Problem 20-4B Manufacturing: Preparation of a complete master budget

The management of Nabar Manufacturing prepared the following balance sheet for June 30.

NABAR MANUFACTURING Balance Sheet June 30 To prepare a master budget for July, August, and September, use the following information. a. Sales were 20,000 units in June. Budgeted sales in units follow: July, 21,000; August, 19,000; September, 20,000; and October, 24,000. The product's selling price is $17 per unit and its total product cost is $14.35 per unit. b. Company policy calls for a given month's ending finished goods inventory to equal 70% of the next month's budgeted unit sales. The June 30 finished goods inventory is 16,800 units. c. Raw materials inventory consists solely of direct materials that cost $8 per pound. Company policy calls for a given month's ending materials inventory to equal 20% of the next month's direct materials requirements. The June 30 raw materials inventory is 4,375 pounds. The budgeted September 30 ending raw materials inventory is 1,980 pounds. Each finished unit requires 0.50 pound of direct materials. d. Each finished unit requires 0.50 hour of direct labor at a rate of $16 per hour. e. The predetermined variable overhead rate is $2.70 per direct labor hour. Depreciation of $20,000 per month is the only fixed factory overhead item. f. Monthly general and administrative expenses include $9,000 administrative salaries and 0.9% monthly interest on the long-term note payable. g. Sales commissions of 10% of sales are paid in the month of the sales. The sales manager's monthly salary is $3,500. 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). 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). j. Dividends of $20,000 are budgeted to be declared and paid in August. k. Income Taxes Payable at June 30 are budgeted to be paid in July. Income tax expense will be assessed at 35% in the quarter and budgeted to be paid in October. 1. Equipment purchases of $100,000 are budgeted for the last day of September. m. The minimum ending cash balance for all months is $40,000. 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. Required Prepare the following budgets for the months of July, August, and September, except as noted below. 1. Sales budget. 2. Production budget. Check (2) Units to produce: July, 17,500; August, 19,700 3. Direct materials budget. (3) Cost of direct materials purchases: July, $50,760 4. Direct labor budget. 5. Factory overhead budget. 6. Selling expense budget. 7. General and administrative expense budget. 8. Schedule of cash receipts from sales. 9. Schedule of cash payments for direct materials. 10. Cash budget. (10) Ending cash balance: July, $95,855; August, $140,200 11. Budgeted income statement for entire quarter (not monthly). 12. Budgeted balance sheet at September 30 . (12) Budgeted total assets: Sep. 30,$1,054,920 NABAR MANUFACTURING Balance Sheet June 30 To prepare a master budget for July, August, and September, use the following information. a. Sales were 20,000 units in June. Budgeted sales in units follow: July, 21,000; August, 19,000; September, 20,000; and October, 24,000. The product's selling price is $17 per unit and its total product cost is $14.35 per unit. b. Company policy calls for a given month's ending finished goods inventory to equal 70% of the next month's budgeted unit sales. The June 30 finished goods inventory is 16,800 units. c. Raw materials inventory consists solely of direct materials that cost $8 per pound. Company policy calls for a given month's ending materials inventory to equal 20% of the next month's direct materials requirements. The June 30 raw materials inventory is 4,375 pounds. The budgeted September 30 ending raw materials inventory is 1,980 pounds. Each finished unit requires 0.50 pound of direct materials. d. Each finished unit requires 0.50 hour of direct labor at a rate of $16 per hour. e. The predetermined variable overhead rate is $2.70 per direct labor hour. Depreciation of $20,000 per month is the only fixed factory overhead item. f. Monthly general and administrative expenses include $9,000 administrative salaries and 0.9% monthly interest on the long-term note payable. g. Sales commissions of 10% of sales are paid in the month of the sales. The sales manager's monthly salary is $3,500. 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). 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). j. Dividends of $20,000 are budgeted to be declared and paid in August. k. Income Taxes Payable at June 30 are budgeted to be paid in July. Income tax expense will be assessed at 35% in the quarter and budgeted to be paid in October. 1. Equipment purchases of $100,000 are budgeted for the last day of September. m. The minimum ending cash balance for all months is $40,000. 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. Required Prepare the following budgets for the months of July, August, and September, except as noted below. 1. Sales budget. 2. Production budget. Check (2) Units to produce: July, 17,500; August, 19,700 3. Direct materials budget. (3) Cost of direct materials purchases: July, $50,760 4. Direct labor budget. 5. Factory overhead budget. 6. Selling expense budget. 7. General and administrative expense budget. 8. Schedule of cash receipts from sales. 9. Schedule of cash payments for direct materials. 10. Cash budget. (10) Ending cash balance: July, $95,855; August, $140,200 11. Budgeted income statement for entire quarter (not monthly). 12. Budgeted balance sheet at September 30 . (12) Budgeted total assets: Sep. 30,$1,054,920