Capstone, Inc. is preparing its budget for the coming year, 2020. The first step is to plan for the first quarter of that coming year. Capstone, Inc. gathered the following information from the managers.

Sales

Unit sales for November 2019 112500

Unit sales for December 2019 104,000

Expected unit sales for January 2020 116,000

Expected unit sales for February 2020 115,500

Expected unit sales for March 2020 117,000

Expected unit sales for April 2020 135,000

Expected unit sales for May 2020 145,000

Unit selling price $13.00

Capstone, Inc. likes to keep 10% of the next months unit sales in ending inventory. All sales are on account. 85% of the Accounts Receivable are collected in the month of sale, and 15% of the Accounts Receivable are collected in the month after sale. Accounts receivable on December 31, 2019, totaled $200,000.

Direct Materials

Item Amount Used per Unit Inventory, Dec. 31

Metal 1 lb @ 58 per lb. 5,177.5 lbs

Plastic 12 oz @ 6 per oz 3,883.125 lbs

Rubber 12 oz @ 5 per oz 1,294.375 lbs

2.5 lbs per unit total 10,355.0 lbs

Metal, plastic, and rubber together are 75 per pound per unit. (Hint: Do not prepare a separate materials purchases budget for each item of direct materials. Prepare a combined budget using the lbs per unit total applied to the budgeted production).

Capstone, Inc. likes to keep 5% of the materials needed for the next month in its ending inventory. Payment for materials is made within 15 days. 50% is paid in the month of purchase, and 50% is paid in the month after purchase. Accounts Payable on December 31, 2019, totaled $125,000. Raw Materials on December 31, 2019, totaled 10,355 pounds.

Direct Labor

Labor requires 20 minutes per unit for completion and is paid at a rate of $10 per hour.

Manufacturing Overhead

Indirect materials 45 per labor hour

Indirect labor 65 per labor hour

Utilities 50 per labor hour

Maintenance 25 per labor hour

Salaries $42,000 per month

Depreciation $16,800 per month

Property taxes $ 2,675 per month

Insurance $ 1,200 per month

Janitorial $ 1,300 per month

Selling and Administrative

Variable selling and administrative cost per unit is $1.65. Fixed selling and administrative costs are as follows:

Advertising $16,000 a month

Insurance $ 1,300 a month

Salaries $77,000 a month

Depreciation $ 3,500 a month

Other fixed costs $ 3,200 a month

Other Information

The Cash balance on December 31, 2019, totaled $125,000, but management has decided it would like to maintain a cash balance of at least $800,000 beginning on January 31, 2020. Dividends are paid each month at the rate of $1.35 per share for 7,500 shares outstanding. The company has an open line of credit with Romneys Bank. The terms of the agreement require the borrowing to be in $1,000 increments at 8% interest. Capstone, Inc. borrows on the first day of the month and repays on the last day of the month. A $500,000 equipment purchase is planned for February.

Instructions

For the first quarter of 2020, do the following.

1. Prepare a sales budget.
2. Prepare a production budget.
3. Prepare a direct materials budget. (Round to nearest dollar)
4. Prepare a direct labor budget. (For calculations, round to the nearest hour.)
5. Prepare a manufacturing overhead budget. (Round amounts to the nearest dollar.)
6. Prepare a selling and administrative budget.
7. Prepare a schedule for expected cash collections from customers.
8. Prepare a schedule for expected payments for materials purchases. (Round totals to nearest dollar)
9. Prepare a cash budget.