Rand Co., a new startup business, is preparing their budget for the first quarter 2021 ending March 31.

Budgeted sales of the companys only product for the next five months are:

January	9,200 units
February	5,600 units
March	6,300 units
April	3,700 units
May	5,000 units

The selling price is $81 per unit.

Prepare the following elements of the master budget for this problem:

SCHEDULE OF EXPECTED CASH COLLECTIONS

SCHEDULE OF EXPECTED CASH DISBURSEMENTS FOR MATERIAL

60% of a months purchases are paid for in the month of purchase; 40% is paid for in the following month.

No discounts are given for early payment.

The accounts payable balance on December 31 was $0.

DIRECT LABOR BUDGET

Each unit produced requires .65 hours of direct labor.

Each hour of direct labor costs the company $11.80.

Management fully adjusts the workforce to the workload each month.

MANUFACTURING OVERHEAD BUDGET

Variable manufacturing overhead is $3.75 per direct labor-hour.

Fixed manufacturing overhead is $113,000 per month. This includes $6,500 in depreciation, which is not a cash outflow.

ENDING FINISHED GOODS INVENTORY BUDGET

Rand Co., a new startup business, uses absorption costing in its budgeted income statement and balance sheet.

Manufacturing overhead is applied to units of product on the basis of direct labor-hours.

The company has no work in process inventories.

SELLING AND ADMINISTRATIVE EXPENSE BUDGET

Variable selling and administrative expenses are $1.80 per unit sold.

Fixed selling and administrative expenses are $88,500 per month and include $16,500 in depreciation.

CASH BUDGET

1. A line of credit is available at a local bank.

a. All borrowing occurs at the beginning of the month, and all repayments occur at the end of the month. Borrowing occurs in increments of $1,000.

b. Any interest incurred during the first quarter will be paid at the end of the quarter. The interest rate is 18% per year.

2. Rand Co., a new startup business, desires a cash balance of at least $30,000 at the end of each month. The cash balance at the beginning of January was $18,000.

3. Cash dividends of $18,000 are to be paid to stockholders in February.

4. Equipment purchases of $169,000 are scheduled for January and $376,000 for February. This equipment will be installed and tested during the first quarter and will not become operational until April, when depreciation charges will commence.

Additional Information:

The following balances exist on January 1:

Land $300,000

Equipment $162,000

Common Stock $480,000

Required:

6. What is the estimated finished goods inventory balance at the end of March?

7 What is the estimated cost of goods sold and gross margin for March?

8. What is the estimated total selling and administrative expense for February?

9. What is the estimated net operating income for March?

10. What is the estimated retained earnings balance for March?

Rand Co.
Answer 1	February	Note
Monthly Sales units	5,600.00	A
Sell price per unit	81.00	B
Budgeted Sales for February	453,600.00	C=A*B

Workings for answer 2 and 3	January	February	March	Total	Note
Monthly Sales units	9,200.00	5,600.00	6,300.00		D
Sell price per unit	81.00	81.00	81.00		E
Budgeted Sales Revenue	745,200.00	453,600.00	510,300.00	1,709,100.00	F=D*E

Answer 2	February
Expected cash collections for February	555,660.00
Answer 3	March
Accounts receivable balance at the end of March	178,605.00

Workings for answer 4	January	February	March	April	Note
Next month's sales	5,600.00	6,300.00	3,700.00	5,000.00	G
Ratio of inventory to future sales	18%	18%	18%	18%	H
Budgeted ending inventory (units)	1,008.00	1,134.00	666.00	900.00	I=G*H
Add: Monthly Sales (Units)	9,200.00	5,600.00	6,300.00	3,700.00	J
Required units of available production	10,208.00	6,734.00	6,966.00	4,600.00	K=I+J
Less: Opening	-	1,008.00	1,134.00	666.00	L= I of previous month. For January its 0.
Units to be produced	10,208.00	5,726.00	5,832.00	3,934.00	M
Materials purchases budget	January	February	March	April
Units to be produced	10,208.00	5,726.00	5,832.00	3,934.00	See M
Material required per unit	6.50	6.50	6.50	6.50	N
Material required for production	66,352.00	37,219.00	37,908.00	25,571.00	O=M*N
Add: Closing	4,466.28	4,548.96	3,068.52		P= 12% of O of next month.
Total material required	70,818.28	41,767.96	40,976.52
Less: Opening	-	4,466.28	4,548.96		Q= 12% of O of same month. For January its 0.
Material to be purchased (pounds)	70,818.00	37,302.00	36,428.00		R

Answer 4	February	Note
Material to be purchased (pounds)	37,302.00	See R
Material price per pound	0.58	S
Estimated cost of raw materials purchases for February	21,635.00	T=R*S
Answer 5	March
Material to be purchased (pounds)	36,428.00	See R
Material price per pound	0.58	See S
Estimated cost of raw materials purchases for March	21,128.00	U=R*S
40% of March month purchases	8,451.20	V=U*40%
Estimated accounts payable balance at the end of March	8,451.20	See V