Klandon Company manufactures decorative rocks for aquariums. Kim Klandon is preparing the budget for the quarter ended June 30. She has gathered the following 1. Klandon's sales manager reported that the company sold 12,000 bags of rocks in March. He has developed the following sales forecast. The expected sales price is $10 per bag. April 20,000 bags May 50,000 bags June 30,000 bags July 25,000 bags August 15,000 bags 2. Sales personnel receive a 5 percent 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). Variable Cost/Unit Monthly Fixed Selling and Administrative $10,000 25,000 1,000 10,000 500 Depreciation Salaries of sales personnel Advertising Management salaries Miscellaneous Bad debts Total costs $0.50 0.50 $1.00 $46,500 3. The standard labor allowed for one bag of rocks is 15 minutes. The current direct labor rate is $10 per hour. 4. 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 percent of the following month's budgeted sales, in units. On March 31, 4,000 bags were on hand. 5. Five pounds of raw materials are required to fill each bag of finished rocks. The company wants to have raw materials on hand at the end of each month equal to 10 percent of the following month's production needs. On March 31, 13,000 pounds of materials were on hand. 6. The raw materials used in production cost $0.40 per pound. Half of the month's purchases is paid for in the month of purchase, the other half, in the following month. No discount is available. 7. On June 1, the company plans to spend $48,000 to upgrade its office equipment that is fully depreciated. The new equipment is expected to have a five-year life, with no residual value. 8. The budgeted monthly variable and total fixed overhead are as follows. Variable overhead is based on the number of units produced. The fixed overhead budget is based on an annual production of 400,000 bags Variable Cost/Unit Depreciation Indirect materials Indirect labor Utilities Property taxes Maintenance Total costs Fixed Monthly Overhead $8,000 1,000 10,000 20,000 5,000 6,000 $50,000 $0.05 0.20 0.10 0.15 $0.50 9. All sales are made on account. Historically, the company has collected 70 percent of its sales in the month of sale and 25 percent in the month following the sale. The remaining 5 percent of sales is uncollectible. 10. Klandon must maintain a minimum cash balance of $30,000. An open line of credit at a local bank allows the company to borrow up to $175,000 per quarter in $1,000 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 only when principal is repaid. The interest rate is 12 percent per year. 12. A quarterly dividend of $49,000 will be declared and paid in April. 13. Income taxes payable for the first quarter will be paid on April 15. Klandon's tax rate is 30 percent. 14. The March 31 balance sheet is as follows: 14. The March 31 balance sheet is as follows: Cash Accounts receivable Finished goods inventory Raw materials inventory Plant & equipment Accumulated Depreciation Total assets March 31 $40,000 30,000 26,000 5.200 200,000 -50.000 $251.200 Accounts payable Income taxes payable Common stock Retained 3arnings Total liabilities and equities $12,000 50.000 52,000 137.200 $251.200 Required a. Prepare all components of Klandon's master budget for the second quarter. Use the template's provided below to prepare the budgets and pro-forma statements. Sales Budget April May June Quarter Budgeted units sold Budgeted sales price Budgeted sales revenue $ $ $ May June Quarter $ Or solve your own way and solve the rest of the problem: Selling & Administrative Expense Budget April Depreciation Sales personnel compensation Advertising Management salaries Miscellaneous Bad debts Total budgeted expenses $ Less non-cash expenses Depreciation $ Bad debts Total cash costs $ $ $ $ $ $ Production Budget April May June Quarter July Budgeted unit sales + Budgeted ending inventory = Total units required - Beginning inventory = Budgeted production May June Quarter $ Or solve your own way and solve the rest of the problem: Selling & Administrative Expense Budget April Depreciation Sales personnel compensation Advertising Management salaries Miscellaneous Bad debts Total budgeted expenses $ Less non-cash expenses Depreciation $ Bad debts Total cash costs $ $ $ $ $ $ $ $ Production Budget April May June Quarter July Budgeted unit sales + Budgeted ending inventory = Total units required - Beginning inventory = Budgeted production Materials Purchase Budget April May _June Quarter July Budgeted production x Standard pounds/unit = Production needs + Budgeted ending inventory = Total pounds required Beginning inventory = Budgeted purchases x Standard price/pound = Budgeted purchases cost $ Direct Labor Budget April May _June Quarter Budgeted production x Standard DLH/unit = Total direct labor hrs required x Standard wage rate = Budgeted direct labor cost $ $ Manufacturing Overhead Budget April May _ June Quarter Budgeted production x Variable OH/unit = Total variable overhead + Fixed overhead Total budgeted Manufacturing OH Less: Non-cash items Depreciation = Total cash costs = Total cash costs Ending Inventory and Costs of Goods Sold Budget Raw Materials Beginning Balance Purchases of raw materials Less: Ending rawy materials inventory Raw materials used $ Finished Goods Unit costs. Direct materials Direct labor Overhead Total standard unit cost x Ending inventory units Ending finished goods inventory $ $ $ Cost of Goods Sold Beginning work in process inventory Direct materials used Direct labor Manufacturing overhead Total manufacturing costs Less: Ending work in process inventory Cost of goods manufactured Add: Beginning finished goods inventory Less: Ending finished goods inventory Cost of goods sold $ $ $ Cash Receipts Budget April May June Total Cash Receipts Bad Debts Accounts Receivable March sales $120,000 x 25% April sales $200,000 x 70% $200,000 x 25% $200,000 x 5% May sales $500,000 x 70% $500,000 x 25% $500,000 x 5% June sales $300,000 x 70% $300,000 x 25% $300,000 x 5% Totals $ $ Cash Payments for Materials Budget April May June Total Cash Payments Accounts Payable A/P from March April purchases $56,000 x 50% $56,000 x 50% May purchases $88,600 x 50% $88,600 x 50% June purchases $56,800 x 50% $56,800 x 50% Total $ $ $ $ Cash Budget April May June Quarter Beginning cash balance Collections from sales Total cash available Less disbursements Materials purchases Direct labor Manufacturing overhead Selling & administrative expense Income taxes Equipment purchase Dividends Total cash disbursements Cash excess (deficiency) Minimum cash balance Cash excess (deficiency) Financing Borrowings Repayments Interest Total financing Ending cash balance $ $ $ Prepare a pro forma income statement for the second quarter. Solve: Sales Cost of goods sold Gross profit Selling & administrative expense Operating income Interest expense Income before taxes Income tax expense (30%) Net income $ C. Prepare a pro forma balance sheet as of June 30. Solve: Cash A/R Finished Goods Raw Materials Inventory Property, Plant & Equipment Less: Accumulated Depreciation Total Assets A/P Income Taxes Payable Note Payable Common Stock Retained Earnings Total Liabilities & Equities $