Problem 07-4A Manufacturing: Preparation of a complete master budget LO P1, P2, P3 The management of Zigby Manufacturing prepared the following estimated balance sheet for March 2019. ZIGBY MANUFACTURING Estimated Balance Sheet March 31, 2019 Assets Cash Accounts receivable Raw materials inventory Finished goods inventory Total current assets Equipment Accumulated depreciation Equipment, net Total assets Liabilities and Equity Accounts payable Short-term notes payable Total current liabilities Long-term note payable Total liabilities Common stock Retained earnings Total stockholders' equity Total liabilities and equity $ 46,000 386,925 96,290 327,831 857,046 612,000 (156,000) 456,000 $1,313,046 $ 196, 190 18,000 214,190 506,000 720, 190 341,000 251,856 592,856 $1,313,046 To prepare a master budget for April, May, and June of 2019, management gathers the following information. a. Sales for March total 20,100 units. Forecasted sales in units are as follows: April, 20,100; May, 18,900; June, 19,700; and July, 20,100. Sales of 246,000 units are forecasted for the entire year. The product's selling price is $27.50 per unit and its total product cost is $23.30 per unit. b. Company policy calls for a given month's ending raw materials inventory to equal 50% of the next month's materials requirements. The March 31 raw materials inventory is 4,815 units, which complies with the policy. The expected June 30 ending raw materials inventory is 4,600 units. Raw materials cost $20 per unit. Each finished unit requires 0.50 units of raw materials. C. Company policy calls for a given month's ending finished goods inventory to equal 70% of the next month's expected unit sales. The March 31 finished goods inventory is 14,070 units, which complies with the policy. d. Each finished unit requires 0.50 hours of direct labor at a rate of $21 per hour. e. Overhead is allocated based on direct labor hours. The predetermined variable overhead rate is $3.00 per direct labor hour. Depreciation of $25,440 per month is treated as fixed factory overhead. f. Sales representatives' commissions are 6% of sales and are paid in the month of the sales. The sales managers monthly salary is $3,600. g. Monthly general and administrative expenses include $18,000 administrative salaries and 0.5% monthly interest on the long- term note payable. h. The company expects 30% of sales to be for cash and the remaining 70% on credit. Receivables are collected in full in the month following the sale (none are collected in the month of the sale). i. All raw materials purchases are on credit, and no payables arise from any other transactions. One month's raw materials purchases are fully paid in the next month. j. The minimum ending cash balance for all months is $46,000. If necessary, the company borrows enough cash using a short- term note to reach the minimum. Short-term notes require an interest payment of 1% at each month-end (before any repayment). If the ending cash balance exceeds the minimum, the excess will be applied to repaying the short-term notes payable balance. k. Dividends of $16,000 are to be declared and paid in May. 1. No cash payments for income taxes are to be made during the second calendar quarter. Income tax will be assessed at 40% in the quarter and paid in the third calendar quarter. m. Equipment purchases of $136,000 are budgeted for the last day of June. Required: Prepare the following budgets and other financial information as required. All budgets and other financial information should be prepared for the second calendar quarter, except as otherwise noted below. (Round calculations up to the nearest whole dollar, except for the amount of cash sales, which should be rounded down to the nearest whole dollar.): 1. Sales budget. 2. Production budget. 3. Raw materials budget. 4. Direct labor budget. 5. Factory overhead budget. 6. Selling expense budget. 7. General and administrative expense budget. 8. Cash budget. 9. Budgeted income statement for the entire second quarter (not for each month separately). 10. Budgeted balance sheet. Calculation of Cash receipts from customers: April May June Total budgeted sales $ 46,000 $ $ 140,380 95,965 155,925 Cash sales 30% 165,825 162,525 Sales on credit 70% $ 67,176 $ 98,266 Total cash receipts from customers April May June Current month's cash sales Collections of receivables Total cash receipts ZIGBY MANUFACTURING Cash Budget April, May, and June 2019 April May June Beginning cash balance Total cash available Cash payments for: Total cash payments 0 0 0 Preliminary cash balance > Ending cash balance Loan balance April May June Loan balance - Beginning of month Additional loan (loan repayment) Loan balance - End of month Required 1 Required 2 Required 3 Required 4 Required 5 Required 6 Required 7 Budgeted income statement for the entire second quarter (not for each month separat nearest whole dollar.) ZIGBY MANUFACTURING Budgeted Income Statement For Three Months Ended June 30, 2019 Sales $ 1,614,250 Operating expenses Cost of goods sold $ 1,695,551 (327,833) Advertising expense 107,655 General administrative salaries 61,590 Bank loan interest expense 180 Total operating expenses 1,537,143 Income before taxes (1,537,143) Income tax 30,843 $ (1,567,986) Net income ZIGBY MANUFACTURING Budgeted Balance Sheet June 30, 2019 Assets Cash $ 99,000 Accounts receivable 379,225 Raw materials inventory 91,990 Finished goods inventory 327,833 Total current assets $ 898,048 Equipment $ 748,000 Accumulated depreciation (232,320) Equipment, net 515,680 Total assets $ 1,413,728 Liabilities and Equity Liabilities Accounts payable $ 191,900 Income taxes payable 30,843 Bank loan payable 61,865 Total current liabilities 284,608 Long-term note payable 506,000 Stockholders' Equity Common stock Total Stockholders' Equity Total Liabilities and Equity