PROBLEMS Group A P9-57A Comprehensive budgeting problem (Learning Objectives 2 & 3) Martin Manufacturing is preparing its master budget for the first quarter of the upcoming year. The following data pertain to Martin Manufacturing's operations: Current Assets as of December 31 (prior year): $ 4,500 Cash Accounts receivable, net. $ 47,000 $15,700 Inventory... Property, plant, and equipment, net. $120,000 S 42,400 Accounts payable Capital stock $124,000 S 23,100 Retained earnings. a. Actual sales in December were $70,000. Selling price per unit is projected to remain stable at $10 per unit throughout the budget period. Sales for the first five months of the upcoming year are budgeted to be as follows: $ 80,000 January February $92,000 March. $99,000 April 97,000 May $85,000 Sales are 30% cash and 70 % credit. All credit sales are collected in the month follow ing the sale. b. . Martin Manufacturing has a policy stating that each month's ending inventory of fin- ished goods should be 25% of the following month's sales (in units). d. Of each month's direct materials purchases, 20 % are paid for in the month of pur chase, while the remainder is paid for in the month following purchase. Two pounds of direct material is needed per unit at $2 per pound. Ending inventory of direct materi als should be 10% of next month's production needs. . Most of the labor at the manufacturing facility is indirect, but there is some direct la- bor incurred. The direct labor hours per unit is 0.01. The direct labor rate per hour is $12 per hour. All direct labor is paid for in the month in which the work is performed. The direct labor total cost for each of the upcoming three months is as follows: $ 996 January February March... $1,125 $1,182 f. Monthly manufacturing overhead costs are $5,000 for factory rent, $3,000 for other fixed manufacturing expenses, and $1.20 per unit for variable manufacturing over- head. No depreciation is included in these figures. All expenses are paid in the month in which they are incurred. g. Computer equipment for the administrative offices will be purchased in the upcoming quarter. In January, Martin Manufacturing will purchase equipment for $5,000 (cash), while February's cash expenditures will be $12,000 and March's cash expenditures will be $16,000. h. Operating expenses are budgeted to be $1.00 per unit sold plus fixed operating ex- penses of $1,000 per month. All operating expenses are paid in the month in which they are incurred. No depreciation is included in these figures. i. Depreciation on the building and equipment for the general and administrative offices is budgeted to be $4,600 for the entire quarter, which includes depreciation on new acquisitions. jMartin Manufacturing has a policy that the ending cash balance in each month must be at least $4,000. It has a line of credit with a local bank. The company can borrow in increments of $1,000 at the beginning of each month, up to a total outstanding loan balance of $150,000. The interest rate on these loans is 1 % per month simple inter- est (not compounded). The company would pay down on the line of credit balance in increments of $1,000 if it has excess fun would also pay the accumulated interest at the end of the quarter on the funds bor- rowed during the quarter. k. The company's income tax rate is projected to be 30% of operating income less inter est expense. The company pays $10,000 cash at the end of February in estimated taxes at the end of the quarter. The company Requirements 1. Prepare a schedule of cash collections for January, February, and March, and for the quarter in total. Use the following format: Cash Collections Budget For the Quarter Ended March 31 Month February Harch January Quarter 4 Cash sales 6 Credit sales Total cash collections 7 CHAPTER 9 Nmno0 2. Prepare a production budget, using the following format Production Budget 1 For the Quarter Ended March 31 Honth February 3 Harch Quarter January 4 5 Unit sales 6 Plus Desired ending inventory 7 Total needed 8 Less: Beginning inventory 9 Number of units to produce 10 Hint: Unit sales-Sales in dollars/Selling price per unit 3. Prepare a direct materials budget, using the following format: Direct Materials Budget For the Quarter Ended March 31 1 Month February 3 January March Quarter Units to be produced (from Production Budget) 5 6 Multiply by: Quantity (pounds) of DH needed per unit 7 Quantity (pounds) needed for production 8 Plus: Desired ending inventory of DM Total quantity (pounds) needed 9 10 Less Beginning inventory of DM 11 Quantity (pounds) to purchase 12 Multiply by: Cost per pound 13 Total cost of DM purchases 14 4. Prepare a cash payments budget for the direct material purchases from Requirement 3, using the following format. (Use the accounts payable balance at December 31 of prior year for the prior month payment in January) Cash Payments for Direct Materials Budget For the Quarter Ended March 31 Honth February 1 2 3 March January Quarter 4 5 20% of current month DM purchases 6 80% of prior month DM purchases 7 Total cash payments 8 5. Prepare a cash payments budget for direct labor, using the following format: Cash Payments for Direct Labor Budget For the Quarter Ended March 31 Month February 1 3 4 Total cost of direct labor January Harch Quarter 5 Nmno0 CHAPTER 9 6. Prepare a cash payments budget for manufacturing overhead costs, using the follow ing format: Cash Payments for Manufacturing Overhead Budget For the Quarter Ended March 31 Honth February 2 March January Quarter 4 5 Variable manufacturing overhead costs 6 Rent (fixedi Other fixed MOH 8 Cash payments for manufacturing overhead 7. Prepare a cash payments budget for operating expenses, using the following format: Cash Payments for Operating Expenses Budget For the Quarter Ended March 31 Month February 3 January March Quarter 4 Variable operating expenses Foxed operating expenses 7 Cash payments for operating expenses 6 8 8. Prepare a combined cash budgget, using the following format: Combined Cash Budget For the Quarter Ended March 31 Honth February 3 January March Quarter Beginning cash balance Plus: Cash collections Total cash available Less cash payments Direct material purchases Direct labon Manufacturing overhead costs Operating expenses Tax payment Equipment purchases 15 Total cash payments 16 Ending cash balance before financing 17 Financing 6 10 12 11 14 Plus: New borrowings 18 Less: Debt repayments 19 Less Interest payments 20 21 Ending cash balance 22 9. Calculate the budgeted manufacturing cost per unit, using the following format (assume that fixed manufacturing overhead is budgeted to be S0.80 per unit for the year): Budgeted Hanufacturing Cost per Unit Direct materials cost per unit Direct labor cost per unit Variable manufacturing overhead costs per unit 6 FOxed manufacturing overhead costs per unit 7 Budgeted cost of manufacturing one unit CHAPTER s 10. Prepare a budgeted income statement for the quarter ending March 31, using the fol- lowing format Budgeted Income Statement For the Quarter Ended March 31 Sales revenue Less: Cost of goods sold 6 Gross profit Less: Operating expenses 8 4 7 Less: Depreciation expense Operating income 10 Less: Interest expense 11 Less: Income tax expense 12 Net income 13 Hint: Cost of goods sold Budgeted cost of manufacturing one unit x Number of units sold Nmtno CHAPTER 9