Problem 20-4A (Algo) Manufacturing: Preparation of a complete master budget LO P1, P2, P3 The management of Zigby Manufacturing prepared the following balance sheet for March 31 Assets Cash Accounts receivable Raw materials inventory Finished goods Inventory Equipment Less Accumulated depreciation ZIGBY MANUFACTURING Balance Sheet March 31 Liabilities and Equity $ 30,000 Liabilities 378,000 Accounts payable 96,00 Loan payable 364,800 Long-term note payable Equity 455.000 Common stock Retained earnings 512300 Total liabilities and equity $ 195,500 17,000 500 000 $ 712.500 5.610,000 155,000 340,000 321300 661.NO $1,175.000 Total assets To prepare a master budget for April May and June, management gathers the following information b. Raw materials inventory consists solely of direct materials that cost $20 per pound. Company policy calls for a given month's ending materials inventory to equal 50% of the next month's direct materials requirements. The March 31 raw materials inventory is 4,800 pounds. The budgeted June 30 ending raw materials inventory is 4.500 pounds. Each finished unit requires 0.50 pound of direct materials c. Company policy calls for a given month's ending finished goods inventory to equal 80% of the next month's budgeted unit sales The March 31 finished goods inventory is 16,000 units d. Each finished unit requires 0 50 hour of direct labor at a rate of $20 per hour. e. The predetermined variable overhead rate is $3.20 per direct labor hour. Depreciation of $23,400 per month is the only fixed factory overhead item f. Sales commissions of 6% of sales are paid in the month of the sales. The sales manager's monthly salary is $3,500 g. Monthly general and administrative expenses include $17.000 for administrative salaries and 0.9% monthly interest on the long term note payable h. The company budgets 30% of sales to be for cash and the remaining 70% on credit. Credit sales are collected in full in the month following the sale (no credit sales are collected in the month of sale) 1. All raw materials purchases are on credit , and accounts payable are solely tied to raw materials purchases. Raw materials purchases are fully paid in the next month (none are paid in the month of purchase) j. The minimum ending cash balance for all months is $80,000 If necessary, the company borrows enough cash using a loan to reach the minimum Loans require an interest payment of 1% at each month-end (before any repayment) If the month-end preliminary cash balance exceeds the minimum. the excess will be used to repay any loans. k. Dividends of S15,000 are budgeted to be declared and paid in May I. No cash payments for income taxes are budgeted in the second calendar quarter Income tax will be assessed al 35's in the quarter and budgeted to be paid in the third calendar quarter m. Equipment purchases of $100.000 are budgeted for the last day of June June Total ZIGBY MANUFACTURING Production Budget April May Budgeted sales units Calculation of desired ending inventory Next period budgeted sales units 19.000 19,500 Ratio of inventory to future sales 80% 80% 20 000 80% Total required units Units to produce Reg 1 Reg 3 Raw materials budget. (Round per unit values to 2 decimal places.) ZIGBY MANUFACTURING Direct Materials Budget April May June Units to produce Materials needed for production (pounds) Total materials required (pounds) Materials to purchase (pounds) Materials cost per pound Cost of direct materials purchases Direct labor budget. (Round per unit values to 2 decimal places.) ZIGBY MANUFACTURING Direct Labor Budget April May June Total Units to produce Direct labor hours needed 0 Cost of direct labor a. Sales for March total 20.000 units. Budgeted sales in units follow. April, 20,000: May, 19.000: June 19,500; and July, 20,000. The product's selling price is $27.00 per unit and its total product cost is $22 80 per unit b. Raw materials inventory consists solely of direct materials that cost $20 per pound Company policy calls for a given month's ending materials inventory to equal 50% of the next month's direct materials requirements. The March 31 raw materials inventory is 4.800 pounds. The budgeted June 30 ending raw materials inventory is 4.500 pounds. Each finished unit requires 0,50 pound of direct materials c. Company policy calls for a given month's ending finished goods inventory to equal 80% of the next month's budgeted unit sales. The March 31 finished goods inventory is 16,000 units. d. Each finished unit requires 0.50 hour of direct labor at a rate of $20 per hour e. The predetermined variable overhead rate is $3 20 per direct labor hour. Depreciation of $23.400 per month is the only foved factory overhead item. f. Sales commissions of 6% of sales are paid in the month of the sales. The sales manager's monthly salary is $3,500 g. Monthly general and administrative expenses include $17000 for administrative salaries and 0 9 monthly interest on the long-term note payable h. The company budgets 30% of sales to be for cash and the remaining 70% on credit Credit sales are collected in full in the month following the sale (no credit sates are collected in the month of sale, i. All raw materials purchases are on credit, and accounts payable are solely tied to raw materials purchases. Raw materials purchases are fully paid in the next month (none are paid in the month of purchase ). The minimum ending cash balance for all months is $80.000. If necessary the company borrows enough cash using a loan to reach the minimum. Loans require an interest payment of 1% at each month-end (before any repayment of the month end preliminary cash balance exceeds the minimum, the excess will be used to repay any loans k. Dividends of $15.000 are budgeted to be declared and paid in May 1. No cash payments for income taxes are budgeted in the second calendar quarter Income tax will be assessed at 35% in the quarter and budgeted to be paid in the third calendar quarter m. Equipment purchases of $100.000 are budgeted for te last day of June