PROBLEM #3 Objective The objective of Problem 3 is to reinforce your understanding of the preparation of budgets Operating and Financial Budgets. Pat has become concerned about the profitability and cash needs for the business as it grows. You have been asked to prepare some budgets for the first quarter of 2019: the three months of January, February and March and the quarter in total. Pat would like to begin the process with a production budget and related purchases budgets for materials. Since the first quarter of the year is the slowest in terms of sales, Pat has asked you to also produce a cash budget for each month and the quarter in total in order to ensure he has adequate cash. He would also like you to prepare a budgeted quarterly income statement. The following sales-related information is provided Budgeted 2019 Unit Sales: Pans 14,000 Additional information for your budget preparation is as follows: a) Given the sales mix expected for 2019, the weighted average sales price per pan for the budge be $40.00. b) All sales are on account (credit) and are collected 45% in the month of sale and 55% in the month c) Perfect Pans has a policy that each month's ending inventory of finished goods (pans) should be 30% of the d) Ending inventory of materials should be l 5% of the next month's production needs in pounds. On average, e) Materials purchases are paid 40% in the month of purchase and 60% in the month following the month of ) Each unit produced will take 0.25 DLH. The estimated wage rate for 2019 is $36.00 per hour. Direct following the month of sale. Accounts receivable from December 2018 credits sales is expected to be $396,000 on 12/31/18. following month's sales in units. Ending inventory on December 31, 2018 followed this pattern. each pan will take 10 pounds of material. The expected price for material is $0.30 per pound. Considering the April production schedule, the desired ending inventory of materials in March is 22,500 pounds purchase. Accounts Payable for purchases on 12/31/18 is expected to be $29,100 labor costs are paid 50% in the month in which the work is performed and 50% in the following month. Amounts owed (wages payable) for direct labor were expected to be $74,000 on 12/31/18. This amount will be paid in January Overhead for 2019 is budgeted to be $3,444,000, based on 38,000 DLH, resulting in an overhead rate of $88.00 per direct labor hour. Variable overhead for the plant is budgeted at $20.00 per direct labor hour for January, February and March respectively. Variable overhead is paid in the month incurred. The budgeted overhead rate for fixed overhead (including depreciation) is S68.00 per DLH. Depreciation on the plant (included in total MOH) is $1,800,000 per year per month. Other fixed overhead, exclusive of depreciation, is paid in the month incurred, and is $884,400 per year or $73,700 per month. In addition to the wages described above, Pat will pay his sales representative a salary of $5,000 per month plus 1% of sales, paid in the month incurred. Pat hired someone to take over the plant administrative duties, so his time is now entirely devoted to general administration. His 2019 salary will be $11,000 per g) h) ) j) Pat will incur a $38,000 cash expenditure in January for trade show travel and registration. Pat plans to pay cash of $15,000 each month in the first quarter of 2019 for a series of advertisements in cooking magazines. k) Depreciation on the fixed assets used for selling and administration will be $1,000 per month. Rent on l) Pat intends to purchase equipment costing $178,000 for packaging pans in March. The equipment will be m) Pat will pay a cash dividend of $120,000 in January administrative space will be $4,000 per month. The first six months of rent for 2019 will be prepaid in installed in March but use of the equipment will not begin until April, so no depreciation will be taken on the new equipment in the first quarter of the year Perfect Pans has a line of credit with a local bank and a policy that the ending cash balance each month must be at least $20,000. The cash balance on December 31, 2018 was expected to be $20,600. The company can borrow in increments of $1,000 at the beginning of the month. The firm pays accumu interest of 1% per month at the end of each quarter andwill use any excess cash above the minimum balance to pay down on the line of credit balance at the end of the quarter The tax rate for Perfect Pans is 30% of of $20,000 will be made in January lated o) income before tax (operating income less interest). A tax payment Required: Prepare your answers to the following requirements in Packet 2: Hint: See the formats in problem 9-57 A and adjust as needed. Prepare a production budget to calculate production in units for the months of January, February, and March and for the quarter in total. 2. Prepare a direct materials budget for pounds of material for January, February, and March and for the quarter in total. Multiply pounds by price at the bottom of the budget to get the dollar value of purchases .Prepare a cash payments for direct materials budget for the months of January, February, and March and for the quarter in total. 4. Prepare a sales budget showing units and dollars and a cash collections budget for the months of January, February, and March and for the quarter in total 5. Prepare a labor budget in hours and dollars and cash payments for labor budget for the months of January, February, and March and for the quarter in total. 6. Using the information from parts 3, through 5. and the additional information presented above, prepare a combined cash budget for the months of January, February, and March and for the quarter in total. Any cash flows that are not summarized in requirements 3. through 5. should be shown as separate line items in the budget. Prepare a schedule calculating the budgeted manufacturing cost per unit using the information provided above. Use the variable and fixed manufacturing overhead rates to calculate overhead cost per unit. Remember that the rates are expressed per DLH, not per unit. 8. budgeted manufacturing cost per unit calculated in 7. above. You do not need to do a separate schedule of cost of goods manufactured and sold. Prepare a budgeted income statement for the first quarter of 2019. Compute cost of goods sold using the Calculate the following amounts that would appear on the 3/31/19 balance sheet: Accounts Receivable Accounts Payable for Material and Labor Direct Materials Inventory in Dollars Cash PROBLEM 3 Perfect Pans Production Budget-Pans For the Quarter Ended March 31, 2019 Quarter March January February 2. Perfect Pans Direct Materials Budget For the Quarter Ended March 31,2019 ebruy March January Quarter Perfect Pans Cash Payments for Direct Materials For the Quarter Ended March 31, 2019 January February March Quarter 12 Perfect Pans Sales Budget in Units and Dollars For the Quarter Ended March 31, 2019 4. January February March Quarter Perfect Pans Cash Collections Budget For the Quarter Ended March 31, 2019 January February March Quarter Perfect Pans Direct Labor Budget For the Quarter Ended March 31, 2019 January February March Quarter Perfect Pans Cash Payments for Direct Labor Budget For the Quarter Ended March 31, 2019 anuary February March Quarter 13 6. Perfeet Pans Combined Cash Badget For the Quarter Ended March 31, 2019 January February March Quarter 14 Perfect Pans Budgeted Manufacturing Cost per Unit For the Quarter Ended March 31,2019 Cost Per Unit 8. Perfect Pans Budgeted Income Statement For the Quarter Ended March 31, 2019 9. Balance sheet values 3/31/19 Accounts Receivable Accounts Payable (material and labor) Direct Materials Inventory (dollars) Cash 15