Jones Limited manufacturers picture frames. You have been hired to assist the company with preparation of the Company's budget for the last three months (October, November and December) of 2020. You have gathered the following information:

Sales

The selling price is $100 per unit. All sales are on credit. Jones collects 30% of the credit sales during the month of sale and 65% in the month following sale. The remaining 5% in uncollectible. Actual and budgeted sales follow:

August (Actual)                 9,000 units

September (Actual)         11,000 units

October (Budgeted)        12,000 units

November (Budgeted)    21,000 units

December (Budgeted)     30,000 units

January (Budgeted)          6,000 units

February (Budgeted)        8,000 units

 

Production

Jones produces enough units each month to meet the month's sales plus a desired inventory level equal to 30% of next month's estimated sales.

 

Raw Materials

The company purchases enough raw materials each month for the current month's production requirement and 20% of next month's production requirements. Desired ending inventory of raw materials at December 31, 2020 is 3,960kgs. Each unit of product requires 5 kilograms of raw material at $4.00 per kilogram. There were 9,720 kilograms of raw materials in inventory on September 30. Jones pays 40% of raw materials purchases in the month of purchase and the remaining 60% in the following month. Accounts payable for purchases in September totalled $24,800. This accounts payable will be paid in October.

 

Labour

Each unit of finished product requires 1.5 hours of Direct Labour. The Direct Labour wage rate is $19 per hour. Jones also pays non-manufacturing labour each month totalling $100,000.

Manufacturing Overhead

Variable manufacturing overhead is 15% of the direct labour cost.

Fixed overhead costs per month are as follows:

Factory Supervisor Salary            $75,000

Factory Insurance                          $4,000

Factory Rent                                   $20,000

Depreciation Factory                     $24,000

 

Selling and Administrative Expenses

Variable selling and administrative expenses consist of $3/unit for shipping plus 6% of sales for commissions.

Fixed selling and administrative expenses per month are as follows:

Advertising                     $5,500

Depreciation                   $10,000

Insurance                        $3,500

Salaries                           $10,000

Other                               $24,000

 

Other Items

· The cash balance on October 1 is $22,000

· Jones will acquire Equipment costing $70,000 in October.

· Dividends of $250,000 will be paid in December

· All purchases and expenses other than depreciation are paid in cash in the month incurred

· All borrowings occur at the beginning of the month and all repayments occur at the end of the month. Annual interest rate is 6%.

· A minimum cash balance of $20,000 is required. 

· Jones has available a $200,000 line of credit through their Corporate Banking relationship with the Royal Bank.

Required:

1. Prepare the following budgets for each of the three months:

a. Sales Budget

b. Production Budget

c. Raw Materials Purchase Budget

d. Direct Labour Budget

e. Manufacturing Overhead Budget

f. Selling and administrative Budget

g. Cash Budget