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Donahue Company is preparing budgets for the third quarter ending Sept 30, 2017. Budgeted sales for the next five months are July 20,AAA units Aug 50,BBB units Sept 30,CCC units Oct 25,DDD units Nov 15,000 units See instructions in table below: July 20,AAA units becomes 20,670 units Aug 50,BBB units becomes 50,313 units Sept 30,CCC units becomes 30,807 units Oct 25,DDD units become 25,836 units Nov remains at 15,000 units The selling price is S15 per unit. All sales are on account. Donahue's collection pattern is 60% collected in the month of sale and remaining amount in the month following sale The June 30 Accounts Receivable balance of $50,000 will be collected in full The management at Donahue Company wants ending Finished Goods Inventory to be equal to 25% of the following month's budgeted sales in units At Donahue Company, five pounds of material are required per unit of product. Management wants materials on hand at the end of each month equal to 15% of the following month's production. Material cost is $0.50 per pound 30% of a month's purchases is paid for in the month of purchase and the remainder is paid in the following month. The June 30 Accounts Payable balance is $20,000. At Donahue, each unit of product requires 0.06 hours (3.6 minutes) of direct labor. The company has a "no layoff" policy and in exchange for the "no layoff" policy, workers agree to a wage rate of $15 per hour regardless of the hours worked (no overtime pay). For the next three months, the direct labor workforce will be paid for a minimum of2,000 hours per month At Donahue, manufacturing overhead is applied to units of product on the basis of direct labor hours. The variable manufacturing overhead rate is S25 per direct labor hour. Fixed manufacturing overhead is $40,000 per month and includes $10,000 of non-cash costs. At Donahue, the selling and administrative expenses budget is divided into variable and fixed components. The variable selling and administrative expenses are $0.55 per unit sold. Fixed selling and administrative expenses are $60,000 per month. The fixed selling and administrative expenses include $15,000 in costs that are not cash outflows of the current month The company: Has an July 1 cash balance of $55,000 Maintains a minimum cash balance of $35,000 Borrows on the first day of the month and repays loans on the last day of the quarter Maintains a 12% open line of credit for $95,000 Pays a cash dividend of $45,000 in Aug Cash purchases of equipment, S155,200 in July and $54,800 in Sept, respectively Donahue reported the following account balances prior to preparing its budgeted financial statements: Land-$65,000 Equipment-$180,000 Ordinary shares -$195,000 Retained eamings - Sx "This Retained earnings figure will be the amount needed to balance off your balance sheet on June 30 i.e the closing balances on June 30h before you step into the third quarter. Required: 11. Budgeted Income Statement 12. Budgeted Balance Sheet For the balance sheet as at Sept 30", there will be a difference between the final totals. This is due to calculations based on rounded off units. To balance the totals, simply close off this difference to the Retained Earnings account 3.Production Budget Donahue Company Production Budget For the Quarter Ending September 30th Particular July August 50,313.00 September 30,807.00 Quarter 20,670.00 Estimated Sales 101,790.00 Add: Desired Closing Stock (25 % of the following months sale) 12,578.25 7,701.75 6,459.00 26,739.00 58,014.75 Total Units Added 33,248.25 37,266.00 128,529.00 Less: Opening Stock 5,167.50 12,578.25 7,701.75 25,447.50 28,080.75 Estimated Production 45,436.50 29,564.25 103,081.50 Workings Calculation of Desired Closing Stock (Next Month Sales 25% ) June (20,670 25% ) July (50,313 25%) August (30,807 25 % ) September (25,836 25 % ) October (15,000 25% ) 5,167.50 12,578,25 7,701.75 6,459.00 3,750.00 4. Direct Material Budget Donahue Company Direct Material Budget For the Quarter Ending September 30 July August 45,436.50 September 29,564.25 Quarter 103,081.50 Required Production (a) Direct Material required per unit (b) Total Production of Required (a b) Add: Desired Ending Raw Material Inventory (15% of following month's production) Total Units available for production 28,080.75 5.00 5.00 5.00 515,407.50 227,182.50 22,173.19 140,403.75 34,077.38 174,481.13 21,060.56 147,821.25 17,345.25 165,166.50 22,173.19 142,993.31 0.50 S 73,595.8 589,003.31 77,311.13 511,692.18 249,355.69 34,077.38 Less: Estimate Beginning Raw Material Inventory Reqired Purchases (units) ( part c) Price per unit (d) Budgeted Purchase (c*d) 153,420.57 0.50 $ 76,710.28 $ 215,278.31 0.50 S 107,639.15 $ S 0.50 S 71,496.66 255,846.09 Working Notes Total Units of Production required in October October Sales 25836 Add: Desired Ending Inventory Less: Beginning Inventory 3750 6459 Required Production (a) Direct Material required per unit (b) Total Production of Required (a b) 23127 5.00 115635 Calculation of Desired Ending Inventory Next Month Production* 15 % ) June (140,403.75 * 15% July (227,182.50 15%) August (147,821.25 * 15%) September (115635 15%) 21,060.56 34,077.38 S 22,173.19 S 17,345.25 5. Company's Expected Cash Disbursements for Materials Donahue Company Expected Cash Disbursements For the Quarter Ending September 30 July 76,710.28 $ September Quarter 255,846.09 August Cost of Raw Material to be purchased 107,639.15 $ 71,496.66 Cash (Cost of Raw Material to be purchased for each month* 30 % ) Credit (Cost of Raw Material to be purchased for each month 70% ) S 23,013.08 53,697.20 20,000.00 $ 23,013.08 S 43,013.08 32,291.75 21,449.00 76,753.83 179,092.26 50,047.66 $ $ 75,347.41 Payment for previous month purchases Payment for current month purchases Payments 53,697.20 32,291.75 $ S 75,347.4 149,044.6 21,449.00 $ $ 76,753.83 85,988.94 96,796.40 225,798.43 6. Direct Labour Budget Donahue Company Direct Labour Budget For the Quarter Ending September 30 July September Particular Budgeted Production Direct Labour hours per unit August Quarter 45,436.50 29,564.25 28,080.75 0.06 1,684.85 103,081.50 0.06 0,06 0.06 2,726.19 2,726.19 15.00 S Total Direct Labour hour needed 1,773.86 6,184.89 Direct Labour hours Paid (minimum 2000 hours) Direct Labour cost per unit Total Direct Labour cost 2000 2000 15.00 $ 15.00 $ 30,000.00 $ 40,892.85 30,000.00 $ 100,892.85 7. Manufacturing Overhead Budget Donahue Company Manufacturing Overhead Budget For the Quarter Ending September 30 August July September Quarter Particulars Variable Cost 6184.90 Total direct labour needed 1684.85 2726.19 1773.86 Variable Manufacturing overhead rate 25 25 25 Total Variable Manufacturing overhead cost 154622.5 42121.25 68154.75 44346.5 Fixed Cost 40000 Fixed Manufacturing Overhead Total manufacturing overhead 40000 40000 120000 84346.5 S 274,622.50 S 82,121.25 108154.75 |8. Ending Finished Goods Inventory Budget Donahue Company Budgeted Finished Goods Inventory (in units) Ending Finished Goods Inventory Budget For the Quarter Ending September 30 Cost Ending Finished Goods Inventory(in units)* 6459 Unit product cost $ 6.06 Quantity S 39.167.38 Ending Finished Goods Inventory(in dollars) Total Cost per unit 5S Direct Material (Pounds) 2.50 0.50 S 0.06 S 0.06 S Direct Labour (Hours) S 0,90 15.00 Manufacturing Overhead Total unit cost 44.40 S 2.66 6.06 9. Selling and Administration Overhead Budget Donahue Company Selling and administration Overhead Budget For the Quarter Ending September 30 August September Quarter July Units sold 20670 50313 30807 101790 0.55 $ 0.55 $ Variable selling and administration overhead per unit sold Variable selling and administration overhead Fixed selling and administration overhead S S 0.55 0.55 16,943.85 $ 60,000.00 S 11,368.50 S 60,000.00 $ 27,672.15 S 60,000.00 S S 55,984.50 180,000,00 S 87,672.15 S 76,943.85 S Total selling and administrationn overhead S 71,368.50 235,984.50 10. Cash Budget Donahue Company Cash Budget For the Quarter Ending September 30 July August September Quarter Beginning cash balance Add: receipts (cash collections) S 55,000.00 35,000.00 $ 269,128.31 $ S 55,000.00 576,837.00 $ S 236,030.00 S 579,141.00 $ 1,392,008.00 Total cash available S 291,030.00 $ 611,837.00 $ 848,269.31 1,447,008.00 Less: Cash disbursements 43,013.08 $ Direct Materials S 85,988.94 S 96,796.40 S 225,798.42 Direct labour S 30,000.00 S 40,892.85 98,154.75 S 72,672.15 $ 30,000.00 S 100,892.85 Manufacturing overhead (MOH - Non-cash overhead cost) Selling and administrative Equipment purchase Dividend S 72,121.25 $ 74,346.50 S 244,622.50 S 56,368.50 S 61,943.85 $ S 190,984.50 S S 155,200.00 54,800.00 210,000.00 S 45,000.00 S 45,000.00 Total disbursements 342,708.69 $ 356,702.83 $ 317,886.75 $ 1,017,298.27 Excess(deficiency) Financing: Borrowing Repayments Interest -$ 65,672.83 S 269,128,31 S 530,382.56 $ 429,709.73 100,672.83 100,672.83 100,672.83 -S 100,672.83 -S 3,020.18 S 3,020.18 Total financing Ending cash balance S 100,672.83 $ -S 103,693.01 3,020.18 269,128.3 S S 35,000.00 $ 426,689.55 $ 426,689.55 Donahue Company is preparing budgets for the third quarter ending Sept 30, 2017. Budgeted sales for the next five months are July 20,AAA units Aug 50,BBB units Sept 30,CCC units Oct 25,DDD units Nov 15,000 units See instructions in table below: July 20,AAA units becomes 20,670 units Aug 50,BBB units becomes 50,313 units Sept 30,CCC units becomes 30,807 units Oct 25,DDD units become 25,836 units Nov remains at 15,000 units The selling price is S15 per unit. All sales are on account. Donahue's collection pattern is 60% collected in the month of sale and remaining amount in the month following sale The June 30 Accounts Receivable balance of $50,000 will be collected in full The management at Donahue Company wants ending Finished Goods Inventory to be equal to 25% of the following month's budgeted sales in units At Donahue Company, five pounds of material are required per unit of product. Management wants materials on hand at the end of each month equal to 15% of the following month's production. Material cost is $0.50 per pound 30% of a month's purchases is paid for in the month of purchase and the remainder is paid in the following month. The June 30 Accounts Payable balance is $20,000. At Donahue, each unit of product requires 0.06 hours (3.6 minutes) of direct labor. The company has a "no layoff" policy and in exchange for the "no layoff" policy, workers agree to a wage rate of $15 per hour regardless of the hours worked (no overtime pay). For the next three months, the direct labor workforce will be paid for a minimum of2,000 hours per month At Donahue, manufacturing overhead is applied to units of product on the basis of direct labor hours. The variable manufacturing overhead rate is S25 per direct labor hour. Fixed manufacturing overhead is $40,000 per month and includes $10,000 of non-cash costs. At Donahue, the selling and administrative expenses budget is divided into variable and fixed components. The variable selling and administrative expenses are $0.55 per unit sold. Fixed selling and administrative expenses are $60,000 per month. The fixed selling and administrative expenses include $15,000 in costs that are not cash outflows of the current month The company: Has an July 1 cash balance of $55,000 Maintains a minimum cash balance of $35,000 Borrows on the first day of the month and repays loans on the last day of the quarter Maintains a 12% open line of credit for $95,000 Pays a cash dividend of $45,000 in Aug Cash purchases of equipment, S155,200 in July and $54,800 in Sept, respectively Donahue reported the following account balances prior to preparing its budgeted financial statements: Land-$65,000 Equipment-$180,000 Ordinary shares -$195,000 Retained eamings - Sx "This Retained earnings figure will be the amount needed to balance off your balance sheet on June 30 i.e the closing balances on June 30h before you step into the third quarter. Required: 11. Budgeted Income Statement 12. Budgeted Balance Sheet For the balance sheet as at Sept 30", there will be a difference between the final totals. This is due to calculations based on rounded off units. To balance the totals, simply close off this difference to the Retained Earnings account 3.Production Budget Donahue Company Production Budget For the Quarter Ending September 30th Particular July August 50,313.00 September 30,807.00 Quarter 20,670.00 Estimated Sales 101,790.00 Add: Desired Closing Stock (25 % of the following months sale) 12,578.25 7,701.75 6,459.00 26,739.00 58,014.75 Total Units Added 33,248.25 37,266.00 128,529.00 Less: Opening Stock 5,167.50 12,578.25 7,701.75 25,447.50 28,080.75 Estimated Production 45,436.50 29,564.25 103,081.50 Workings Calculation of Desired Closing Stock (Next Month Sales 25% ) June (20,670 25% ) July (50,313 25%) August (30,807 25 % ) September (25,836 25 % ) October (15,000 25% ) 5,167.50 12,578,25 7,701.75 6,459.00 3,750.00 4. Direct Material Budget Donahue Company Direct Material Budget For the Quarter Ending September 30 July August 45,436.50 September 29,564.25 Quarter 103,081.50 Required Production (a) Direct Material required per unit (b) Total Production of Required (a b) Add: Desired Ending Raw Material Inventory (15% of following month's production) Total Units available for production 28,080.75 5.00 5.00 5.00 515,407.50 227,182.50 22,173.19 140,403.75 34,077.38 174,481.13 21,060.56 147,821.25 17,345.25 165,166.50 22,173.19 142,993.31 0.50 S 73,595.8 589,003.31 77,311.13 511,692.18 249,355.69 34,077.38 Less: Estimate Beginning Raw Material Inventory Reqired Purchases (units) ( part c) Price per unit (d) Budgeted Purchase (c*d) 153,420.57 0.50 $ 76,710.28 $ 215,278.31 0.50 S 107,639.15 $ S 0.50 S 71,496.66 255,846.09 Working Notes Total Units of Production required in October October Sales 25836 Add: Desired Ending Inventory Less: Beginning Inventory 3750 6459 Required Production (a) Direct Material required per unit (b) Total Production of Required (a b) 23127 5.00 115635 Calculation of Desired Ending Inventory Next Month Production* 15 % ) June (140,403.75 * 15% July (227,182.50 15%) August (147,821.25 * 15%) September (115635 15%) 21,060.56 34,077.38 S 22,173.19 S 17,345.25 5. Company's Expected Cash Disbursements for Materials Donahue Company Expected Cash Disbursements For the Quarter Ending September 30 July 76,710.28 $ September Quarter 255,846.09 August Cost of Raw Material to be purchased 107,639.15 $ 71,496.66 Cash (Cost of Raw Material to be purchased for each month* 30 % ) Credit (Cost of Raw Material to be purchased for each month 70% ) S 23,013.08 53,697.20 20,000.00 $ 23,013.08 S 43,013.08 32,291.75 21,449.00 76,753.83 179,092.26 50,047.66 $ $ 75,347.41 Payment for previous month purchases Payment for current month purchases Payments 53,697.20 32,291.75 $ S 75,347.4 149,044.6 21,449.00 $ $ 76,753.83 85,988.94 96,796.40 225,798.43 6. Direct Labour Budget Donahue Company Direct Labour Budget For the Quarter Ending September 30 July September Particular Budgeted Production Direct Labour hours per unit August Quarter 45,436.50 29,564.25 28,080.75 0.06 1,684.85 103,081.50 0.06 0,06 0.06 2,726.19 2,726.19 15.00 S Total Direct Labour hour needed 1,773.86 6,184.89 Direct Labour hours Paid (minimum 2000 hours) Direct Labour cost per unit Total Direct Labour cost 2000 2000 15.00 $ 15.00 $ 30,000.00 $ 40,892.85 30,000.00 $ 100,892.85 7. Manufacturing Overhead Budget Donahue Company Manufacturing Overhead Budget For the Quarter Ending September 30 August July September Quarter Particulars Variable Cost 6184.90 Total direct labour needed 1684.85 2726.19 1773.86 Variable Manufacturing overhead rate 25 25 25 Total Variable Manufacturing overhead cost 154622.5 42121.25 68154.75 44346.5 Fixed Cost 40000 Fixed Manufacturing Overhead Total manufacturing overhead 40000 40000 120000 84346.5 S 274,622.50 S 82,121.25 108154.75 |8. Ending Finished Goods Inventory Budget Donahue Company Budgeted Finished Goods Inventory (in units) Ending Finished Goods Inventory Budget For the Quarter Ending September 30 Cost Ending Finished Goods Inventory(in units)* 6459 Unit product cost $ 6.06 Quantity S 39.167.38 Ending Finished Goods Inventory(in dollars) Total Cost per unit 5S Direct Material (Pounds) 2.50 0.50 S 0.06 S 0.06 S Direct Labour (Hours) S 0,90 15.00 Manufacturing Overhead Total unit cost 44.40 S 2.66 6.06 9. Selling and Administration Overhead Budget Donahue Company Selling and administration Overhead Budget For the Quarter Ending September 30 August September Quarter July Units sold 20670 50313 30807 101790 0.55 $ 0.55 $ Variable selling and administration overhead per unit sold Variable selling and administration overhead Fixed selling and administration overhead S S 0.55 0.55 16,943.85 $ 60,000.00 S 11,368.50 S 60,000.00 $ 27,672.15 S 60,000.00 S S 55,984.50 180,000,00 S 87,672.15 S 76,943.85 S Total selling and administrationn overhead S 71,368.50 235,984.50 10. Cash Budget Donahue Company Cash Budget For the Quarter Ending September 30 July August September Quarter Beginning cash balance Add: receipts (cash collections) S 55,000.00 35,000.00 $ 269,128.31 $ S 55,000.00 576,837.00 $ S 236,030.00 S 579,141.00 $ 1,392,008.00 Total cash available S 291,030.00 $ 611,837.00 $ 848,269.31 1,447,008.00 Less: Cash disbursements 43,013.08 $ Direct Materials S 85,988.94 S 96,796.40 S 225,798.42 Direct labour S 30,000.00 S 40,892.85 98,154.75 S 72,672.15 $ 30,000.00 S 100,892.85 Manufacturing overhead (MOH - Non-cash overhead cost) Selling and administrative Equipment purchase Dividend S 72,121.25 $ 74,346.50 S 244,622.50 S 56,368.50 S 61,943.85 $ S 190,984.50 S S 155,200.00 54,800.00 210,000.00 S 45,000.00 S 45,000.00 Total disbursements 342,708.69 $ 356,702.83 $ 317,886.75 $ 1,017,298.27 Excess(deficiency) Financing: Borrowing Repayments Interest -$ 65,672.83 S 269,128,31 S 530,382.56 $ 429,709.73 100,672.83 100,672.83 100,672.83 -S 100,672.83 -S 3,020.18 S 3,020.18 Total financing Ending cash balance S 100,672.83 $ -S 103,693.01 3,020.18 269,128.3 S S 35,000.00 $ 426,689.55 $ 426,689.55