Hansell Company$$s management wants to prepare budgets for one of its products, Duraflex, for July $2022.$ The firm sells the product for $$85$ per unit and has the following expected sales $($in units$)$ for these months in $2022$:

April May June July August September

$4,5005,9006,0007,0008,0007,000$

The production process requires $4$ pounds of Dura$-1000$ and $2$ pounds of Flexplas. The firm$$s policy is to maintain an ending inventory each month equal to $10\%$ of the following month$$s budgeted sales, but in no case less than $500$ units. All materials inventories are to be maintained at $5\%$ of the production needs for the next month, but not to exceed $1,000$ pounds. The firm expects all inventories at the end of June to be within the guidelines. The purchases department expects the materials to cost $$1\mathrm{.}25$ per pound and $$5\mathrm{.}00$ per pound for Dura$-1000$ and Flexplas, respectively.

The production process requires direct labor at two skill levels. The rate for labor at the K$102$ level is $$50$ per hour and $$20$ per hour for the K$175$ level. The K$102$ level can process one batch of duraflex per hour; each batch consists of $100$ units. The manufacturing of Duraflex also requires one$-$tenth of an hour of K$175$ workers$$ time for each unit manufactured.

Hansell Company expects its trial balance on June $30$ to be as follows:

HANSELL COMPANY

Budgeted Trial Balance

June $30,2022$

Debit Credit

Cash $ $44,000$

Accounts receivable $88,000$

Allowance for bad debts $ $3,900$

Inventory $28,000$

Plant, property, and equipment $728,000$

Accumulated depreciation $358,400$

Accounts payable $106,400$

Wages and salaries payable $27,000$

Note payable $225,000$

Stockholders$$ equity $167,300$

Total $ $888,000$ $ $888,000$

Typically, cash sales for Hansell represent $20\%$ of sales while credit sales represent $80\%.$ Credit sales terms by the company are $2/10,$ n$/30.$ Hansell bills customers on the first day of the month following the month of sale. Experience has shown that $60\%$ of the company's billings will be collected within the discount period, $25\%$ by the end of the month after sales, $10\%$ by the end of the second month after the sale, and $5\%$ will ultimately be uncollectible. The company writes off uncollectible accounts after $12$ months.

The purchase terms for materials are $2/15,$ n$/60.$ Hansell makes all payments within the discount period. Experience has shown that $80\%$ of the purchases are paid in the month of the purchase and the remainder are paid in the month immediately following. In June $2022,$ the firm budgeted purchases of $$27,600$ for Dura$-1000$ and $$24,200$ for Flexplas.

Variable manufacturing overhead is budgeted at $$1,300$ per batch $($of $100$ units$)$ plus $$80$ per direct labor hour. In addition to variable overhead, the firm has a monthly fixed factory overhead of $$55,200,$ of which $$25,200$ is depreciation expense. The firm pays all manufacturing labor and factory overhead when incurred.

Total budgeted marketing, distribution, customer service, and administrative costs for $2022$ are $$2,698,000.$ Of this amount, $$1,350,000$ is considered fixed and includes depreciation expense of $$135,000.$ The remainder varies with sales. The budgeted total sales for $2022$ are $$4$ million. All marketing and administrative costs are paid in the month incurred.

Management desires to maintain an end$-$of$-$month minimum cash balance of $$44,000.$ The firm has an agreement with a local bank to borrow its short$-$term needs in multiples of $$1,000$ up to $$100,000$ at an annual interest rate of $12\%.$ Borrowings are assumed to occur at the end of the month. Bank borrowing at July $1$ is $$0.$

Required:

Using the information presented above:

$1.$ Prepare the cash budget for July $2022.$

$2.$ Prepare the budgeted income statement for July $2022.($Assume that the company uses a LIFO cost$-$flow assumption.$)$