Pasadena Inc. is a company that produces and sells wooden chairs. The company is in the process of preparing a budget for the first quarter of 2018 (i.e., January, February and March). The sales information has been collected for preparing for the budget: November 2017 (Actual December 2017 (Actual January 2018 (Budgeted) February 2018 (Budgeted March 2018 (Budgeted April 2018 (Budgeted May 2018 (Budgeted Sales in Units 450 150 300 350 250 400 200 Additional information is as follows: a) The selling price is $80 per unit. b) All sales are on account. Past experience shows that 50% of a month's sales are collected in the month of sale, 30% in the month following sale, 20% in the second month following sale The company requires its ending finished goods inventory in each month to be equal to 20% of next month's budgeted sales. c) d) The finished good inventory on December 31, 2017 is 60 chairs. e) Hardwood is the raw materials used to make chairs. Each unit of chair requires 5 board feet f) g) of hardwood. Each board foot of hardwood costs $6 The company determines that the ending raw materials inventory at the end of each month must be equal to 10% the following month's production needs for raw materials. On December 31, 2017, the company has 155 board feet of hardwood on hand. The company has guaranteed to pay its labor workforce for at least 1,200 hours of work each month. The normal hourly rate for direct labor is $5 per hour. Any hours worked in excess of 1,200 hours in a month are paid at the rate of $7 per hour. The direct labor hours required in January, February, and March are estimated to be 1,200 hours, 1,400 hours and 1,000 hours, respectively h) Required: 1) Prepare for a sales budget for the months January, February and March, and for the quarter in total. (3 Marks) Prepare a schedule of expected cash collections for the months January, February and March, and for the quarter in total. (6 Marks) Compute the ending balance of accounts receivable as of March 31,2018. (2 Marks) Prepare a production budget for the months January, February and March, and for the quarter in total. (5 Marks) 2) 3) 4) 5) Prepare a direct material budget for the month March. (5 Marks) 6) Compute the total direct labor cost for the quarter. (2 Marks). 7) Independent of all questions above. Assuming that the following information is shown in the cash budget of Pasadena Inc. for the months January, February and March Feb S56,000 S42,000 March $75,000 $38,000 anu Total Cash Available Total Cash Disbursements $68,000 $41,000 If the company needs a minimum cash balance of $20,000 at the end of each month, does the company need to borrow in February? If yes, how much should be borrowed? (2 Marks)
