EYK 9-1. BUSINESS DECISION CASE The sales department of Donovan Manufacturing, Inc. has completed the following sales forecast for the months of January through MArch 2016 for its only two products: 50,000 units of J 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, 2016, are 10% of next quarter's unit sales forecast, which are 60,000 units of J and 30,000 units of K. The January 1, 2016, unit inventories were 5,000 units of J and 2,000 units of K.

Each unit of J 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, 2016, are 14,000 pounds of A and 8,000 pounds of B.

Each unit of J requires 0.5 hour of direct labor in the factory; each unit of K 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 credit sales for the quarter ended March 31, 2016, 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 uncollectable. Cash collected in January 2016 from December 2015 sales will be $1,050,000.

The January 1, 2016, cash balance was $70,000. The minimum acceotable cash balance at the end of each month is $60,000. Short-term borrowing (6-month term) are made in multiples of $10,000. Interest is charged at a rate of 1% per month on short-term borrowings. The first interest payment is made the month following the borrowing. Cash disbursements (excluidng interest on short-term borrowings) are estiamted as follows:

January February March

Manufacturing costs $1,500,000 $1,300,000 $1,400,000

Selling and administrative expenses 390,000 410,000 400,000

Interest expense 90,000 90,000 90,000

Income tax payment 0 0 210,000

Capital expenditures 124,000 110,000 50,000

Cash dividends 300,000 0 0

Required

f. Prepare the selling and administrative expenses budget for the quarter ended March 31, 2016.

g. Prepare a schedule of ash collected from customers for the quarter ended March 31, 2016.

h. Prepare the cash budget for the quarter ended March 31, 2016.