Hawkins Engineerings management wants to prepare budgets for one of its products, GalaxyRS, for July 2019. The firm sells the product for $800 per unit and has the following expected sales (in units) for these months in 2019:

April May June July August September

6,000 4,000 5,600 6,500 6,800 7,800

Typically, cash sales for Hawkins represent 20% of sales while credit sales represent 80%. Hawkins bills customers on the first day of the month following the month of sale. Experience has shown that 85% of the companys billings will be collected during the month of sale, 10% by the end of the month after the sale and 5% will ultimately be uncollectible.

The production process requires the following:

Standard Costs:

Galaxy-80 4 lbs $1.25/lb

RS-360 2 lbs $5.00/lb

Direct labor

Skill level 1 0.01 hours $50/hour

Skill level 2 0.10 hours $20/hour

Variable manufacturing overhead is budgeted at $1,200 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 $60,000, of which $25,000 is depreciation expense. The firm pays all manufacturing labor and factory overhead when incurred.

The firms policy is to maintain an ending finished goods inventory each month equal to 10% of the following months 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 purchase terms for materials are 3/10, n/30. Hawkings 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 2019, the firm budgeted purchases of $30,000 for Galaxy-80 and $20,000 for RS-360.

Total budgeted marketing, distribution, customer service and administrative costs for 2019 are 1,850,000. Of this amount, $1,200,000 is considered fixed and includes depreciation expense of $150,000. The remainder varies with sales. The budgeted total sales for 2019 are $4 million. All marketing and administrative costs are paid in the month incurred.

Additional information follows:

Cash balance $40,000

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 $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:

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

1. Budgeted income statement for July
2. Cash budget for July

PART 1 Sales Budget for July Particulars Budgeted Units Price per unit Total Budgeted Sales Amount 6500.00 800.00 $5,200,000.00 PART 2 and 3 Production Budget Jul August Sales in units Add: Desired Ending invento Total Need Less: Beginning Invento Units to be produced 6500 680 7180 650 6530 6800 780 7580 680 6900 PART 4 Direct material Used Jul August RS 360 Galaxy 80 Units to be produced Material per unit Direct material Used (in units Price Direct material Used (in dollar 6530 6530 4 2 26120 13060 1.25 5.00 32,650.00 65,300.00 PART 5 Galaxy 80 RS 360 Units to be produced Material per unit Material required for units to be produced Add: Desired Ending Invento Total Need Less: Beginning Invento Direct material purchased Price Material Purchased 6530 6530 2 13060 680 13740 560 13180 4 26120 1000 27120 1000 26120 1.25 32,650.00 65,900.00 PART 6 Particulars Skill level 1 Skill level 2 6530 units Budgeted production in units 6530 units Labor hours required per unit of production 0.01 hours 0.10 hours Total hours required for production 6530 units in July month Hourly labor rate Direct manufacturing labor budget in $ |65.30 hours 653 hours $20/hour S50/hour 3,265.00 $ 13,060.00 PART 7 Particulars Amount () Variable manufacturing overhead 6530 $1200/100 units And $80 per direct labor hour 78,360.00 Skill level 1 (65.30 hours $80.00 Skill level 2 (65.30 hours $80.00 5,224.00 52,240.00 60,000.00 195,824.00 Fixed factory overhead Total manufacturing Overhead budget PART 8 Particulars Direct Material Direct Labor Variable Manufacturing Overhead Fixed Manufacturing Overheads Total Operating Costs Amount 97,950.00 16.325.00 S 135,824.00 60,000.00 $310,099.00 PART 9 Particulars Direct Material Direct Labor Variable Manufacturing Overhead Fixed Manufacturing Overheads Total Add: Opening Stock(650 Units) Total Less, Closing Stock (680 units) Cost of Goods Sold Costs (S) 98,550.00 16,325.00 S 135,824.00 60,000.00 $ 310,699.00 30,868.00 $341,567.00 S (32,293.00) $ 309,274.00 PART 1 Sales Budget for July Particulars Budgeted Units Price per unit Total Budgeted Sales Amount 6500.00 800.00 $5,200,000.00 PART 2 and 3 Production Budget Jul August Sales in units Add: Desired Ending invento Total Need Less: Beginning Invento Units to be produced 6500 680 7180 650 6530 6800 780 7580 680 6900 PART 4 Direct material Used Jul August RS 360 Galaxy 80 Units to be produced Material per unit Direct material Used (in units Price Direct material Used (in dollar 6530 6530 4 2 26120 13060 1.25 5.00 32,650.00 65,300.00 PART 5 Galaxy 80 RS 360 Units to be produced Material per unit Material required for units to be produced Add: Desired Ending Invento Total Need Less: Beginning Invento Direct material purchased Price Material Purchased 6530 6530 2 13060 680 13740 560 13180 4 26120 1000 27120 1000 26120 1.25 32,650.00 65,900.00 PART 6 Particulars Skill level 1 Skill level 2 6530 units Budgeted production in units 6530 units Labor hours required per unit of production 0.01 hours 0.10 hours Total hours required for production 6530 units in July month Hourly labor rate Direct manufacturing labor budget in $ |65.30 hours 653 hours $20/hour S50/hour 3,265.00 $ 13,060.00 PART 7 Particulars Amount () Variable manufacturing overhead 6530 $1200/100 units And $80 per direct labor hour 78,360.00 Skill level 1 (65.30 hours $80.00 Skill level 2 (65.30 hours $80.00 5,224.00 52,240.00 60,000.00 195,824.00 Fixed factory overhead Total manufacturing Overhead budget PART 8 Particulars Direct Material Direct Labor Variable Manufacturing Overhead Fixed Manufacturing Overheads Total Operating Costs Amount 97,950.00 16.325.00 S 135,824.00 60,000.00 $310,099.00 PART 9 Particulars Direct Material Direct Labor Variable Manufacturing Overhead Fixed Manufacturing Overheads Total Add: Opening Stock(650 Units) Total Less, Closing Stock (680 units) Cost of Goods Sold Costs (S) 98,550.00 16,325.00 S 135,824.00 60,000.00 $ 310,699.00 30,868.00 $341,567.00 S (32,293.00) $ 309,274.00