Master Budget with Supporting Schedules

You have just been hired as a management trainee by Cravat Sales Company, a nationwide manufacturer of a designer's silk ties. The company sales have grown so rapidly over the last few years that it has become necessary to add new members to the management team. You have been given direct responsibility for all planning and budgeting. Your first assignment is to prepare a master budget for the next three months, starting April 1. You are anxious to make a favorable impression on the president and have assembled the information below.

The ties are sold to retailers for $15 each. The large buildup in sales before and during June is due to Father's Day. Recent and forecasted sales in units are as follows:

January (actual) 20,000

February (actual) 24,000

March (actual) 28,000

April. 35,000

May. 45,000 June. 60,000 July 40,000

August 36,000

September 32,000

All sales are on credit, with no discount, and payable within 15 days. The company has found, however, that only 25% of a month's sales are collected by month-end. An additional 50% is collected in the month following, and the remaining 25% is collected in the second month following. Bad debts have been negligible.

The management wants to minimize the probability of a stock out of inventory items. The management wants ending inventory to be equal to 30% of the following months budgeted sales in units.

Two yards of material are required per unit of product. Management does not want to run out of direct materials, so a policy has been established that materials on hand at the end of each month must be equal to 10% of the following months production. Material cost is $2.50 per pound.

Purchases are paid: 50% in the month of purchase and the remaining 50% in the following month.

Each unit of product requires 0.15 hours of direct labor. Assume that the Company has a no layoff policy so all employees will be paid for 40 hours of work each week. Workers are paid at the rate of $8 per hour regardless of the hours worked. For the next three months, the direct labor workforce will be paid for a minimum of 1,500 hours per month.

Manufacturing overhead is applied to units of product based on direct labor hours. The variable manufacturing overhead rate is $10 per direct labor hour. Fixed manufacturing overhead is $65,000 per month, which includes $22,000 of noncash costs (primarily depreciation of plant assets).

Compute the Ending Finished Goods

The company's Selling and Administrative expense is divided into variable and fixed components, monthly operating expenses are given below:

Variable: ...........................$2 per unit sold

Fixed:

Wages and salaries. 28,000 Utilities. 24,000 Insurance expired 8,200

Depreciation Office Equipment. 20,000

Miscellaneous 3,000

Land will be purchased during May for $150,000 and Equipment of $75,000 during June in cash. The company declares dividends of $42,000 each quarter, payable in the first month of the following quarter.

The company maintains a 12% open line of credit for $75,000. Desires a minimum ending cash balance each month of $30,000. The Company can borrow money from its bank at 12% annual interest. All borrowing must be done at the beginning of a month, and repayments must be made at the end of a month. Borrowings and repayments of principal must be in round $1,000 amounts.

Interest is computed and paid at the end of each quarter on all loans outstanding during the quarter. Round all interest payments to the nearest whole dollar. Compute interest on whole months (1/12, 2/12 and so forth). The company wishes to use any excess cash to pay loans off as rapidly as possible.

The company's balance sheet at March 31 is given:

Assets

Assets
CASH	$251,000
ACC. RECEIVABLE	405,000
Raw Material (10,500)	19,000
Finished Goods	95,320
Prepaid insurance	77,905
Land	70,000
Equipment, net of depreciation	202,700
Total assets	$1,120,925
Liabilities and Stockholders' Equity
Accounts payable, purchases	77,225
Dividends payable	42,000
Note Payable	325,000
Capital stock, no par	300,000
Retained earnings	276,700
Total liabilities and stockholders' equity	$1,120,925

2. A budgeted income statement for the three-month period ending June 30. Use the contribution approach.

3. A budgeted balance sheet as of June 30.

*** PLEASE MAKE ALL THE PROCESS TO UNDERSTAND WHERE THE NUMBER ARE CALCULATED.