oBUDGETING AT MILES MANUFACTURING

$$ Preparing a sales budget

o Sales Forecast for Q$1$ in $20$XX: Selling price $=$ $$8$ per unit

$$ January $10,000$ units

$$ February $12,000$ units

$$ March $15,000$ units

$$ April $11,000$ units

Miles Manufacturing

Sales Budget

For the quarter ending March $31,20$XX

January February March

$$ Preparing a production budget

o Miles will begin the year with $14,000$ units in FG

o Miles wants to end each month with $140\%$ of the next month$$s projected sales in inventory

o Formulas:

Expected sales $+$ Desired EI $=$ Units Needed

Units Needed $$ Est. BI $=$ Units to produce

Miles Manufacturing

Production Budget

For the quarter ending March $31,20$XX

January February March

$$ Preparing a direct materials budget

o Each unit requires $3$ lbs$.$ of DM

o DM costs $$0\mathrm{.}60$ per lb$.$

o Miles will begin the year with $20,000$ lbs$.$ of DM$,$ but $30,000$ lbs$.$ at the end of January, $35,000$ at the end of February, and $40,000$ lbs$.$ at the end of March

o Formulas:

$($DM$/$unit $$ Units$)+$ Desired EI $=$ DM Needed

DM Needed $$ Estimated BI $=$ DM to Purchase

DM to Purchase $$ Cost$/$Unit $=$ Total DM Cost

Miles Manufacturing

Direct Materials Budget

For the quarter ending March $31,20$XX

January February March

$$ Preparing a direct labor budget

o It takes $6$ minutes of DL to make one unit

o Workers earn $$10$ per hour

Miles Manufacturing

Direct Labor Budget

For the quarter ending March $31,20$XX

January February March

$$ Preparing a manufacturing overhead budget

o VMOH $=$ $$3/$DLH

o FMOH $=$ $$1,000/$month

Miles Manufacturing

Manufacturing Overhead Budget

For the quarter ending March $31,20$XX

January February March

$$ Preparing a selling and administrative budget

o Variable Selling Expense $=$ $$0\mathrm{.}25/$unit

o Fixed Selling Expense $=$ $$6,480$

o Fixed Administrative Expense $=$ $$15,460$

Miles Manufacturing

Selling and Administrative Budget

For the quarter ending March $31,20$XX

January February March

$$ Preparing a cash budget

o Step $1$: Determining cash inflows from operations

$$ Projected sales revenue:

$$ December $$90,000($end of current year$)$

$$ January $80,000$

$$ February $96,000($from Sales Budget$)$

$$ March $120,000$

$$ Miles sells all merchandise on credit

$$ Miles expects to collect:

$75\%$ of its accounts receivable in the month when the sale was made

$24\%$ in the next month after the sale was made

$1\%$ is expected to be bad debt

Cash Receipts January February March

From prior month

From current month

Total cash receipts

o Step $2$: Determining cash outflows for operations

$$ Finding total cash manufacturing costs:

Cash for Manufacturing Costs

December Total mfg$.$ costs for December $($given$)$ $$52,000$

January DM $($from DM budget$)$

DL $($from DL budget$)$

MOH $($from MOH budget$)$

Total manufacturing costs for January

February DM $($from DM budget$)$

DL $($from DL budget$)$

MOH $($from MOH budget$)$

Total manufacturing costs for February

March DM $($from DM budget$)$

DL $($from DL budget$)$

MOH $($from MOH budget$)$

Total manufacturing costs for March

$$ Finding total cash operating expenses

Cash for Operating Expenses

December Paid in December

January Operating expenses $($from S&A budget$)$

Less: Depreciation

Total cash operating expenses for January

February Operating expenses $($from S&A budget$)$

Less: Depreciation

Total cash operating expenses for February

March Operating expenses $($from S&A budget$)$

Less: Depreciation

Total cash operating expenses for March

$$ Finding total cash outflows for operations

$$ Miles pays $60\%$ of its manufacturing. costs in the month incurred, and the rest the following month

$$ The firm expects to have $$52,000$ of manufacturing costs in December of the previous year

$$ The firm$$s $$1,600$ depreciation$/$month is a non$-$cash operating expense

$$ All other operating expenses are paid in the month when they are incurred

Cash Payments January February March

Mfg$.$ costs

Paid for last month:

Paid for this month:

Operating expenses paid

Total payments

o Step $3$: Determining other cash flows and preparing a budgeted statement of cash flows

$$ Miles plans to buy new equipment for $$50,000$ during Q$1$ of next year

$$ Miles expects to pay its regular quarterly dividend of $$5,000$ and to retire $$20,000$ of bonds during Q$1$

$$ The firm wants to have $$30,000$ in the bank at all times to meet its cash needs

Miles Manufacturing

Budgeted Statement of Cash Flows

For the quarter ending March $31,20$XX

$$ Preparing a budgeted income statement

o Cost of Goods Sold is expected to be $$117,900($given$)$

o The tax rate is $30\%$