Problem 22-4A (Algo) Manufacturing: Preparation of a complete master budget LO P1, P2, P3

The management of Zigby Manufacturing prepared the following balance sheet for March 31.

ZIGBY MANUFACTURING
Balance Sheet
March 31
Assets			Liabilities and Equity
Cash		$ 65,000	Liabilities
Accounts receivable		421,470	Accounts payable	$ 199,400
Raw materials inventory		87,500	Loan payable	24,000
Finished goods inventory		374,640	Long-term note payable	500,000	$ 723,400
Equipment	$ 624,000		Equity
Less: Accumulated depreciation	162,000	462,000	Common stock	347,000
			Retained earnings	340,210	687,210
Total assets		$ 1,410,610	Total liabilities and equity		$ 1,410,610

To prepare a master budget for April, May, and June, management gathers the following information.

Sales for March total 22,300 units. Budgeted sales in units follow: April, 22,300; May, 16,300; June, 22,700; and July, 22,300. The products selling price is $27.00 per unit and its total product cost is $21.00 per unit.

Raw materials inventory consists solely of direct materials that cost $20 per pound. Company policy calls for a given months ending materials inventory to equal 50% of the next months direct materials requirements. The March 31 raw materials inventory is 4,375 pounds. The budgeted June 30 ending raw materials inventory is 5,200 pounds. Each finished unit requires 0.50 pound of direct materials.

Company policy calls for a given months ending finished goods inventory to equal 80% of the next months budgeted unit sales. The March 31 finished goods inventory is 17,840 units.

Each finished unit requires 0.50 hour of direct labor at a rate of $15 per hour.

The predetermined variable overhead rate is $3.90 per direct labor hour. Depreciation of $31,672 per month is the only fixed factory overhead item.

Sales commissions of 10% of sales are paid in the month of the sales. The sales managers monthly salary is $4,200.

Monthly general and administrative expenses include $24,000 for administrative salaries and 0.9% monthly interest on the long-term note payable.

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).

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).

The minimum ending cash balance for all months is $65,000. 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.

Dividends of $22,000 are budgeted to be declared and paid in May.

No cash payments for income taxes are budgeted in the second calendar quarter. Income tax will be assessed at 35% in the quarter and budgeted to be paid in the third calendar quarter.

Equipment purchases of $100,000 are budgeted for the last day of June.

Required:

Sales budget.

Production budget.

Direct materials budget.

Direct labor budget.

Factory overhead budget.

Selling expense budget.

General and administrative expense budget.

Schedule of cash receipts.

Schedule of cash payments for direct materials..

Cash budget.

Budgeted income statement for entire second quarter (not monthly).

Budgeted balance sheet at June 30.

ZIGBY MANUFACTURING
Sales Budgets
	April	May	June
Budgeted sales units
Selling price per unit
Total budgeted sales	$ 0	$ 0	$ 0

ZIGBY MANUFACTURING
Production Budget
	April	May	June	Total
Budgeted sales units
Next period budgeted sales units	16,300	22,700	22,300
Ratio of inventory to future sales	80%	80%	80%
Desired ending inventory units
Total required units
Units to produce

ZIGBY MANUFACTURING
Direct Materials Budget
	April	May	June
Units to produce
Materials needed for production (pounds)
Total materials required (pounds)
Materials to purchase (pounds)
Materials cost per pound
Cost of direct materials purchases

ZIGBY MANUFACTURING
Direct Labor Budget
	April	May	June	Total
Units to produce
Direct labor hours needed				0
Cost of direct labor