Problem 20-4B Manufacturing: Preparation of a complete master budget P1 P2 P3 The management of Nabar Manufacturing prepared the following estimated balance sheet for June 2017 NABAR MANUFACTURING Estimated Balance Sheet June 30, 2017 Liabilities and Equity Assets Cash Accounts receivable Raw materials inventory Finished goods inventory Total current assets Equipment Accumulated depreciation Equipment, net $ 51,400 10,000 4,000 85,400 00,000 385,400 600,000 580 Total stockholders' equity660.580 Total liabilities and equity $1,045,980 $40,000 Accounts payable 249,900 35,000 241.080 565,980 720,000 (240.000) Income taxes payable Short-term notes payable Total current liabilities Long-term note payable Total liabilities Common stock 480,000 Retained earnings Total assets $1,045,980 To prepare a master budget for July, August, and September of 2017, management gathers the following information a. Sales were 20,000 units in June. Forecasted sales in units are as follows: July, 21,000; August, 19,000; September, 20,000; and b. Company policy calls for a given month's ending finished goods inventor to equal 70% of the next month's expected unit c. Company policy calls for a given month's ending raw materials inventory to equal 20% of the next month's materials October, 24,000. The product's selling price is $17 per unit and its total product cost is $14.35 per unit. sales. The June 30 finished goods inventory is 16,800 units, which does not comply with the policy requirements. The June 30 raw materials inventory is 4,375 units (which also fails to meet the policy). The budgeted September Page 930 0 raw materials inventory is 1,980 units. Raw materials cost S8 per unit. Each finished unit requires 0.50 units of raw materials d. Each finished unit requires 0.50 hours of direct labor at a rate of S16 per hour. e. Overhead is allocated based on direct labor hours. The predetermined variable overhead rate is $2.70 per direct labor hour. f. Monthly general and administrative expenses include $9,000 administrative salaries and 0.9% monthly interest on the long-term g. Sales representatives commissions are 10% of sales and are paid in the month of the sales. T he sales managers monthly salary h. The company expects 30% of sales to be for cash and the remaining 70% on credit. Receivables are collected in full in the Depreciation of $20,000 per month is treated as fixed factory overhead note payable. is $3,500 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. Dividends of $20,000 are to be declared and paid in August k. Income taxes payable at June 30 will be paid in July. Income tax expense will be assessed at 35% in the quarter and paid in October. I. Equipment purchases of S100,000 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 short term note to reach the minimum. Short-term notes require an interest payment of 1% at each month-end (before any 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. Required Prepare the following budgets and other financial information as required. All budgets and other financial information should be prepared for the third calendar quarter, except as otherwise noted below. Round calculations to the nearest whole dollar 1. Sales budget. 2. Production budget. Check (2) Units to produce: July, 17,500; August, 19,700 3. Raw materials budget (3) Cost of raw materials purchases: July, $50,760 4. Direct labor budget. 5. Factory overhead budget. (5) Total overhead cost: August, $46,595 6. Selling expense budget. 7. General and administrative expense budget 8. Cash budget. (8) Ending cash balance: July, $96,835; August, $141,180 9. Budgeted income statement for the entire quarter (not for each month separately) 10. Budgeted balance sheet as of September 30, 2017 10) Budgeted total assets: Sep. 30, $1,054,920 Budgeted Income Statement NABAR Manufacturing Budgeted Income Statement For the Quarter ended September 30, 2017 Budgeted Balance Sheet NABAR Manufacturing Budgeted Balance Sheet 30-Sep-17 ASSETS Cash Accounts Receivable Raw Materials Inventory Finished Goods Inventory Note 1 Note 2 Note 3 Total current assets Equipment Less: accumulated depreciation Note 4 Note 5 Total Assets LIABILITIES AND EQUITY Accounts Payable Bank Loan Payable Taxes Payable Note 6 Total current liabilities Long-term note payable Common stock Retained Earnings Total stockholders' equity Total Liabilities and Equity Budgeted Statement of Retained Earnings NABAR Manufacturing Budgeted Statement of Retained Earnings For the Quarter Ended September 30, 2017 Retained earnings - Beginning Balance Add: Net Income Less: Dividends Retained earnings - Ending Balance