Mr. Smith is preparing for a meeting with his banker to arrange the financing for the first quarter Based on his sales forecast and the information he has provided (as detailed in the Situation below). your job as his new financial analyst is to prepare the following reports for the First Quarter of 2019: Monthly Sales Budget Monthly Production Budget Monthly Direct Materials Budget Monthly Schedule of Expected Cash Collection from Customers Monthly Schedule of Expected Cash Payments for Direct Materials Monthly Cash Budget Monthly and Quarterly Budgeted Income Statements Quarterly Budgeted Balance Sheet 1. 2. 3. 4. 5. 6. 7. 8. Situation: Iona Corporation makes standard-size 2-inch fasteners, which it sells for $155 per thousand. Mr. Smith is the majority owner and manages the inventory and finances of the company. He estimates sales for the fo llowing months in year 2019 to be January$263,500 (1,700,000 fasteners) February.$186,000 (1,200,000 fasteners) March April$310,000 (2,000,000 fasteners) May $217,000 (1,400,000 fasteners) $387,500 (2,500,000 fasteners) In 2018, Iona Corporation 3 budgeted sales were $175,000 in November and $232,500 in December (1,500,000 fasteners) Past history shows that Iona Corporation collects 50 percent of its accounts receivable in the normal 30-day credit period (the month after the sale) and the other 50 percent in 60 days (two months after the sale). It pays for its materials 30 days after receipt. In general, Mr. Smith likes to keep a two-month supply of inventory in anticipation of sales. Inventory at the beginning of December was 2,600,000 units. (This was not equal to his desired two-month supply) is the purchase of raw materials in the form of steel rods, which The major cost of production are cut, threaded, and finished. Last year raw material costs were $52 per 1,000 fasteners, but Smith has just been notified that material costs have risen, effective January 1, to $60 per 1,000 fasteners. The Iona Corporation uses FIFO inventory accounting. Labor costs are relatively constant at $20 per thousand fasteners, since workers are paid on a piecework basis. Overhead is allocated at S10 per thousand units, and selling and administrative expense is 20 percent of sales. Labor expense and overhead are direct cash outflows paid in the month incurred, while interest and taxes are paid quarterly The corporation usually maintains a minimum cash balance of $25,000, and it puts its excess cash into marketable securities. The average tax rate is 40 percent, and Mr. Smith usually pays out 50 percent of net income in dividends to stockholders. Marketable securities are sold before funds are borrowed when a cash shortage is faced. Ignore the interest on any short-term borrowings Interest on the long-term debt is paid in March, as are taxes and dividends. As of year-end, the Iona Corporation 3 budgeted balance sheet was as follows: IONA CORPORATION Budgeted Balance Sheet December 31, 2018 Assets Current assets: Cash Accounts receivable... Inventory... S 30,000 320,000 237 800 Total current assets. s 587,800 Fixed assets: 1,000,000 200,000 Plant and equipment Less: Accumulated depreciation 800,000 Total assets $1.387 800 Liabilities and Stockholders' Equity Accounts payable Long-term debt, 8 percent... $ 93,600 400,000 Common stock Retained earnings S 504,200 390000 894.200 Total liabilities and stockholders Dequity.... Cash Budget Feb Mar Jan Beginning Cash Balance Add Cash Receipts Total Available Cash Less Disbursements Direct Materials Payments Direct Labor Overhead Selling and administrative Interest on Long term loan Taxes Dividends payment Total Cash Disbursements 7 Excess (Deficiency) of available cash over disbursements 9 Financing 0 Add: Loan Borrowings 1 Add: Withdrawal of Marketable Securities 52 Less: Loan Repayments 53 Less: Investment in Marketable Securities 64 Ending Cash Balance 25,000 25,000 $25,000 Budgeted Income Statement For the Months and Quarter Ended March 31, 2019 71 72 73 74 s Sales 76 Cost of Goods Sold 77 Gross Profit 78 Selling and Administrative Expense 79 Income from Operations 80 Interest Expense 81 Income before Tax 82 Income Tax Expense 83 Income after Tax 84 Less: Dividends 85 Net Income 86 87 January FebruaryrchTotal 89 90 91 92 ona Corporation Budgeted Balance Sheet As of March 31. 2019