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The Master Budget PROBLEMS Group A P9-54A Comprehensive budgeting problem (Learning Objectives 2&3) Damon Manufacturing is preparing its master budget for the first quarter of the upcom ing year. The following data pertain to Damon Manufacturing's operations 55 Current Assets as of December 31 (prior year) Cash.... Accounts receivable, net........ Inventory.. . Property, plant, and equipment, net Accounts payable Capital stock. Retained earnings .... a. Actual sales in December were $71,000. Selling price per unit is projected to remain stable at $12 per unit throughout the budget period. Sales for the first five months of the upcoming year are budgeted to be as follows 54.600 $ 46,000 $ 15,600 $121,000 $ 43,000 5125.000 $ 22.000 January $ 99,800 February ..... ...... 5118,800 March $115,200 April $108,000 May $103,200 b. Sales are 35% cash and 65% credit. All credit sales are collected in the month following the sale. Damon Manufacturing has a policy that states that each month's ending Inventory of finished goods should be 10% of the following month's sales in units) d. Of each month's direct materials purchases, 20% are paid for in the month of pur- chase, while the remainder is paid for in the month following purchase. Three pounds of direct material is needed per unit at $2 per pound. Ending inventory of direct materials should be 20% of next month's production needs. . Most of the labor at the manufacturing facility is indirect, but there is some direct Isbor incurred. The direct labor hours per unit is 0.05. The direct labor rate per hour is 59 per hour. All direct labor is paid for in the month in which the work is performed The direct labor total cost for each of the upcoming three months is as follows: January February March ... ...... ... $3,807 $4,442 $4,293 f. Monthly manufacturing overhead costs are $5,500 for factory rent, $2,900 for other fixed manufacturing expenses, and $1.10 per unit for variable manufacturing over- head. No depreciation is included in these figures. All expenses are paid in the month in which they are incurred. 9. Computer equipment for the administrative offices will be purchased in the upcoming quarter. In January, Damon Manufacturing will purchase equipment for $5,000 (cash). while February's cash expenditure will be $12,200 and March's cash expenditure will be $16,600 he Operating expenses are budgeted to be $1.25 per unit sold plus foed operating expenses of $1,800 per month. All operating expenses are paid in the month in which they are incurred. Depreciation on the building and equipment for the general and administrative offices is budgeted to be $4,800 for the entire quarter, which includes depreciation on new acquisitions. ER 9 J. Damon Manufacturing has a policy that the ending cash balance in each month must be at least $4,000. It has a line of credit with a local bank. The company can borrow in increments of $1,000 at the beginning of each month, up to a total outstanding loan balance of $130,000. The interest rate on these loans is 1% per month simple inter- est (not compounded). The company would pay down on the line of credit balance in increments of $1,000 if it has excess funds at the end of the quarter. The company would also pay the accumulated interest at the end of the quarter on the funds bor rowed during the quarter. k. The company's income tax rate is projected to be 30% of operating income less interest expense. The company pays $10,000 cash at the end of February in estimated taxes. APTER 9 8. Prepare a combined cash budget, using the following format: Combined Cash Budget For the Quarter Ended March 1 March OWN IGRICOLA 492 5 Beginning cash balance 6 Plus: Cash collections Total cash available 8 Less cash payments: 9 Direct material purchases 10 Direct labor 11 Manufacturing overhead costs 12 Operating expenses 13 Tax payment 14 Equipment purchases 15 Total cash payments 16 Ending cash balance before financing 17. Financing: 18 Plus: New borrowings 19 Less Debt repayments 20 Less: Interest payments 21 Ending cash balance 9. Calculate the budgeted manufacturing cost per unit, using the following format (assume that fixed manufacturing overhead is budgeted to be 50.70 per unit for the year): Budgeted Manufacturing Cost per Unit 3 4 5 6 7 Direct materials cost per unit Direct labor cost per unit Variable manufacturing overhead costs per Fixed manufacturing overhead costs per Budgeted cost of manufacturing one un 10. Prepare a budgeted income statement for the quarter ending March 31, using the following format: Budgeted Income Statement For the Quarter Ended March 31 133.co 5 Less: Cost of goods sold 6. Gross profit Less: Operating expenses Less: Depreciation expense 9 Operating income 10 Less: Interest expense 11 Less: income tax expense 12 Net Income *Hint: Cost of goods sold Budgeted cost of manufacturing one unit x Number of units sold would alsu pogo rowed during the quarter. k. The company's income tax rate is projected to be 30% of operating income less expense. The company pays $10,000 cash at the end of February in estimated taxes. Requirements 1. Prepare a schedule of cash collections for January, February, and March, and for the quarter in total. Use the following format: CD Cash Collections Budget For the Quarter Ended March 31 Month January February March Quarter 34.250 GESEC SON107 0 TEETHLO2700 RIO 1811OTO HOL320 34020310 52 Cash sales 6 Credit sales 7 Total cash collections 8 2. Prepare a production budget, using the following format: Production Budget For the Quarter Ended March 31 Month January February March Quarter 300 400 9400 PRO *990 1910 ca Wato 10,860 0.500 28 00 5 6 2 8 9 Unit sales Plus: Desired ending inventor Total needed Less: Beginning inventory Number of units to produce 254 27310 101 "Hint: Unit sales - Sales in dollars/Selling price per unit 3. Prepare a direct materials budget, using the following format: Direct Materials Budget For the Quarter Ended March 31 Month January February March Quarter Units to be produced (from Production Budget 8,169 98709,590 27,870 6 Multiply by: Quantity pounds of DM needed per unit 7 Quantity (pounds needed for production 2550 29,00 28.620 1610 8 Plus: Desired ending inventory of DM 9 Total quantity (pounds needed 10 Less: Beginning Inventory of DM 11. Quantity (pounds) to purchase 12 Multiply by: Cost per pound Total cost of DM purchases 14 The Master Bude Prepare a cash payments budget for the direct material purchases from Requirement 3, using the following format: Cash Payments for Direct Materials Budget For the Quarter Ended March 31 6 20% of current month OM purchases 0% of current month DM purchases Total cash payments 23 7 5. Prepare a cash payments budget for direct labor, using the following format: Cash Payments for Direct Labor Budget for the Quarter Ended March Quarter Total cost of direct labor February 807 2 March 2 6. Prepare a cash payments budget for manufacturing overhead costs, using the follow ing format: Cash Payments for Manufacturing Overhead Budget For the Quarter Ended March 31 5 Variable manufacturing overhead costs 6 Rented 7. Other foxed MOH & Cash payments for manufacturing overhead 15 7. Prepare a cash payments budget for operating expenses, using the following format: Cash Payments for Operating Expenses Budget For the Quarter Ended March 31 Month January February Variable operating expenses Foed operating expenses Cash payments for operating expenses 5 6