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.

ZIGBY MANUFACTURING
Balance Sheet
March 31
Assets			Liabilities and Equity
Cash		$ 44,000	Liabilities
Accounts receivable		455,000	Accounts payable	$ 211,300
Raw materials inventory		90,200	Loan payable	16,000
Finished goods inventory		444,000	Long-term note payable	500,000	$ 727,300
Equipment	$ 608,000		Equity
Less: Accumulated depreciation	154,000	454,000	Common stock	339,000
			Retained earnings	420,900	759,900
Total assets		$ 1,487,200	Total liabilities and equity		$ 1,487,200

To prepare a master budget for April, May, and June, management gathers the following information.

Sales for March total 25,000 units. Budgeted sales in units follow: April, 25,000; May, 16,300; June, 21,100; and July, 25,000. The products selling price is $26.00 per unit and its total product cost is $22.20 per unit.

Raw materials inventory consists solely of direct materials that cost $20 per pound. Company policy calls for a given months ending materials inventory to equal 50% of the next months direct materials requirements. The March 31 raw materials inventory is 4,510 pounds. The budgeted June 30 ending raw materials inventory is 4,400 pounds. Each finished unit requires 0.50 pound of direct materials.

Company policy calls for a given months ending finished goods inventory to equal 80% of the next months budgeted unit sales. The March 31 finished goods inventory is 20,000 units.

Each finished unit requires 0.50 hour of direct labor at a rate of $19 per hour.

The predetermined variable overhead rate is $3.10 per direct labor hour. Depreciation of $23,920 per month is the only fixed factory overhead item.

Sales commissions of 6% of sales are paid in the month of the sales. The sales managers monthly salary is $3,400.

Monthly general and administrative expenses include $16,000 for administrative salaries and 0.8% monthly interest on the long-term note payable.

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).

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 $44,000. 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.

Dividends of $14,000 are budgeted to be declared and paid in May.

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.

Equipment purchases of $100,000 are budgeted for the last day of June.

Required: Prepare the following budgets for the months of April, May, and June: 1. Sales budget. 2. Production budget. 3. Direct materials budget. 4. Direct labor budget. 5. Factory overhead budget. 6. Selling expense budget. 7. General and administrative expense budget. 8. Schedule of cash receipts. 9. Schedule of cash payments for direct materials. 10. Cash budget. 11. Budgeted income statement for entire second quarter (not monthly). 12. Budgeted balance sheet at June 30.

Budgeted income statement for entire second quarter (not monthly). (Round your final answers to the nearest whole dollar.)

Req 11

ZIGBY MANUFACTURING
Budgeted Income Statement
For Three Months Ended June 30
Selling, general and administrative expenses
Total operating expenses

Budgeted balance sheet at June 30. (Round your final answers to the nearest whole dollar.)

Req 12

ZIGBY MANUFACTURING
Budgeted Balance Sheet
June 30
Assets
Total assets
Liabilities and Equity
Liabilities
Equity
Total Liabilities and Equity