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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

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.
g. Prepare the cash budget for July 2013.

h. Prepare the budgeted income statement for July 2013.

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 total 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 _______

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