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 September October 21,000 19,000 Budgeted Units Budgeted Unit Sales Price Budgeted Sales in Dollars 20,000 24,000 S357,000.00 $408,000.00 $1,020,000.00 Production Budget September October August 20,000 70.00% 16800.00 20000.00 36800.00 14000.00 22800.00 24,000 70.00% 16800.00 24000.00 76800.00 16800.00 60000.00 21,000 19,000 70.00% 14000.00 19000.00 33000.00 13300.00 19700.00 Next Period's budgeted sales Ratio of inventory to future sales Budgeted ending inventory Add Budgeted Sales Required units to be produced Less Beginning Inventory Units to be produced 13300.00 21000.00 34300.00 16800.00 17500.00 Raw Matarials Budget Quarter 17,500 Production budget (units) Materials requirement per unit Materials needed for production Add budgeted Ending Inventory Total materials requirement (units) Less Beginning Inventory Materials to be purchased Material price per unit Total cost of direct materials purchased 19,700 22,800 60,000 9850.00 2280.00 12526.00 1970.00 10160.00 31050.00 9800.00 1970.00 12305.20 4375.00 6345.00 11400.00 1980.00 13380.00 2280.00 11100.00 38211.20 27605.00 $50,760.00 $81,280.00 $88,800.00 S220,840.00 Direct Labor Budget Quarter Budgeted production (units) Labor requirements per unit (hours) Total hours needed Labor rate (per hour) Labor dollars 17500.00 60000.00 19700.00 22800.00 30000.00 8750.00 9850.00 11400.00 $140,000.00 $157,600.00 $182,400.00 $480,000.00 Factory Overhead Budget September Quarter Labor hours needed Variable factory overhead rate Budgeted variable overhead Fixed Overhead Budgeted total overhead 8750.00 9850.00 300000.00 11400.00 23625.00 $20,000.00 $43,625.00 30780.00 $20,000.00 $50,780.00 26595.00 $20,000.00 $46,595.00 81000.00 $60,000.00 $141,000.00 Selling Expenses Budgets September Budgeted Sales Sales commission percent Sales commission expense Sales Salaries Total Selling Expenses 1,020,000 10.00% 102,000 10,500 112,500 357,000 10.00% 35,700 3,500 39,200 323,000 10.00% 32,300 3,500 35,800 340,000 10.00% 34,000 3,500 37,500 General and Administrative Expenses Tota September Salaries Interest on long-term note Total Expenses 9000.00 2700.00 11700.00 9000.00 2700.00 11700.00 9000.00 2700.00 11700.00 27000.00 8100.00 35100.00 Cash Receipts from Customers Total September 35,700 107,100 249,900 Total Sales 340,000 102,000 238,000 698,700 306,000 714,000 323,000 96,900 226,100 Cash Sales (30%) Credit sales (70%) Cash Collections Month after sale (70%) 725,900 306,000 1,020,000 249900 107,100 357,000 249900 96,900 323,000 226100 102,000 340,000 Total Cash Received