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Q4. Hansell Company's management wants to prepare budgets for one of its products, duraflex, for July 2010. The firm sells the product for $80 per unit and has the following expected sales (in units) for these months in 2010: April May June July August September 5,000 5,400 5,500 6,000 7,000 8,000 The production process requires 4 pounds of dura-1000 and 2 pounds of flexplas. The firm's policy is to maintain an ending inventory each month equal to 10 percent of the following month's budgeted sales, but in no case less than 500 units. All materials inventories are to be maintained at 5 percent of the production needs for the next month, but not to exceed 1,000 pounds. The firm expects all inventories at the end of June to be within the guidelines. The purchase department expects the materials to cost $1.25 per pound and $5.00 per pound for dura-1000 and flexplas, respectively. The production process requires direct labor at two skill levels. The rate for labor at the K102 level is $50 per hour and for the K175 level is $20 per hour. The K102 level can process one batch of duraflex per hour; each batch consists of 100 units. The manufacturing of duraflex also requires one-tenth of an hour of K175 workers' time for each unit manufactured. Variable manufacturing overhead is $1,200 per batch plus $80 per direct labor-hour. The company uses an actual cost system with a LIFO cost-flow assumption. Hansell Company expects its trial balance on June 30 to be as follows: HANSELL COMPANY Budgeted Trial Balance June 30, 2010 Credit Debit $ 40,000 80,000 $ 3,500 25,000 650,000 Cash Accounts receivable Allowance for bad debts Inventory Plant, property, and equipment Accumulated depreciation Accounts payable Wages and salaries payable Note payable Stockholders' equity Total 320,000 95,000 24,000 200,000 152,500 $795,000 $795,000 Typically, cash sales represent 20 percent of sales while credit sales represent 80 percent. Credit sales terms are 2/10, n/30. Hansell bills customers on the first day of the month following the month of sale. Experience has shown that 60 percent of the billings will be collected within the discount period, 25 percent by the end of the month after sales, 10 percent by the end of the second month after the sale, and 5 percent will ultimately be uncollectible. The firm writes off uncollectible accounts after 12 months. The purchase terms for materials are 2/15, n/60. The firm makes all payments within the discount period. Experience has shown that 80 percent of the purchases are paid in the month of the purchase and the remainder is paid in the month immediately following. In June 2010, the firm budgeted purchases of $25,000 for dura-1000 and $22,000 for flexplas. In addition to variable overhead, the firm has a monthly fixed factory overhead of $50,000, of which $20,000 is depreciation expense. The firm pays all manufacturing labor and factory overhead when incurred. Total budgeted marketing, distribution, customer service, and administrative costs for 2010 are $2.400,000. Of this amount, $1,200,000 is considered fixed and includes depreciation expense of $120,000 The remainder varies with sales. The budgeted total sales for 2010 are $4 million. All marketing and administrative costs are paid in the month incurred. Management desires to maintain an end-of-month minimum cash balance of $40,000. The firm has an agreement with a local bank to borrow its short-term needs in multiples of $1.000 up to $100.000 at an annual interest rate of 12 percent. Borrowings are assumed to occur at the end of the month. Bank borrowing at July 1 is none. Required On the basis of the preceding data and projections, prepare the following budgets: a. Sales budget for July (in dollars). b. Production budget for July (in units). c. Production budget for August (in units). d. Direct materials purchases budget for July (in pounds). e. Direct materials purchases budget for July (in dollars). f. Direct manufacturing labor budget for July (in dollars). g. Prepare the cash budget for July 2010. h. Prepare the budgeted income statement for July 2010