Budgeting: Comprehensive Problem

Judds Reproductions makes reproductions of antique tables and chairs and sells them through three sales outlets. The product line consists of two styles of chairs, two styles of tables and three styles of cabinets. Although customers often ask Judd Molinari, the owner/manager of Judds Reproductions, to make other products, he does not intend to expand the product line.

The planning group of Judds Reproductions prepares a master budget for each fiscal year, which corresponds to the calendar year. It is December 2011, and the planners are completing the master budget for 2012.

Unit prices are $200, $900, and $1800 for the chairs, tables, and cabinets, respectively. Customers pay (1) by cash and receive a 5% discount, (2) by credit card (the credit card company takes 3% of the revenue as its fee and remits the balance in the month following the month of sale), or (3) on account (only exporters buy on account). The distribution of cash, credit, card, and exporter sales is 25%, 35%, and 40%, respectively. Pf the credit sales to exporters, Judds Reproductions collects 30% in the month following the sale, 50% in the second month following the sale, and 17% in the third month following the sale, with 3% going uncollected. Judds Reproductions recognizes the expense of cash discounts, credit card fees, and bad debts in the month of the sale.

Judds employs 40 people who work in the following areas: 15 in administration, sales, and shipping; 2 in manufacturing supervision (director and a scheduler); 9 in manufacturing fabrication and assembly (carpenters); and 14 in manufacturing, finishing, and other areas (helpers, cleaners, and maintenance crew).

The carpenter hours required to make the parts for and assemble a chair, table, or cabinet are 0.4, 2.5, and 6, respectively. Production personnel have organized the work so that each carpenter hour worked required 1.5 helper hours. Therefore, production planners maintain a ratio on average of 1.5 helpers for every carpenter. The company pays carpenters and helpers $24 and $14 per hour, respectively (including all benefits).

Judds Reproductions guarantees all employees pay for at least 172 hours per month regardless of the hours of work available. When the employees are not doing their regular jobs, they undertake maintenance, training, community service, and customer relations activities. Judds pays each employee weekly for that weeks work. If an employee works 172 hours or less during the month, Judds still pays the employee for 172 hours at his or her normal hourly rate. The company pays 150% of the normal hourly rate for each hour over 172 that the employee works during the month. Planners add new carpenters if the projected total monthly overtime is more than 5% of the total regular carpenter hours available. Judds has a policy of no employee layoffs. Any required hiring is done on the first day of each month.

For a factory, Judds Reproductions rents a converted warehouse that costs $600,000 per year. The company pays rent quarterly beginning January 1 of each year. Judds pays other fixed manufacturing costs, which includes manufacturing supervision salaries and amount to $480,000 annually, paid in equal monthly amounts.

The capital investment policy is to purchase, each January and July, $5,000 of machinery and equipment per carpenter employed during that month. Judds recognizes depreciation at the rate of 10% of the year-end balance of the machinery and equipment account. Statistical studies of cost behavior have determined that supplies, variable support, and maintenance costs carry with the number of carpenter hours worked and are $5, $20, and $15 per hour, respectively.

The units of wood required for chairs, tables, and cabinets are 1, 8, and 15, respectively. Each unit of wood costs $30. The inventory policy is to make products in the month they will be sold. Two suppliers deliver raw materials and supplies as required. The company pays for all materials, supplies, variable support, and maintenance items on receipt.

Annual Administration salaries, fixed selling costs, and planned advertising expenditures are $300,000, $360,000, and $600,000, respectively. Judds Reproductions makes these expenditures in equal monthly amounts. Packaging and shipping costs for chairs, tables and cabinets are $15, $65, and $135, respectively. Variable selling costs are 6% of each products list price. Judds Reproductions pay packaging. Shipping, and variable selling costs as incurred.

Using its line of credit, Judds Reproductions maintains a minimum cash balance of $50,000. All line-of-credit transactions occur on the first day of each month. The bank charges interest on the line-of-credit account balance of the rate of 10% per year. Judds pays interest on the first day of each month on the line-of-credit balance outstanding the end of the previous month. On the first of each month, the bank pays interest of the rate of 3% per year on funds exceeding $50,000 in the companys cash account at the end of the previous month.

Realized sales for October and November and expected sales for December 2011 appear in the following table:

	Judds Reproductions Unit Sales 2011
Item	October	November	December
Chairs	900	975	950
Tables	175	188	201
Cabinets	90	102	95

Sales staff estimates the unit demand for 2012 as follows: chairs, 1,000, plus a random number uniformly distrusted between 0 and 50, plus 15% of the previous months sales of chairs; tables, 200, plus a random number uniformly distrusted between 0 and 20, plus 15% of the previous months sales of tables; and cabinets, 100 plus a random number uniformly distrusted between 0 and 10, plus 15% of the previous months sales of cabinets. This estimation process resulted in the demand forecasts and the sales plan found in the following table:

Judds reproductions projected unit Sales 2012
Month	Chairs	Tables	Cabinets
January	1020	200	109
February	1191	237	120
March	1179	243	119
April	1195	250	126
May	1200	252	122
June	1204	255	125
July	1194	242	123
August	1199	253	121
September	1222	243	127
October	1219	248	126
November	1207	244	126
December	1192	255	119

Planners project the Judds Reproductions balance sheet at January 1, 2012, to be as follows:

Judds reproductions balance sheet January 1, 2012
Cash	$50,000		Bank Loan	0
Accounts receivable	575008
Machinery (net book value)	360000			985008
total	$985,008		Total	$985,008

Required:

Prepare a sales forecast, staffing plan, production plan, estimated cash flow statement, pro forma income statement for the year ended December 31, 2012, and pro forma balance sheet at December 31, 2012.