 pounds per shipment.
• Selling expenses are 10 percent of gross sales. Administrative expenses, which include depreciation of $2,500 per month on office furniture and fixtures, total $165,000 per month.
• The manufacturing budget for tiles, based on normal production of 500,000 units per month, follows.

Materials (1/4 pound per tile, 125,000 pounds, $4 per pound)	$	500,000
Labor		400,000
Variable overhead		200,000
Fixed overhead (includes depreciation of $200,000)		400,000
Total	$	1,500,000

Required:

a-1. Prepare schedules computing inventory budgets by months for production in units for April, May, and June. a-2. Prepare schedules computing inventory budgets by months for raw materials purchases in pounds for April and May. b. Prepare a projected income statement for May. Cost of goods sold should equal the variable manufacturing cost per unit times the number of units sold plus the total fixed manufacturing cost budgeted for the period. When calculating net sales assume cash discounts of 1 percent and bad debt expense of 0.5 percent.

a1.

Prepare schedules computing inventory budgets by months for production in units for April, May, and June. Below is correct for part 1.

BRIGHTON, INC.
Schedule Computing Production Budget (Units)
For April, May, and June
	April	May	June
Budgeted sales	600,000	450,000	600,000
Inventory required at end of month	90,000	120,000	120,000
Total needs	690,000	570,000	720,000
Less: Inventory on hand at beginning of montht	120,000	90,000	120,000
Budgeted production Units	570,000	480,000	600,000

a2

Prepare schedules computing inventory budgets by months for raw materials purchases in pounds for April and May.

Schedule Computing Raw Materials Inventory
Purchase Budget (Pounds)
For April and May
	April	May
Inventory required at end of month	?	?
Budgeted Production needs in pounds	?	?
Total pound needs	?	?
Less: Inventory on hand at beginning of month	57,000	?
Balance required to purchase	605,500	?
Budgeted purchases Pounds	187,500	?

b.

Prepare a projected income statement for May. Cost of goods sold should equal the variable manufacturing cost per unit times the number of units sold plus the total fixed manufacturing cost budgeted for the period. When calculating net sales assume cash discounts of 1 percent and bad debt expense of 0.5 percent. (Do not round intermediate calculations.)

BRIGHTON, INC.
Projected Income Statement
For the Month of May
Sales revenue
Cash discounts on sales
Estimated bad debt
Net Sales
Cost of Sales:
Variable costs
Expenses:
Selling expense
Interest expense
Administrative expense
Operating profit