Problem 7-4A (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. Cash Accounts receivable. Assets ZIGRY HAMFACTURING Balance Sheet March 31 $ 50,000 386,400 84,200 Liabilities Liabilities and Equity Accounts payable Loan payable Raw materials inventory Finished goods Inventory 368,000 Long-tere note payable Equipment 3 602,000 Equity Less: Accumulated depreciation 151,000 Total assets 451,000 Common stock Retained earnings $1,339,500 Total liabilities and equity To prepare a master budget for April, May, and June, management gathers the following information. $ 156,580 12,000 500,000 $ 708,600 336,000 295,000 631,000 $1,339,500 a. Sales for March total 23,000 units. Budgeted sales in units follow: April, 23,000; May, 15,300, June, 20,400; and July, 23,000. The product's selling price is $24.00 per unit and its total product cost is $20.00 per unit. b. Raw materials inventory consists solely of direct materials that cost $20 per pound. Company policy calls for a given month's ending materials inventory to equal 50% of the next month's direct materials requirements. The March 31 raw materials inventory is 4,210 pounds. The budgeted June 30 ending raw materials inventory is 4,100 pounds. Each finished unit requires 0.50 pound of direct materials. c. Company policy calls for a given month's ending finished goods inventory to equal 80% of the next month's budgeted unit sales. The March 31 finished goods inventory is 18,400 units. d. Each finished unit requires 0.50 hour of direct labor at a rate of $15 per hour. e. The predetermined variable overhead rate is $2.80 per direct labor hour. Depreciation of $21,523 per month is the only fixed factory overhead item. f. Sales commissions of 10% of sales are paid in the month of the sales. The sales manager's monthly salary is $3,300. g. Monthly general and administrative expenses include $13,000 for administrative salaries and 0.5% monthly interest on the long- term note payable. 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). 1. 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. The minimum ending cash balance for all months is $50,000, 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. k. Dividends of $11,000 are budgeted to be declared and paid in May 1. 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. m. Equipment purchases of $100,000 are budgeted for the last day of June. Required: Prepare the following budgets for the months of April, May, and June 1. Sales budget. 2. Production budget. 3. Direct materials budget 4. Direct labor budget 5. Factory overbead budget. 6. Selling expense budget. 7. General and administrative expense budget 8. Schedule of cash receipts 9. Schedule of cash payments for direct materials. 10. Cash budget 11. Budgeted income statement for entire second quarter (not monthly) 12. Budgeted belance sheet at June 30, ZIGBY MANUFACTURING Production Budget April May June Budgeted sales units 23,000 15,300 Total 23,000 Add: Desired ending inventory Next period budgeted sales units 15,300 20,400 23,000 Ratio of inventory to future sales 80% 80% 80% Desired ending inventory units 13,600 17,040 15,500 Total required units 33,180 34,140 36,900 Less: Beginning inventory units 15,600 13,680 17,040 Units to produce 29,160 9,140 23,000 61,300 Units to produce Materials required per unit (pounds) Materials needed for production (pounds) Add: Beginning materials inventory Total materials required (pounds) Add: Desired ending inventory Materials to purchase (pounds) Materials cost per pound Cost of direct materials purchases GBY MANUFACTURING Direct Materials Budget April May June Units to produce Direct labor hours needed Cost of direct labor ZIGBY MANUFACTURING Direct Labor Budget April May June Total 0 Direct labor hours needed Variable overhead rate per direct labor hour Budgeted variable overhead Budgeted fixed overhead Budgeted total factory overhead ZIGBY MANUFACTURING Factory Overhead Budget April May June Total Budgeted sales ZIGBY MANUFACTURING Selling Expense Budget April Sales commissions May June General and administrative expense budget. ZIGBY MANUFACTURING General and Administrative Expense Budget Total general and administrative expenses April May June Sales Cash receipts from Cash sales Collections of prior period sales Total cash monipts Materials purchases Cash payments for Cument period purchases Prior period purchases Total cash payments Beginning cash balance Total cash available Less: Cash payments for Total cash payments Preliminary cash balance Ending cash balance Loan balance-Beginning of month Additional loan (Joan repayment) Codice of Cavs Remote S 552,000 $ 367 200 $ 489 600 for Umeet Aped Mey $ 181,100 $ 209,300 $ 194,400 $ 0 $ 0S Cash Budget April May June Loan balance April May June Buagrind For Three Months Ended June 30 Selling, general and administrative expenses Total operating expenses 4+ $ 0 0