Hansell Companys management wants to prepare budgets for one of its products, duraflex, for July 2013. The firm sells the product for $79.00 per unit and has the following expected sales ( in units) for these months in 2013:

April

May

June

July

August

September

4,500

5,510

5,380

6,000

7,100

7,200

The production process requires 3.5 pounds of dura-1000 and 1.7 pounds of flexplas. The firms policy is to maintain an ending inventory each month equal to 10% of the following months budgeted sales, but in no case less than 490 units. All materials inventories are to be maintained at 5% of the production needs for the next month, but not to exceed 900 pounds. The firm expects all inventories at the end of June to be within the guidelines. The purchase department expects the materials to cost $1.20 per pound and $4.50 per pound for dura-1000 and flexplas, respectively.

The production process requires direct labor at two skill levels. The rate for labor at the K102 level is $47.00 per hour and for the K175 level is $19.00 per hour. The K102 level can process one batch of dura-flex per hour; each batch consists of 95 units. The manufacturing of duraflex also requires 0.09 of an hour of K175 workers time for each unit manufactured.

Variable manufacturing overhead is $1,150 per batch plus $73 per direct labor-hour. The company uses an actual cost system with a LIFO cost-flow assumption. In addition to variable overhead, the firm has a monthly fixed factory overhead of $49,500, of which $18,200 is depreciation expense. The firm pays all manufacturing labor and factory overhead when incurred.

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

HANSELL COMPANY

Budgeted Balances

June 30, 2013

Cash

$40,000

Accounts receivable

$78,000

Allowance for bad debts

$3,260

Inventory

$23,700

Plant, property, and equipment

$576,000

Accumulated depreciation

$315,000

Accounts payable

$94,500

Wages and salaries payable

$20,000

Note payable (short term bank borrowing)

$79,200

Stockholders equity

$205,740

Typically, cash sales represent 19% of sales while credit sales represent 81%. Credit sales terms are 2/10, n/30. Hansell bills customers on the first day of the month following the month of sale. Experience has shown that 57% of the billings will be collected within the discount period, 22% by the end of the month after sales, 16% by the end of the second month after the sale, and 5% will ultimately be uncollectible. The firm writes off uncollectible accounts after 12 months.

The purchase terms for materials are 2/15, n/60. The firm 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 addition to variable overhead, the firm has a monthly fixed factory overhead of $49,500, of which $18,200 is depreciation expense. The firm pays all manufacturing labor and factory overhead when incurred.

Total budgeted marketing, distribution, customer service, and administrative costs for 2013 are $2,000,000. Of this amount, $1,000,000 is considered fixed and includes depreciation expense of $123,600. The remainder varies with sales. The budgeted total sales for 2013 are $3.960 million. All marketing and administrative costs are paid in the month incurred.

The management of Hansell wishes to contribute to charitable organizations 9% of Operating Income.

Management desires to maintain an end-of-month minimum cash balance of $40,000. The firm has an agreement with a local bank to borrow its short-term needs in multiples of $900 up to $96,000 at an annual interest rate of 12%. Borrowings are assumed to occur at the beginning of the month. Bank borrowing at July 15 $79,200.

Required On the basis of the preceding data and projections, prepare the following budgets:

a. Sales budget for July ( in dollars).

b. Production budget for July ( in units).

c. Production budget for August ( in units).

d. Direct materials purchases budget for July ( in pounds).

e. Direct materials purchases budget for July ( in dollars).

f. Direct manufacturing labor budget for July ( in dollars).

g. Prepare the cash budget for July 2013.

h. Prepare the budgeted income statement for July 2013.

HANSELL COMPANY
Sales Budget
For July 2013
Budgeted sales in units
Budgeted selling price per unit
Budgeted sales
HANSELL COMPANY
Production Budget (in units)
				For July 2013	For August 2013
Desired ending inventory
Budgeted sales
Total units needed
Beginning inventory
Units to manufacture
HANSELL COMPANY
Direct Materials Purchases Budget ( in pounds)
For July 2013
				Direct Materials
				Dura-1000	Flexplas
Materials required for budgeted production
Add: Target inventories
Total materials requirements
Less: Expected beginning inventories
Direct materials to be purchased
HANSELL COMPANY
Direct Materials Purchases Budget ( in dollars)
For July 2013
			Budgeted Purchases Pounds	Expected Purchase Price per Unit	Total
Dura-1000
Flexplas
Budgeted purchases
HANSELL COMPANY
Direct Manufacturing Labor Budget
For July 2013
Direct Labor Class	Direct Labor- Hours per Batch	Number of Batches	Total Hours	Rate per Hour	Total
K102
K175
Total
HANSELL COMPANY
Cash Budget
For July 2013
Cash balance, beginning
Cash flow from operations:					dollars	perentage
July cash sales
Collections of receivables from credit sales in June:
Within the discount period
After the discount period
Collections of receivables from credit sales in May
Cash Disbursements:
Materials purchases:
June purchases
July purchases
Direct manufacturing labor
Variable factory overhead					cost	#
batches related							batches
hours related							hours
Fixed factory overhead
Variable marketing, customer services, and administrative expenses
Fixed marketing, customer services, and administrative expenses
Charitable contributions
Total cash flow from operations
Investment activities:
Purchases of investments and other long- term assets
Sales of investments and other long- term assets
Financing activities:
Interest payments, end of month						rate
New borrowing, beginning of month				minimum balance		increments
Repayment of existing debt, end of month
Cash balance, July 31, 2013
HANSELL COMPANY
Budgeted Income Statement
For July 2013
Sales
Cost of goods sold, LIFO basis*
Gross margin
Selling and administrative expenses:
Variable
Fixed
Charitable donations
Operating income ( loss) before tax
	* Actual manufacturing cost per unit; July:
	Direct materials:
				lbs	cost per lb	total cost		cost per unit
	Dura-1000
	Flexplas
	Direct labor:
				hours	cost per hour	toal cost		cost per unit
	K102 labor
	K175 labor
	Factory overhead:
	Batch- related		batches	cost per batch	total batch cost	units produced	cost per unit	cost per unit
	DLH-related		cost per hour	total batch hours	total cost	units produced	cost per unit
	Fixed				total cost	units produced
	Cost per unit, units produced in July