EXTENDING YOUR KNOWLEDGE VKO-1. Business Decision Case The sales department of Donovan Manufacturing, Inc. has completed the following sales forecast for the months of January through March 20X1 for its only two products 50,000 units of to be sold at $90 each and 30.000 units of K to be sold at $70 each. The desired unit inventories at March 31, 20X1. are 10% of the next quarter's unit sales forecast, which are 60,000 units of J and 30,000 units of K. The January 1, 20X1, unit inventories were 5,000 units of J and 2,000 units of K. Each unit of requires 3 pounds of material A and 2 pounds of material B for its manufacture: K requires 2 pounds of A and 4 pounds of B. The purchase cost of A is $9 per pound and the purchase cost of B is $5 per pound. Materials A and B on hand at January 1, 20X1, were 19.000 pounds of A and 7,000 pounds of B. Desired inventories at March 31, 20X1. are 14.000 pounds of A and 8,000 pounds of B. Each unit of requires 0.5 hours of direct labor in the factory, each unit of requires 1.0 hour of direct labor. The average hourly rate for direct labor is $12 per hour. Estimated manufacturing overhead cost is $6 per direct labor hour plus $90,000 per month. Selling and administrative expenses are estimated to be 10% of sales revenue plus $180,000 per month Cash sales for the first quarter are estimated to be $300,000 per month. It is forecast that 30% of the credit sales for the quarter ended March 31, 20X1. will occur in January, 30% in February. and 40% in March. Of credit sales (December through March), 40% will be collected as cash in the month of sale and 55% will be collected in the following month. The remainder will be uncollectible. Cash collected in January 20X1 from December 20X0 sales will be $1,050,000. The January 1, 20X1. cash balance was $70,000. The minimum acceptable cash balance at the end of each month is 560,000. Short-term borrowings (6-month term) are made in multiples of $10,000. Interest is charged at the rate of 1% per month on short-term borrowings. The first interest payment is made the month following the borrowing. Cash disbursements (excluding interest on short-term borrowings) are estimated as follows: January February Manufacturing costs.. ............. Selling and administrative expenses....... Interest expense.... Income tax payment...... $1.500.000 390,000 90.000 $1,300,000 410,000 90.000 0 March $1,400.000 400,000 90.000 210.000 0 Capital expenditures.. 110,000 50,000 124,000 300.000 Cash dividends...... CHECK FIGURES: Parta Part Parte Partg Parth Total budgeted sales revenue = $6,600,000 Total material purchases for material B = $1,135,000 Total Manufacturing Overhead cost - $609,000 Total Sales for all three months (Jan + Feb + Mar) = $6,111,000 Ending Cash Balance for January = $60,000 Remember... the ending cash balance of one month is the beginning balance for the next month. If you have $300 in your checking account end of day on January 31st then it starts out with $300 on February 1st. Required a. Prepare the sales budget for the quarter ended March 31, 20X1. Prepare the production budget for the quarter ended March 31, 20XI. the direct materials budget for the quarter ended March 31, 20X1 d Prepare the direet labor budget for the quarter ended March 31, 20X1. Prepare the manufacturing overhead budget for the quarter ended March 31. 20X1. Prepare the selline and administrative expense budget for the quarter ended March 31.07 Prepare a schedule of cash collected from customers for the quarter ended March 31.20X1 h Prepare the cash budget for the quarter ended March 31, 20X1