Klandon Company manufactures decorative rocks for aquariums. Kim Klandon is preparing the budget for the quarter ended June 30. She has gathered the following information:

1.

Klandons sales manager reported that the company sold 15,000 bags of rocks in March. He has developed the following sales forecast. The expected sales price is $25 per bag.

April		18,000 bags
May		22,000 bags
June		20,000 bags
July		24,000 bags
August		16,000 bags

2.

Sales personnel receive a 4% commission on every bag of rocks sold. The following monthly fixed selling and administrative expenses are planned for the quarter. However, these amounts do not include the depreciation increase resulting from the budgeted equipment purchase in June (see part 7).

		Monthly Fixed Selling and Administrative Costs		Variable Cost/Unit
Depreciation		$10,000
Salaries of sales personnel		25,000		$1.00
Advertising		1,000
Management salaries		10,000
Miscellaneous		500
Bad debts
Total costs		$46,500		$1.00

3.

After experiencing difficulty in supplying customers in a timely fashion due to inventory shortages, the company established a policy requiring the ending Finished Goods Inventory to equal 20% of the following months budgeted sales, in units. On March 31, 4,000 bags were on hand.

4.

Eight pounds of direct materials are required to fill each bag of finished rocks. The company wants to have direct materials on hand at the end of each month equal to 10% of the following months production needs. On March 31, 13,000 pounds of materials were on hand.

5.

The direct materials used in production cost $1.25 per pound. Sixty percent of the months purchases are paid for in the month of purchase; the remaining 40%, in the following month. No discount is available.

6.

The standard labor allowed for one bag of rocks is 30 minutes. The current direct labor rate is $12 per hour.

7.

On June 1, the company plans to spend $60,000 to upgrade its office equipment that is fully depreciated. The new equipment is expected to have a five-year life, with no residual value. While full-depreciated, the old equipment will be retained in service.

8.

The budgeted monthly variable and fixed overhead amounts are as follows. Variable overhead is based on the number of units produced. The fixed overhead budget is based on an annual production of 420,000 bags.

		Monthly Fixed Overhead		Variable Cost/Unit
Depreciation		$8,000
Indirect materials		2,500		$0.08
Indirect labor		13,000		0.27
Utilities		18,000		0.15
Property taxes		4,000
Maintenance		7,000		0.25
Total costs		$52,500		$0.75

9.

All sales are made on account. Historically, the company has collected 70% of its sales in the month of sale and 25% in the month following the sale. The remaining 5% of sales is uncollectible (and is included in the previous selling and administrative bad debt expense information).

10.

Klandon must maintain a minimum cash balance of $40,000. An open line of credit at a local bank allows the company to borrow up to $175,000 per quarter in $1,000 increments.

11.

All borrowing is done at the beginning of the month, and all repayments are made at the end of a month in $1,000 increments. Accrued interest is paid any time a principal payment is made. The interest rate is 12% per year.

12.

A quarterly dividend of $53,000 will be declared and paid in April.

13.

Income taxes payable for the first quarter will be paid on April 15. Klandons tax rate is 30%.

14.

The March 31 balance sheet is as follows:

		March 31
Cash		$40,000
Accounts receivable		93,750
Raw materials inventory		21,600
Finished goods inventory		73,000
Plant & equipment		200,000
Accumulated depreciation		(50,000)
Total assets		$378,350
Accounts payable		$12,000
Income taxes payable		24,000
Common stock		52,000
Retained earnings		290,350
Total liabilities and equities		$378,350

Sales Budget April May June Quarter 18000 22000 20000 60000 25 25 25 25 450000 $ 550000 $ 500000 $ 150000 Selling and Administrative Expense Budget April May June $ $ $ Sales personnel salaries Bad debts Sales commissions Miscellaneous Advertising Depreciation Management salaries > > S Cash Receipts Budget Total Cash Receipts Accounts Receivable June Bad Debts $ $ $ S $ S $ $ $ Cash Payments for Inventory Budget April May June A/P from March $ $ $ $ April purchases May purchases June purchases Totals S $ $ $ Cash Budget April May $ $ > > > > > > >