Developing a Master Budget for a Manufacturing Organization Jacobs Incorporated manufactures a product with a selling price of $50 per unit. Units and monthly cost data follow: Variable: Selling and administrative $5 per unit sold Direct materials 10 per unit manufactured Direct labor 10 per unit manufactured Variable manufacturing overhead 5 per unit manufactured Fixed: Selling and administrative $20,000 per month Manufacturing (including depreciation of $10,000) 30,000 per month

Jacobs pays all bills in the month incurred. All sales are on account with 50 percent collected the month of sale and the balance collected the following month. There are no sales discounts or bad debts. Jacobs desires to maintain an ending finished goods inventory equal to 20 percent of the following month's sales and a raw materials inventory equal to 10 percent of the following month's production. January 1, 2011, inventories are in line with these policies. Actual unit sales for December and budgeted unit sales for January, February, and March of 2011 are as follows:

JACOBS INCORPORATED Sales Budget For the Months of January, February, and March 2011 Month December January February March Sales - Units 5,500 6,000 10,000 10,000 Sales - Dollars $275,000 $300,000 $500,000 $500,000

Additional information: The January 1 beginning cash is projected as $7,000. For the purpose of operational budgeting, units in the January 1 inventory of finished goods are valued at variable manufacturing cost. Each unit of finished product requires one unit of raw materials. Jacobs intends to pay a cash dividend of $6,000 in January.

NOTE: For the entire problem - do not use any negative signs with your answers unless appropriate for net income(loss) or ending balance.

(a) A production budget for January and February. JACOBS INCORPORATED Production Budget For the Months of January and February 2011 January February March Requirements for current sales Answer Answer Answer Desired ending inventory Answer Answer Total requirements Answer Answer Less beginning inventory Answer Answer Production requirements Answer Answer

(b) A purchases budget in units for January. JACOBS INCORPORATED Purchases Budget For the Month of January 2011 January February Current requirements (units) Answer Answer Desired ending inventory Answer Total requirements Answer Less beginning inventory Answer Purchases (units) Answer Purchases (dollars at $10 each) $Answer

(c) A manufacturing cost budget for January. JACOBS INCORPORATED Manufacturing Cost Budget For the Month of January 2011 Variable costs Direct materials $Answer Direct labor Answer Variable manufacturing overhead Answer Total variable costs Answer Fixed manufacturing overhead Answer Total manufacturing overhead $Answer

(d) A cash budget for January. JACOBS INCORPORATED Cash Budget For the Month of January 2011 Beginning balance $Answer Receipts: December sales $Answer January sales Answer Answer Total cash available Answer Disbursements: Purchases Answer Direct labor Answer Variable manufacturing overhead Answer Fixed manufacturing overhead (exclude depreciation) Answer Variable selling and administrative Answer Fixed selling and administrative Answer Dividend Answer Answer Ending Balance $Answer

(e) A budgeted contribution income statement for January. JACOBS INCORPORATED Budgeted Contribution Income Statement For the Month of January 2011 Sales $Answer Less variable costs: Cost of goods sold $Answer Selling and administrative Answer Answer Contribution Answer Less fixed costs: Manufacturing overhead Answer Selling and administrative Answer Answer Net income $Answer

(f) Prepare a cash budget for January assuming management plans to increase the January end raw materials inventory to 100 percent of February's production needs. JACOBS INCORPORATED Cash Budget with Additional Purchases of Raw Materials For the Month of January 2011 Beginning balance $Answer Receipts: December sales $Answer January sales Answer Answer Total cash available Answer Disbursements: Purchases Answer Direct labor Answer Variable manufacturing overhead Answer Fixed manufacturing overhead (exclude depreciation) Answer Variable selling and administrative Answer Fixed selling and administrative Answer Dividend Answer Answer Ending Balance $Answer

(g) Actions management might consider to resolve the problem indicated in the revised cash budget in part (f) include:

A. Delaying the cash dividend.

B. If possible, pay for fifty percent of each month's purchases in during the month and pay for the other fifty percent in the following month, an average of fifteen to sixteen days after receipt.

C. Obtain a line of credit with a financial institution.

D. All of the above.