CASE

Cash budget, income statement and performance report using a flexible budget.

Harry Kohl owns a factory that specializes in making steel widgets on a just in time basis. Harry buys his steel only after he receives a firm order. Thus, Harry only buys materials for and produces what he sells in a particular month. To build his business and gain new customers Harry has extended generous credit terms to his customers. While Harry is confident about the fundamentals of his business, he is concerned about the possible cash flow implications.

Harry informs you that he currently expects to collect $20\%$ of sales in the month of the sale, $40\%$ of sales in the month after the sale and $40\%$ of sales two months later $($for example $20\%$ of February sales are collected in February, $40\%$ in March and $40\%$ in April$).$ He pays for $80\%$ of his materials purchases in the month of the purchase and $20\%$ one month later. Costs of labor and overhead other than depreciation are paid in the same month they are incurred. His monthly fixed selling and administrative costs, other than interest, amount to $$320,000,$ of which $$30,000$ is depreciation. These costs also, excepting depreciation, are paid in the month incurred. There are no variable selling or administrative costs. Harry has large tax loss carry forwards from a previous unsuccessful business venture. Therefore he does not expect to pay any income taxes this year. $($In other words you may ignore income taxes$).$

Sales revenues in February were $$4,050,000$ and in March were $$4,150,000($these numbers do not agree with the excel sheet$).$ Purchases in March were $$1,350,000.$ The budgeted selling price of widgets for April, May, and June is $$25$ per widget. Harry provides the following information regarding his sales in units for the next $3$ months: April $180,000$ units, May $200,000$ units and June $210,000$ units.

The variable costs of producing a widget are budgeted at: $$8$ for materials, $$5$ for labor, and $$7$ for variable overhead. Fixed overhead is budgeted at $$380,000$ per month. The detailed components of fixed and variable overhead are as listed below.

For variable overhead, supplies are budgeted at $$1$ per unit, electric power is budgeted at $$4$ per unit, and indirect labor is budgeted at $$2$ per unit. For fixed overhead depreciation is budgeted at $$70,000$ per month, Supervision and other salaries is