Problem 20-4B Manufacturing: Preparation of a complete master budget P1 P2 P3 The management of Nabar Manufacturing prepared the following balance sheet for June 30. NABAR MANUFACTURING Balance Sheet June 30 Assets Cash Accounts receivable $ 40,000 248,920 Raw materials inventory 35,000 Finished goods inventory 241,080 Equipment $720,000 Less: Accumulated depreciation 240,000 480,000 Total assets $1,045,000 Liabilities and Equity Liabilities Accounts payable $ 51,400 Income taxes payable 10.000 Loan payable 24,000 Long-term note payable 300,000 $385,400 Equity Common stock 600,000 Accounts payable $ 51,400 Income taxes payable 10,000 Loan payable 24,000 Long-term note payable 300,000 $385,400 Equity Common stock 600,000 Retained earnings Total liabilities and equity 59,600 $1,045,000 659,600 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 fash 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. 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 Budgeted sales units Selling price per unit Budgeted sales units Total Production Budget Budgeted sales units Add: Desired ending inventory Next period budgeted sales units Ratio of inventory to future sales Desired ending inventory units Total required units Less: Beginning inventory units Units to be produced Direct Materials Budget Units to produce Materials required per unit (lbs) Materials needed for production (lbs) Add: Desired ending inventory (lbs) Total materials required (lbs) Less: Beginning materials inventory (lbs) Materials to purchase (lbs) Material cost per pound Cost of direct materials purchases July August September October July August September October July August September Quarter Direct Labor Budget July August September Quarter Units to produce Direct labor hours required per unit Direct labor hours needed Direct labor cost per hour Cost of direct labor Factory Overhead Budget July August September Quarter Direct labor hours needed Variable overhead rate per direct labor hour Budgeted vaiable overhead Budgeted fixed overhead Budgeted total factory overhead Selling Expenses Budgets July August September Total Budgeted sales Sales commission (10%) Sales commissions Sales Salaries Total Selling Expenses General and Administrative Expenses Administrative salaries Interest on long-term note Total gen. and admin. expenses July August September Total Sales Cash Receipts from Customers Cash sales (30% of current sales) Collections of prior period sales (70%) Total cash receipts Cash Payments for Direct Materials Materials purchases Cash payments for Current period purchases (0%) Prior period purchases (100%) Total Cash payments Cash Budget Beginning Cash Balance Add: Cash receipts from sales Total Cash Available Less: Cash payments for Direct materials Direct labor Variable overhead Sales commissions Sales Salaries General & Administrative Salaries Total Cash Payments Income Taxes Dividends Loan Interest Long-term note interest Purchase of equipment Preliminary cash balance Loan Activity Additional loan July August September Total July August September Quarter July August September Loan Activity Additional loan Repayment of loan Ending cash balance Loan Balance, end of month Budgeted Income Statement Budgeted Balance Sheet ASSETS Cash Accounts Receivable Raw Materials Inventory Finished Goods Inventory Equipment Less: accumulated depreciation Total Assets LIABILITIES AND EQUITY NABAR Manufacturing Budgeted Income Statement For the Quarter ended September 30 NABAR Manufacturing Budgeted Balance Sheet 30-Sep ASSETS Cash Accounts Receivable Raw Materials Inventory Finished Goods Inventory Equipment Less: accumulated depreciation Total Assets LIABILITIES AND EQUITY Liabilities Accounts Payable Bank Loan Payable Taxes Payable Long-term note payable Equity Common stock NABAR Manufacturing Budgeted Balance Sheet 30-Sep Retained Earnings Total Liabilities and Equity Budgeted Statement of Retained Earnings Retained earnings - Beginning Balance Add: Net Income Less: Dividends Retained earnings - Ending Balance NABAR Manufacturing Budgeted Statement of Retained Earnings For the Quarter Ended September 30, 2017