Guitarra Inc is a worldwide wooden musical part manufacturing firm based in North America. After many years in the market, the Peterborough division, which produces one product called Guitarra Stand reaches a spike on the sales level. The Management wants to have a significant investment to expand the facility and increase production, but it is requesting from the division to prepare a budget for the second quarter of 2021.

The actual sales from 2021 are

February 92,000 units

March 104,000 units

The division manager projected the following sales: April 2021 112,000 units

May 2021 117,000 units

June 2021 122,000 units

July 2021 137,000 units

August 2021 162,000 units

The selling price is $13 per unit

1. From previous experience, management has determined that finished goods ending inventory equal to 20% of the next months unit sales is required to fit the buyers demands.

2. The Guitarra Stand requires one types of raw materials: Plastic

Each Guitarra Stand requires 1.2 kilograms of Plastic, at a cost of $1.5 per kilogram.

The supplier of Plastic tends to be somewhat erratic so Guitarra Inc finds it necessary to maintain an inventory balance equal to 20% of the material needed for the next month as a precaution against stock-outs. The direct material on March 31, is 27,120 Kg.

3. The beginning accounts payable will consist of $125,400.

4. Guitarra Inc pays for 50% of a months purchases in the month of purchase and 50% in the following month.

5. The manufacturing overhead in based on direct labor hours. The workers receive an average of $16.00 per hour including employee benefits. Each Guitarra Stand takes 15 minutes to complete.

6. Guitarra Inc allocate the manufacturing overhead based on direct labor hours; The variable manufacturing overhead is as follow: Maintenance $0.40; Utilities $0.60; Indirect Labor $0.60; Indirect materials $0.40

7. The Monthly Fixed manufacturing overhead costs are as follows:

Janitorial $2,200

Insurance $1,450

Depreciation $14,200

Property Taxes $2,000

Salaries $44,000

8. The Monthly Selling and administrative expenses are

Salaries $62,000

Other fixed cost $3,600

Insurance $1,100

Depreciation $2,800

Advertising $12,000

9. Sales are on account (credit), 50% of the sales are collected during the month of sales and 50% the following month. This was the same collection pattern as in previous years.

10. The company wants to maintain at the end of each month, a minimum bank balance of $500,000. In case the company has a deficiency of money or it is not able to reach this minimum bank balance, the company can borrow from a line of credit at the same bank at the 4 rate of 3% per annum. All borrowing is considered to happen on the first day of the month, repayments are on the last day of the month. All borrowings and repayments from the bank should be in multiples of $1,000. It pays interest only on the portion of the loan that it repays in a month. The cash balance on March 31 is $145,000.

11. In May, $680,000 of new equipment to update operations will be purchased

12. Three months insurance is prepaid on the first day of the first month of the quarter

Required:

Prepare the budget for 2021, the second quarter, for Guitarra Inc for the including the following schedules:

Prepare the following Schedules

a) Prepare the Sales Budget for the second quarter

b) Prepare the Schedule of Expected Collection from Customers for the second quarter

c) Prepare the Production Budget for the second quarter

d) Prepare the Direct Materials Budget for the second quarter

e) Prepare the Expected Direct Material Cash Disbursements for the second quarter

f) Prepare the Direct Labour Budget for the second quarter

g) Prepare the Manufacturing Overhead Budget for the second quarter

h) Prepare the Selling and Administrative Expenses Budget for the second quarter

i) Prepare the Cash Budget for the second quarter