PROBLEM N3 Objective The objective of Problem 3 is to reinforce your understanding of the preparation of budgets. Chantes Operating and Financial Budgets. Fat 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 second quarter of 2020: the three months of April, May, and June 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 cach 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: July 13,000 April 6.000 Budgeted 2020 Unit Sales: Pans May June 7.000 11.000 Additional information for your budget preparation is as follows: a) Given the sales mix expected for 2020 the weighted average sales price per pan for the budget period will be $42.00 b) All sales are on account credit and are collected 43 in the month of sale and 55% in the month Following the month of sale. Accounts receivable from March 2020 credits sales is expected to be $394,000 on 3/31/20 c) Perfect Pans has a policy that each month's ending inventory of finished goods (pans) should be 20% of the following month's sales in units. Ending inventory on March 31, 2020 followed this pattern. d) Ending inventory of materials should be 15% of the next month's production needs in pounds. On average, each pan will take 10 pounds of material. The expected price for material is 50.32 per pound. Considering the July production schedule, the desired ending inventory of materials in June is 22,300 pounds. e) Materials purchases are paid 40% in the month of purchase and 60% in the month following the month of purchase. Accounts Payable for purchases on 6/30/20 is expected to be $23.100. Each unit produced will take 0.25 DLH. The estimated wage rate for the rest of 2020 is $35.00 per hour Direct labor costs are paid 70% in the month in which the work is performed and 30% in the following month. Amounts owed (wages payable) for direct labor were expected to be $54,000 on 3/31/20. This amount will be paid in March. g) Overhead estimated for 2020 was revised and is budgeted to be $3,444,000, based on 38,000 DLH. resulting in an overhead rate of 588.00 per direct labor hour. Variable overhead for the plant is budgeted at $20.00 per direct labor hour for April, May, and June respectively. Variable overhead is paid in the month incurred. The budgeted overhead rate for fixed overhead (including depreciation) is $68.00 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 h) In addition to the wages described above, Pat will pay his sales representative a salary of $4,500 per month plus 196 of sales, paid in the month incurred. Pat hired someone to take over the plant management duties. so Pat's time is now entirely devoted to general administration. Pat's 2020 salary will be $12,000 per month. i) Pat will incur a $36,000 cash expenditure in March for trade show travel and registration. j) Pat plans to pay cash of S14,000 each month in the quarter 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 administrative space will be $4,200 per month. The rent for the second AND third quarter of the year (six months) will be prepaid in April 1) Pat intends to purchase equipment costing $172,000 for packaging pans in June. The equipment will be installed in June but use of the equipment will not begin until July, so no depreciation will be taken on the new equipment in the second quarter of the year. m) Pat will pay a cash dividend of $125,000 in April. Perfect Pans has a line of credit with a local bank and a policy that the endine cash balance each me must be at least 520,000. The cash balance on March 31, 2020 was expected to be $20.2001 can borrow in increments of S1,000 at the beginning of the month The firm pays accumulated 1% per month at the end of each quarter and will use any cash above the minimum bala down on the line of credit balance at the end of the quarter The tax rate for Perfect Pans is 30% of income before tax income less interest). A of $22.000 will be made in April. of 0) Chapter come less interest). A tax payment Anfor of April May, and June and for Required: Prepare your answers to the following requirements in Packet 1: Hint: See the formats in Problem 9-65B and adjust as needed Prepare a production budget to calculate production in units for the months of April, Maya the quarter in total Prepare a direct materials buduct for nourds of material for Amril May and June and for the quante 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 but for the months of April, May, and June an May, and June and for the quarter in total Prepare a sales budget showing units and dollars and cash collections budget for the months of April. May, and June and for the quarter in total. the months of April. Prepare a labor budget in hours and dollars and cash intyments for labor budget for the months May, and fune and for the quarter in total 6. Using the information from parts 3 through and the additional information presented above, prepare combined cash budget for the months of April May and June 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 7. Prepare a schedule calculating the hudpeted 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. Prepare a budgeted income statement for the second quarter of 2020. Compute cost of goods sold using the 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. Calculate the following amounts that would appear on the 6/30/2020 balance sheet: Accounts Receivable Accounts Payable for Material and Labor Direct Materials Inventory in Dollars Cash PROBLEMS Perfect Pang Production de l'ans For the Quarter Ended June 30, 2020 April May June Quarter Chapter 8 Outline Information bele in fin Keystoms LE Perfect Pans Direct Materials Budget For the Quarter Ended June 30, 2020 April June Quarter recision 2. Mala 3. Special Perfect Pans Cash Payments for Direct Materials For the Quarter Ended June 30, 2020 April May June Quarter SS Outline Perfect Pens Sales Budget in Units and Dollars For the Quarter Ended Jun 2030 Quarter Perfect Pams Cash Collections Budget For the Quarter Ended June 30, 2020 i Avoid June T. Exhibits Perfect Pans Direct Labor Budget For the Quarter Ended June 30, 2020 Special ordersions E -10: Special Do we have Wheels b. Decision rules Example Exhibit Pitfalls to avoid Avoid Perfect Pans Cash Payments for Direct Labor Budget For the Quarter Ended June 30, 2020 April May June Quarter Chapter 8 On Perfect Pans Combined Cash Budget For the Quarter Ended June 30, 2020 Anril May June Quarter Information a. Ext Rel 2. Maks Perfect Pans Budgeted Manufacturing Cost per Unit For the Quarter Ended June 30, 2020 Cost apter 8 Outlin Per Unit Information rele 2. Exhibit b. Relevar Key Perfect Pans Budgeted Income Statement For the Quarter Ended June 30, 2020 2. Maki 3. Si 9. Balance sheet values 6/30/2020 Accounts Receivable Accounts Payable (material and labor) Direct Materials Inventory (dollars) Cash