Mary Alice Kirkpatrick hivented a piocesst that converts llquid waste into a sweet-smelling candle that burns off the waste in'an environmentally friendy way. MAK. as her friends call her, has turned that invention into a large-scale coinpany and is now preparing the budget for the quarter ended March 31. She has gathered the following information. 1. Brad 4lamon, MAks sales manager, reported that the company sold 60,000 candles in December. He thas developed the following sales forecast. The expected sales price is $35 per candle. 2. All sales are made on account. Historically, the company has collected 75% of its sales in the month of sale and 20% in the month following the sale. The remaining 5% of sales are uncollectible. 3. Sales personnel receive a 3% commission on every candle sold in addition to their monthly salaries. 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 March (seepait 8) 4. The company requires ending finished goods inventory to equal 15% of the following month's budgeted salesi in units, On December 31,8.200 candies were on hand. 5. Ten ounces of raw materials are required to create each finished candle. The company wants to have raw materials on hand at the end of each month equal to 20s of the following month's production needs. On December 31, 109,000 ounces of materials were on hand. 6. The raw materials used in production cost $2.00 per ounce. Eighty percent of the month's purchases are pald for in the month of purchase: the rest is paid in the following month. No discount is available. 7. The standard labor allowed for one candie is 18 minutes. The current direct labor rate is $16 per hour. 8. On March 1, the company plans to spend $72,000 to replace its office equipment that is fully depreciated. The new equipment is expected to have a ten-year life, with no residual value. 9. The budgeted monthly variatite and fixed overhead are as follows, Variable overtiead is based on the number of units. produced. The tixed overhead budzet is based on an annual production of 600,000 candles. 10. MAK must maintain a minimum cash balance of $100,000. An open line of credit at a local bank allows the company to borrow up to $200,000 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 only when the principal is repaid. The interest rate is 6% per year. 12. A quarterly dividend of $60,000 will be dectared and paid in dantary. 13. Income taxes payable for the first quarter will be paid on January 15. MAK's tax rate is 35%. 13. Income taves wable fot the hist quarter will be paid on January 25 , MAK's tax rate is 35\%. 14. The December 31 balance sheet is as follows: Ending Inventoryand Cost of Goeds Sold Budget Finished goods Unit costs Direct materials Question 1 of 1 Total standard unit cost Cost of goods sold Beginning work in process inventory Direct materials uved Cash Receipts Budget Cash Receipts Budges Cesh Pivments for inventory Budsct Cish Pivments for Inwenterv. Bodsest ) 5 3 Critercess (deficiencr)
