Electra Manufacturing, Inc., produces metal control valves used in the production of oil field equipment.

The control valves are sold to various gas and oil engineering companies throughout the United States. Projected sales in units for the coming four months are as follows:

January

20000

control valves

February

25000

control valves

March

30000

control valves

April

30000

control valves

May

22000

control valves

The following data pertain to production policies and manufacturing specifications followed by Electra:

a. Finished goods inventory on January 1 is 13,000 units. The desired ending inventory for each month is 70 percent of the next months sales.

b. The data on material used are as follows: for every valve 6 pounds of metal are used. One pound of metal costs $5.

RM inventory on January 1 includes 60,000 pounds of metal.

The desired ending RM inventory for each month dictates that sufficient materials are on hand to produce 50 percent of next months estimated production.

c. The direct labor used to make one valve is two hours. The average direct labor cost per hour is $14.

d. Overhead each month is estimated as follows (variable costs are per unit produced):

Fixed Cost Component

Variable Cost Component

Supplies

$ --

$1.00

Power

--

1.1

Maintenance

28,000

2.1

Supervision

14,000

--

Depreciation

100,000

--

Taxes

7,000

--

Other

56,000

3.6

e. Monthly selling and administrative expenses are estimated as follows (variable costs are per unit sold):

Fixed Cost Component

Variable Cost Component

Salaries

$30,000

--

Commissions

--

$0.75

Depreciation

5,000

--

Shipping

--

2.6

Other

10,000

0.4

f. The unit selling price of the control valve is $90.

g. InMarch, the company plans to purchase land for future expansion. The land costs $90,000.

h. 50% of sales are for cash. Remaining 50% are collected over the next month. December sales were $1,600,000.

Cash balance on January 1 equals $150,400. If the firm develops a cash shortage by the end of the month, sufficient cash is borrowed to cover the shortage.

Any cash borrowed is repaid one month later, as is the interest due. The interest rate is 12 percent per annum (i.e., 1% per month).

Required:

Prepare the following budgets for each month (January, February and March) and for the Quarter 1 in total:

1. Sales budget.

2. Production budget.

3. Direct materials purchase budget.

4. Direct labor budget.

5. Overhead budget.

6. Selling and administrative expense budget.

7. Ending FG budget.

8. Cost of goods sold budget. Assume that beginning inventory in January is valued at $70/unit and the company uses FIFO.

9. Budgeted income statement (ignore income taxes)

10. Cash budget.

i.e., for each budget you need to prepare four columns: January, February, March and Q1 (total for all three months, i.e., total for the first quarter)

Provided to excel format