PROBLEMS Group A P9-63A. 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): Cash $ 4,500 Accounts receivable, net $ 47,000 $ 15,700 $120,000 Inventory Property, plant, and equipment, net Accounts payable Capital stock Retained earnings $ 42,400 $124,000 $ 23,100 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 March $ 92,000 $ 99,000 April $ 97,000 May $ 85,000 b. Sales are 30% cash and 70% credit. All credit sales are collected in the month following the sale. d. Of each month's direct materials purchases, 20% are paid for in the month of purchase, 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 materials should be 10% of next month's production needs. e. Most of the labor at the manufacturing facility is indirect, but there is some direct labor 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 overhead. 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 expenses 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. j. Martin 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 interest (not compounded). The company would pay down on the line of credit balance in increments of $1,000 if it has excess funds at the end of the quarter. The company would also pay the accumulated interest at the end of the quarter on the funds borrowed during the quarter. k. The company's income tax rate is projected to be 30% of operating income less interest expense. The company pays $10,000 cash at the end of February in estimated taxes Requirements 1. Prepare a schedule of cash collections for January, February, and March, and for the quarter in total. Use the following format: 1 D E UN Cash Collections Budget For the Quarter Ended March 31 Month January February March 3 4 5 Cash sales 6 Credit sales 7 Total cash collections 8 Quarter 2. Prepare a production budget, using the following format: 1 2 3 4 Production Budget For the Quarter Ended March 31 Month January February March Quarter 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: 1 E WN 4 March Quarter Direct Materials Budget For the Quarter Ended March 31 Month January February 5 Units to be produced (from Production Budget) 6 Multiply by: Quantity (pounds) of DM needed per unit 7 Quantity (pounds) needed for production 8 Plus: Desired ending inventory of DM 9 Total quantity (pounds) needed 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.) 1 D OWN Cash Payments for Direct Materials Budget For the Quarter Ended March 31 Month January February 5 20% of current month DM purchases 6 80% of prior month DM purchases 7 Total cash payments March Quarter 8 5. Prepare a cash payments budget for direct labor, using the following format: B D E 1 aWN- Cash Payments for Direct Labor Budget For the Quarter Ended March 31 Month January February March 3 4 5 Total cost of direct labor 6 Quarter 6. Prepare a cash payments budget for manufacturing overhead costs, using the following format: 1 2 Cash Payments for Manufacturing Overhead Budget For the Quarter Ended March 31 3 Month 4. January February March 5 Variable manufacturing overhead costs 6 Rent (fixed) 7. Other fixed MOH 8 Cash payments for manufacturing overhead Quarter 9 7. Prepare a cash payments budget for operating expenses, using the following format: C D 1 Cash Payments for Operating Expenses Budget For the Quarter Ended March 31 Month January February March Variable operating expenses 6 Fixed operating expenses 7 Cash payments for operating expenses Quarter 00 OWN 8. Prepare a combined cash budget, using the following format: 1 Combined Cash Budget For the Quarter Ended March 31 2. 3 Month 4 January February March Quarter 7 5. Beginning cash balance 6 Plus: Cash collections Total cash available 8 Less cash payments Direct material purchases Direct labor Manufacturing overhead costs Operating expenses Tax payment Equipment purchases Total cash payments 16 Ending cash balance before financing 17. Financing Plus: New borrowings Less: Debt repayments Less Interest payments 21 Ending cash balance 9 10 21 12 13 14 15 18 19 20 22 9. Calculate the budgeted manufacturing cost per unit, using the following format (assume that fixed manufacturing overhead is budgeted to be $0.80 per unit for the year): B D 1 Budgeted Manufacturing Cost per Unit 2 3 4 Direct materials cost per unit Direct labor cost per unit 5 Variable manufacturing overhead costs per unit 6 Fixed manufacturing overhead costs per unit 7 Budgeted cost of manufacturing one unit 8 10. Prepare a budgeted income statement for the quarter ending March 31, using the following format: 1 D Budgeted Income Statement For the Quarter Ended March 31 2 3 4 5 6 899 Sales revenue Less: Cost of goods sold* Gross profit Less: Operating expenses Less: Depreciation expense 9 Operating income Less: Interest expense Less: Income tax expense Net income 11 12 13 c. Martin Manufacturing has a policy stating that each month's ending inventory of finished goods should be 25% of the following month's sales (in units)