Problem 20-4B Manufacturing: Preparation of a complete master budget P1P2 P3 The management of Nabar Manufacturing prepared the following estimated balance sheet for June 2017 NABAR MANUFACTURING Estimated Balance Sheet June 30, 2017 Assets Liabilities and Equity Cash Accounts receivable Raw materials inventory Finished goods inventory 241.080 Total current liabilities Total current assets Equipment Accumulated depreciation (240.000) Common stock Equipment, net S 40,000 Accounts payable S 51.400 10,000 Short-term notes payable 24.000 85,400 Long-term note payable300.000 385,400 600,000 60,580 Total stockholders' equity660.580 Total liabilities and equity S1,045,980 249,900 35,000 Income taxes payable 565,980 720,000 Total liabilities 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 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 expected unit sales. The June 30 finished goods inventory is 16,800 units, which does not comply with the policy Page 930 c. Company policy calls for a given month's ending raw materials inventory to equal 20% of the next months materials requirements. The June 30 raw materials inventory is 4,375 units (which also fails to meet the policy). The budgeted September 30 raw materials inventory is 1,980 units. Raw materials cost $8 per unit. Each finished unit requires 0.50 units of ravw materials d. Each finished unit requires 0.50 hours of direct labor at a rate of $16 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. The 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 material purchases are fully paid in the next month j. Dividends of $20,000 are to be declared and paid in August . 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 repayment). If the ending cash balance exceeds the minimum, the excess will be applied to repaying the short-term notes payable balance. 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 Factory Overhead Budget July August September Quarter Labor hours needed Variable factory overhead rate Budgeted variable overhead Fixed Overhead Budgeted total overhead $2.70 $2.70 $2.70 S2.70 20,000.00 $20,000.00 $20,000.00 $46,595.00 $20,000.00 Selling Expenses Budgets July September Total August Budgeted Sales Sales commission percent Sales commission expense Sales Salaries Total Selling Expenses General and Administrative Expenses uly September Total August Salaries Interest on long-term note Total Expenses Cash Receipts from Customers July September Total August Total Sales Cash Sales(-96) Credit sales( % Cash Collections Month after sale( Cash Sales %) Total Cash Received Budgeted Cash Payments for Purchases uly September August Quarter Cash Budget July August September Beginning Cash Balance Cash Receipts from Customers Total Cash Available Cash Disbursements: Payments for raw materials Pavments for direct labor Payments for variable overhead Sales Commissions Sales Salaries General & Administrative Salaries Dividends Loan Interest Long-Term note interest Equipment Purchases Income Taxes Total Cash Disbursements Preliminary cash balance Additional loan Repayment of loan to bank Ending Cash Balance Loan Balance, end of month 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