Comprehensive master budget in a manufacturing setting

(LO 3, 4, 5) Klandon Company manufactures decorative rocks for aquariums. Kim Klandon is preparing the budget for the quarter ended June 30. She has gathered the following information.1.Klandon's sales manager reported that the company sold 12,000 bags of rocks in March. He has developed the following sales forecast. The expected sales price is $10 per bag.

April	20,000 bags
May	50,000 bags
June	30,000 bags
July	25,000 bags
August	15,000 bags

2.Sales personnel receive a 5% commission on every bag of rocks sold. The following monthly fixed selling and administrative expenses are planned for the quarter. However, these amounts do not include the depreciation increase resulting from the budgeted equipment purchase in June (see part 7).

	Monthly Fixed Selling and Administrative Costs	Variable Cost/Unit
Depreciation	$10,000
Salaries of sales personnel	?25,000	$?.50
Advertising	??1,000
Management salaries	?10,000
Miscellaneous	????500
Bad debts		??.50
Total costs	$46,500	$1.00

3.After experiencing difficulty in supplying customers in a timely fashion due to inventory shortages, the company established a policy requiring the ending Finished Goods Inventory to equal 20% of the following month's budgeted sales, in units. On March 31, 4,000 bags were on hand.

4.Five pounds of raw materials are required to fill each bag of finished rocks. The company wants to have raw materials on hand at the end of each month equal to 10% of the following month's production needs. On March 31, 13,000 pounds of materials were on hand.

5.The raw materials used in production cost $0.40 per pound. Half of the month's purchases is paid for in the month of purchase; the other half, in the following month. No discount is available.

6.The standard labor allowed for one bag of rocks is 15 minutes. The current direct labor rate is $10 per hour.

7.On June 1, the company plans to spend $48,000 to upgrade its office equipment that is fully depreciated. The new equipment is expected to have a five-year life, with no residual value.

8.The budgeted monthly variable and fixed overhead amounts are as follows. Variable overhead is based on the number of units produced. The fixed overhead budget is based on an annual production of 400,000 bags.

	Monthly Fixed Overhead	Variable Cost/Unit
Depreciation	$?8,000
Indirect materials	??1,000	$0.05
Indirect labor	?10,000	?0.20
Utilities	?20,000	?0.10
Property taxes	??5,000
Maintenance	??6,000	?0.15
Total costs	$50,000	$0.50

9.All sales are made on account. Historically, the company has collected 70% of its sales in the month of sale and 25% in the month following the sale. The remaining 5% of sales is uncollectible.

10.Klandon must maintain a minimum cash balance of $30,000. An open line of credit at a local bank allows the company to borrow up to $175,000 per quarter in $1,000 increments.

11.All borrowing is done at the beginning of the month, and all repayments are made at the end of a month in $1,000 increments. Accrued interest is paid any time a principal payment is made. The interest rate is 12% per year.

12.A quarterly dividend of $49,000 will be declared and paid in April.

13.Income taxes payable for the first quarter will be paid on April 15. Klandon's tax rate is 30%.

14.The March 31 balance sheet is as follows:

	March 31
Cash	$??40,000?
Accounts receivable	30,000?
Finished goods inventory	26,000?
Raw materials inventory	5,200?
Plant & equipment	200,000?
Accumulated depreciation	(50,000)
Total assets	$?251,200?
Accounts payable	$??12,000?
Income taxes payable	50,000?
Common stock	52,000?
Retained earnings	137,200?
Total liabilities and equities	$?251,200?

Required

a.

Prepare all components of Klandon's master budget for the second quarter.

b.

Prepare a pro-forma income statement for the second quarter.

c.

Prepare a pro-forma balance sheet as of June 30.