Problem 20-4A Manufacturing: Preparation of a complete master budget LO P1, P2, P3 The management of Zigby Manufacturing prepared the following estimated balance sheet for March 2017: ZIGBY MANUFACTURING Estimated Balance Sheet March 31, 2017 Assets dash Accounts receivable Raw materials inventory Finished goods inventory Total current assets Equipment, gross 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 $ 40,000 342, 248 98,500 B25,540 806, 288 600,000 (150,000 450,000 $ 1,256,288 $ 200,500 12,000 212,500 500,000 712,500 335,000 208,788 543,788 $ 1,256,288 information To prepare a master budget for April, May, and June of 2017, management gathers the following information: a. Sales for March total 20,500 units. Forecasted sales in units are as follows: April, 20,500; May, 19,500: June, 20,000; and July, 20,500. Sales of 240,000 units are forecasted for the entire year. The product's selling price is $23.85 per unit and its total product cost is $19.85 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 4,925 units, which complies with the policy. The expected June 30 ending raw materials inventory is 4,000 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 80% of the next month's expected unit sales. The March 31 finished goods inventory is 16,400 units, which complies with the policy. d. Each finished unit requires 0.50 hours of direct labor at a rate of $15 per hour. e. Overhead is allocated based on direct labor hours. The predetermined variable overhead rate is $2.70 per direct labor hour. Depreciation of $20,000 per month is treated as fixed factory overhead. f. Sales representatives' commissions are 8% of sales and are paid in the month of the sales. The sales manager's monthly salary is $3,000. g. Monthly general and administrative expenses include $12,000 administrative salaries and 0.9% 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 $40,000. 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 $10,000 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 35% in the quarter and paid in the third calendar quarter. m. Equipment purchases of $130,000 are budgeted for the last day of June. repayment amounts (if any) should be indicated with minus sign.) Calculation of Cash receipts from customers: April June Total budgeted sales Cash sales May 465,075 $ 488,925 IS $ 477,000 30% 143,100 Sales on credit 146,678 342.248 139.523 325,552 70% $ $ $ 333,900 June May 139,523 Current month's cash sales Total cash receipts from customers April $ 146,678 342,248 $ 488,926 $ $ Collections of receivables 342,248 481,771 143,100 325,553 468,653 Total cash receipts $ $ June ZIGBY MANUFACTURING Cash Budget April, May, and June 2017 April $ 40,000 488,925 528,925 May 83,346 $ $ 124,295 468.653 Beginning cash balance Cash receipts from customers Total cash available 481,770 565,116 592,948 Cash payments for Raw materials Direct labor 200,500 147,750 26,595 39,114 DOO DOO 198,000 149,250 26,865 37,206 201,500 153,000 27,540 38,160 Variable overhead > Sales commissions 2nnn 2nnn 2 nnn Soloc clarins > Cash receipts from customers Total cash available 488 925 468,653 481.770 565, 116 528 925 592 948 Cash payments for OOO 200,500 147.750 26,595 Raw materials Direct labor Variable overhead Sales commissions Sales salaries General & administrative salaries Dividends 198,000 149.250 26.865 37,206 201 500 153,000 27.540 38.160 3,000 39. 114 3.000 3.000 12.000 12,000 12,000 10.000 Loan interest 120 SO Long-term note interest 4.500 4.500 4.500 Purchases of equipment 95 346 440 821 130,000 x Cash receipts from customers Total cash payments 528.925 881,642 569.700 Preliminary cash balance Ending cash balance Loan balance April May June $ 0 - Loan balance - Beginning of month Additional loan (loan repayment) x x 16,752 X Loan balance - End of month