LBL Corporation is preparing its master budget for the first quarter of the upcoming year. The following contains detail on LBLs operations necessary for their master budget:
LBL Corporation is preparing its master budget for the first quarter of the upcoming year. The following contains detail on LBL's operations necessary for their master budget: Sales Information Actual Projected Sales are as follows: December (Prior Year; Actual): $75,000 January (Estimated) $85,000 February (Estimated): $91,000 March (Estimated): $96,000 April (Estimated): $112,000 May (Estimated): $120,000 Units are sold at $11 each Sales in a month are paid in cash for 40 % and on credit for the remainder with credit collection occurring in the month following the sale. HINT: To help you with several budgets, you will need sales in UNITS (not total dollars as listed above). You can calculate the number of sales units by taking the total sales / sales price per unit. Partial balance sheet as of 12/31 of the prior year Cash $5,050 A/R, net $112,000 $37,600 Inventory PP&E $145,000 A/P $35,700 Capital Stock $140,900 Retained Earnings $29,000 HINT: You may not need all this information LBL plans to produce enough units for sales expected in the period as well as have a cushion in ending finished goods inventory of 20% of the following month's sales units expected. Direct Materials: Three pounds of materials are needed to create each unit. When LBL purchases raw materials, they pay 30% in the month of purchase and the rest the following month. The cost is $1.50 per pound of material Management wants ending inventory to be equal to 20% of next month's production needs HINT: Direct materials are the only thing that LBL pays for, in part, in the following month. All other expenses are paid for in the month they occur. Therefore, the balance for A/P is for raw materials Direct Labor There is little DL necessary at LBL with only 0.05 direct labor hours needed per unit. Labor costs are paid in the month incurred at a rate of $9 per hour Other Manufacturing Costs: Variable overhead costs $1.10 per unit. LBL pays plant rent at a steady rate of $6,000 per month and $4,000 per month for all other fixed manufacturing costs. For the units expected for the year, fixed overhead costs are $0.80 per unit. All expenses are paid in the period incurred, and the above costs do not include depreciation Capital Expenditures: New computer equipment will be phased into LBL's admin offices over the next year with first quarter purchases as follows: January: $10,000, February: $13,000, and March: $15,000 Operating/SG&A Expenses Budgeted costs are $1.25 per unit Depreciation for the admin office's buildings/equipment is estimated at $5,000 for the quarter O O Additionally, they pay $2,000 for fixed operating expenses per month O Financing: LBL wants cash to be at a minimum balance of $5,000 each month In case of a cash shortage, they have a line of credit with a bank for up to $75,000, which is borrowed and repaid in O $1,000 increments. Simple interest applies to borrowed amounts at 1% per month outstanding with accumulated interest paid at the end of each quarter for any borrowed amounts throughout the period. If the company has surplus cash beyond the minimum balance required in a month, it would repay as much of any outstanding loans as possible without violating its minimum balance policy es: The current applicable tax rate is 35% While taxes are incurred each month of operations, it is paid quarterly with a $12,000 payment expected in February only Homework Required: Using the information above, prepare the following budgets for the first quarter (January, February, March AND a Quarter total, where applicable) in Excel: Cash payments for Direct material purchases (based off of purchases found in requirement 3. above) . b. Direct labor Manufacturing overhead C. d. Operating expenses (Create a separate budget for each cash payments budget listed above) Combined cash budget
