Management expects December's results to be repeated in January. February, and March without any changes in strategy. Management, however, has an alternative plan. It believes that if the unit selling price is reduced to $125 per unit and advertising is increased to $287,500 per month, sales units will be 16,500 for January, 18,150 for February, and 19,965 for March. The cost of its product will remain at $75 per unit, the sales staff will continue to carn a 10% commission, and the remaining expenses will stay the same. Required 1. Prepare budgeted income statements for each of the months of January, February, and March that show results from implementing the proposed plan. Use a three-column format, with one column for each month. Ignore income taxes. Analysis Component 2. For the proposed plan, is ineome in March budgeted to be higher than income in December? The management of Zigby Manufacturing prepared the following balance sheet for March 31 . Problem 20-4A Manufaeturing: Preparation of a complete master budget P1P2P3 7. General and odministrative expense budget. 13 supportiy notsose. Keggler's Supply is a merchandiser of three different products. Beginning inventories for March are footwear, 20,000 units; sports gear, 80,000 units; and apparcl, 50,000 units. Management believes each of these inventories is too high and begins a new policy that ending inventory in any month should equal 30% of the budgeted sales units for the following month. Budgeted sales units for March, April, May, and June follow. Required Prepare a merchandise purchases budget (in units only) for each product for the months of March, April, and May. Problem 20.6A Merchandiaing: Preparation of cast budgets for three penods Oneida Company's operations began in August. Augus sales were $215,000 and purchases were $125,000. The beginning cash balance for September is $5,000. Oncida's owner approaches the bank for a $100,000 loan to be made on September 2 and repaid on November 30. The bank's loan officer asks the owner to prepare monthly cash budgets. Its budgeted sales, merchandise purchases, and cash payments for other ex. penses for the next three months follow. To prepare a master budget for April, May, and June, managemeat gathers the following information. a. Sales for March total 20,500 units. Budgeted sales in units follow: April, 20,500; May, 19,500; June, 20,000; and July, 20,500. The product's selling price is $24.00 per unit and its total product cost is $19.85 per unit. b. Raw materials inventory consists solely of direct materials that cost $20 per pound. Company policy calls for a given month's ending materials inventory to equal 50% of the next month's direct materials requirements. The March 31 raw materials inventory is 4,925 pounds. The budgeted June 30 ending raw materials imventory is 4,000 pounds. Eech finished unit roquires 0.50 pound of direct materials. c. Company policy calls for a given month's ending finished goods inventory to equal 80% of the next month's budgeted unit sales. The March 31 finished goods inventory is 16,400 units. d. Each finished unit requires 0.50 hour of direct labor at a rate of $15 per hour. e. The predetermined variable overhead rate is $2.70 per direct labor hour. Depreciation of $20,000 per month is the only fixed factory overhead item. t. Sales commissions of 8% of sales are paid in the month of the sales. The sales manager's monthly salary is $3,000. g. Monthly general and administrative expenses include $12,000 for administrative salaries and 0.9% monthly interest on the long-term note payable. h. The company budgets 30% of sales to be for cash and the remaining 70% on credit. Credit sales are collected in full in the month following the sale (no credit sales are collected in the month of sale). [continued on next page] 810 Chaplel 20 Master Budgets ard Planning \{coetinued from previous paze] 1. All raw materials purchases are on crodit, and occounis payable are solely tied to naw matcrinks purchases. Rew materials purchuses are fully paid in the next month (none are paid in the month of purcture). 1. The minimum ending cash balance for all moaths is $40,000. If necessary, the company botrows enough cash using a loan to reach the minimum. Loans tequire an interest pisment of itf ar each month end (bofore any xepayment), If the moath-end preliminary cash balasce exceeds the winimum, the excess will be used to repay any loans. k. Dividends of $10,000 are budected to be declared and nuid in May k. Dividends of $10,000 are budgeted to be declared and paid in May. t. No cash payments for income taxes are budgeted in the second calendar quarter. Income tax will be assessed at 35% in the quarter and budgeted to be paid in the third calendar quarter. m. Equipment purchases of $100,000 are budgeted for the last day of June. Required Prepare the following budgets for the months of April, May, and June, except as noted below. 1. Sales budget. 2. Production budget. 3. Direct materials budget. 4. Direct labor budget. 5. Factory overhead budget. 6. Selling expense budget. 7. Genernl and administrative expense budget. 8. Schedule of eash receipts. 9. Schedule of cash payments for direct materials. 10. Cash budget. 11. Budgeted income statement for second quarter (not monthly). 12. Budgeted balance sheet at June 30 . 13. supportiy putast. Problem 20-5AA Merchandising: Preparation of merchandise Durchases budgets tor three products PA Keggler's Supply is a merchandiser of three different products. Beginning inventories for March are footwear, 20,000 units; sports gear, 80,000 units; and apparel, 50,000 units. Management believes each of these inventories is too high and begins a new policy that ending inventory in any month should equal 30% of the budgeted sales units for the following month. Budgeted sales units for March, April, May, and June follow. Required Prepare a merchandise purchsses badget (in units only) for euch product for the months of March. April, and Muy, Problem 20-6A Merchantising: Pieparation of cash Opeida Company's operations began in August. August sa.es were \$215,000 and purchases were \$125,000. The beginning cash balence for September is $5,000. Oncida's owner approaches the bunk for a $100,000 Ioan to be made on September? and repaid on November 30. The bank's loan officer asks the owner to Management expects December's results to be repeated in January. February, and March without any changes in strategy. Management, however, has an alternative plan. It believes that if the unit selling price is reduced to $125 per unit and advertising is increased to $287,500 per month, sales units will be 16,500 for January, 18,150 for February, and 19,965 for March. The cost of its product will remain at $75 per unit, the sales staff will continue to carn a 10% commission, and the remaining expenses will stay the same. Required 1. Prepare budgeted income statements for each of the months of January, February, and March that show results from implementing the proposed plan. Use a three-column format, with one column for each month. Ignore income taxes. Analysis Component 2. For the proposed plan, is ineome in March budgeted to be higher than income in December? The management of Zigby Manufacturing prepared the following balance sheet for March 31 . Problem 20-4A Manufaeturing: Preparation of a complete master budget P1P2P3 7. General and odministrative expense budget. 13 supportiy notsose. Keggler's Supply is a merchandiser of three different products. Beginning inventories for March are footwear, 20,000 units; sports gear, 80,000 units; and apparcl, 50,000 units. Management believes each of these inventories is too high and begins a new policy that ending inventory in any month should equal 30% of the budgeted sales units for the following month. Budgeted sales units for March, April, May, and June follow. Required Prepare a merchandise purchases budget (in units only) for each product for the months of March, April, and May. Problem 20.6A Merchandiaing: Preparation of cast budgets for three penods Oneida Company's operations began in August. Augus sales were $215,000 and purchases were $125,000. The beginning cash balance for September is $5,000. Oncida's owner approaches the bank for a $100,000 loan to be made on September 2 and repaid on November 30. The bank's loan officer asks the owner to prepare monthly cash budgets. Its budgeted sales, merchandise purchases, and cash payments for other ex. penses for the next three months follow. To prepare a master budget for April, May, and June, managemeat gathers the following information. a. Sales for March total 20,500 units. Budgeted sales in units follow: April, 20,500; May, 19,500; June, 20,000; and July, 20,500. The product's selling price is $24.00 per unit and its total product cost is $19.85 per unit. b. Raw materials inventory consists solely of direct materials that cost $20 per pound. Company policy calls for a given month's ending materials inventory to equal 50% of the next month's direct materials requirements. The March 31 raw materials inventory is 4,925 pounds. The budgeted June 30 ending raw materials imventory is 4,000 pounds. Eech finished unit roquires 0.50 pound of direct materials. c. Company policy calls for a given month's ending finished goods inventory to equal 80% of the next month's budgeted unit sales. The March 31 finished goods inventory is 16,400 units. d. Each finished unit requires 0.50 hour of direct labor at a rate of $15 per hour. e. The predetermined variable overhead rate is $2.70 per direct labor hour. Depreciation of $20,000 per month is the only fixed factory overhead item. t. Sales commissions of 8% of sales are paid in the month of the sales. The sales manager's monthly salary is $3,000. g. Monthly general and administrative expenses include $12,000 for administrative salaries and 0.9% monthly interest on the long-term note payable. h. The company budgets 30% of sales to be for cash and the remaining 70% on credit. Credit sales are collected in full in the month following the sale (no credit sales are collected in the month of sale). [continued on next page] 810 Chaplel 20 Master Budgets ard Planning \{coetinued from previous paze] 1. All raw materials purchases are on crodit, and occounis payable are solely tied to naw matcrinks purchases. Rew materials purchuses are fully paid in the next month (none are paid in the month of purcture). 1. The minimum ending cash balance for all moaths is $40,000. If necessary, the company botrows enough cash using a loan to reach the minimum. Loans tequire an interest pisment of itf ar each month end (bofore any xepayment), If the moath-end preliminary cash balasce exceeds the winimum, the excess will be used to repay any loans. k. Dividends of $10,000 are budected to be declared and nuid in May k. Dividends of $10,000 are budgeted to be declared and paid in May. t. No cash payments for income taxes are budgeted in the second calendar quarter. Income tax will be assessed at 35% in the quarter and budgeted to be paid in the third calendar quarter. m. Equipment purchases of $100,000 are budgeted for the last day of June. Required Prepare the following budgets for the months of April, May, and June, except as noted below. 1. Sales budget. 2. Production budget. 3. Direct materials budget. 4. Direct labor budget. 5. Factory overhead budget. 6. Selling expense budget. 7. Genernl and administrative expense budget. 8. Schedule of eash receipts. 9. Schedule of cash payments for direct materials. 10. Cash budget. 11. Budgeted income statement for second quarter (not monthly). 12. Budgeted balance sheet at June 30 . 13. supportiy putast. Problem 20-5AA Merchandising: Preparation of merchandise Durchases budgets tor three products PA Keggler's Supply is a merchandiser of three different products. Beginning inventories for March are footwear, 20,000 units; sports gear, 80,000 units; and apparel, 50,000 units. Management believes each of these inventories is too high and begins a new policy that ending inventory in any month should equal 30% of the budgeted sales units for the following month. Budgeted sales units for March, April, May, and June follow. Required Prepare a merchandise purchsses badget (in units only) for euch product for the months of March. April, and Muy, Problem 20-6A Merchantising: Pieparation of cash Opeida Company's operations began in August. August sa.es were \$215,000 and purchases were \$125,000. The beginning cash balence for September is $5,000. Oncida's owner approaches the bunk for a $100,000 Ioan to be made on September? and repaid on November 30. The bank's loan officer asks the owner to