Comprehensive Budgeting Problem Damon

The Master Budget 555 PROBLEMS Group A P9-54A Comprehensive budgeting problem (Learning Objectives 2&3) Damon Manufacturing is preparing its master budget for the first quarter of the upcom- ing year. The following data pertain to Damon Manufacturing's operations: Current Assets as of December 31 (prior yearl: Cash $4,600 $46,000 $15,600 $121,000 $43,000 $125,000 S 23,000 a. Actual sales in December were $71,000. Selling price per unit is projected to remain Accounts receivable, net Property, plant, and equipment,net. Accounts payable Capital stock.. Retained earnings w stable at $12 per unit throughout the budget period. Sales for the first five months of the upcoming year are budgeted to be as follows February March April $ 99,600 $118,800 $115,200 $108,000 $103,200 b. Sales are 35% cash and 65% credit. All credt sales are collected the month c. Damon Manufacturing has a policy that states that each month's ending inventory d. Of each month's direct materials purchases, 20% are paid for in the month of pur following the sale. finished goods should be 10% of the following month's sales (in units). chase, while the remainder is paid for in the month following purchase. Three pounds of direct material is needed per unit at $2 per pound. Ending inventory of direct materials should be 20% of next month's production needs. . Most of the labor at the manufacturing facility is indirect, but there is some direct labor incurred. The direct labor hours per unit is 0.05. The direct labor rate per hour s $9 per hour All direct labor is paid for in the month in which the work is parformed The direct labor total cost for each of the upcoming three months is as follows 53,807 54,442 $4,293 February Monthly manufacturing overhead costs are $5,500 for factory rent, $2,900 for other fixed manufacturing expenses, and 51.10 per unit for variable manufacturing over. head. No depreciation is included in these figures. All expenses are paid in the month f. in which they are incurred g. Computer t for the administrative offices will be purchased in the upcoming quarter, In January, Damon Manufacturing will purchase equipment for $5,000 (cashl while February's cash expenditure will be $12,200 and March's cash expenditure wil be $16,600 k Operating expenses are budgeted to be $1.25 per unit sold plus fxed operating expenses of $1,800 par month. All operating expenses a they are incurred Depreciation on the building and equipment for the general and administrative offices s budgeted to be $4,800 for the entire quarter, which includes depreciation on new are paid in the month in which TER 9 Damon Manufacturing has a policy that the ending cash balance in each month must be at least $4,000. It has a line of credit with a local bank. The company can increments of $1,000 at the beginning of each month, up to a total outstanding loan balance of $130,000. The interest rate on these loans is 1% per month simple inter. est (not compounded). The company would pay down on the line of credit balance in increments of $1,000 if it has excess funds at the end of the quarter. The company would also pay the accumulated interest at the end of the quarter on the funds bor rowed during the quarter The company's income tax rate is projected to be 30% of operating income less interest expense. The company pays $10,000 cash at the end of February in estimated taxes j. k. Requirements 1. Prepare a schedule of cash collections for January, February, and March, and for the quarter in total. Use the following format For the Quarter Ended March 31 January FebruaryMarchQuarte sales Credit sales 7 Total cash co 2. Prepare a production budget, using the following format For the Quarter Ended March 31 Plus: Desired ending inventory 7 Total needed Number of units to produce Hint: Unit sales Sales in dollars/Seling price per unit 3. Prepare a direct materials budget, using the following format: Direct Materials Budget the ed 7Quantity (pounds) needed for production 8 Plus:Desired ending inventory of DM 10 Less: Beginning in 11 Quantity lpounds)to purchase 9 Total quantity (pounds) needed ventory of DM 14 The Master Bud 4. Prepare a cash payments budget for the direct material purchases from Requirement 3, using the following format: sh Payments for Direct Materials Budget For the Quarter Ended March 3 Month Quarter Total cash payments 5. Prepare a cash payments budget for direct labor, using the following format: h Payments for Direct Labor Budget For the Quarter Ended March 31 Month January February March Quarter Total cost of direct labor 6. Prepare a cash payments budget for manufacturing overhead costs, using the follow ing format: Cash Payments for Manufacturing Ove For the Quarter Ended March 31 Month arter Variable manufacturing overhead costs Rent 8 Cash payments for manufacturing overhead 7. Prepare a cash payments budget for operating expenses, using the following format: For Cash Payments for Operating Expenses Budget r the Quarter Ended March 31 Mont 4 7 Cash payments for operating expenses Mont Quarter otal cash available 8 Less cash payments: 10Direct labor costs 12 Operating expenses 16 Ending cash balance before financing 17 Fina 18 Plus: New borrowings Less: Debt repayments 20 Less Interest payments 21 9. Calculate the budgeted manufacturing cost per unit, using the following format (assume that fixed manufacturing overhead is budgeted to be $0.70 per unit for the year): Cost 3 Direct materials cost per unit Variable manufacturing overhead costs per unit Budgeted cost of manufacturing one unit overhead costs per unit 10. Prepare a budgeted income statement for the quarter ending March 31, using the following format Budgeted Income Statement For the Quarter Ended March 31 Less: Cost of goods sold Less: Operating expenses one unt x Number of units sold Hnt Cost of goods sold