Royal Glass Vases Inc.

You were recently hired as an accountant at Royal Glass Vases Inc. (Royal). Your employer manufactures and sells a single product, a heavy duty glass vase. The vases are especially popular as they are made with a very heavy and durable glass, which makes them difficult to break.

The company is preparing its budget for the second quarter of the year. You will be working with the Controller to help prepare the master budget for the quarter ended June 30th.

You have assembled the following information.

Information on sales

The vases sell for $10 each. Budgeted sales (in units) are as follows:

20,000 50,000 30,000 25,000

August 15,000

All sales are on credit. Royals sales collection pattern is as follows:

75% collected in the month of sale;

25% collected in the month following sale.

Additionally, The March 31 accounts receivable balance of $30,000 will be collected in full in April.

Information on inventory and production

Royal wants ending inventory to be equal to 20% of the following months budgeted sales in units. On March 31, 4,000 units were on hand.

Royals product requires 5kg of material (special glass) per unit of product. Management wants materials on hand at the end of each month equal to 10% of the following months production. On March 31, 13,000kg of material are on hand. Material cost is $0.40 per kg.

At Royal, one-half of a months purchases are paid for in the month of purchase and the other half is paid in the following month. The March 31 accounts payable balance is $12,000 and will be paid for in April.

At Royal, each vase requires 0.05 hours of direct labour. The average wage rate is $10 per hour. Royal uses a variable manufacturing overhead rate of $1 per unit produced.

April

May

June

July

Fixed manufacturing overhead is as follows:

$12,000 per month for rent

$18,000 per month for salaries and wages

$20,000 per month for depreciation of plant assets

For the purposes of calculating finished good inventory, manufacturing overhead is applied to units of product on the basis of direct labour hours.

Information on selling and administrative expenses and cash outlays

At Royal, variable selling and administrative expenses are $0.50 per vase sold.

Fixed selling and administrative expenses are $70,000 per month, which includes $10,000 in amortization expense. Not included in the $70,000, is an additional $2,000 per month of insurance expense. On April 1 the company paid $24,000 for insurance. The insurance period covers April 1st to March 31st of the following year.

Additional information on cash requirements and financing

On April 1 Royal will have a cash balance of $40,000. It is company policy to always maintain a minimum cash balance of $30,000.

The Company maintains an open line of credit for up to $75,000. If Royal is required to borrow from the bank, it has secured an interest rate of 8% on its line of credit. Interest is paid at the end of the quarter. If borrowings are necessary they occur on the first day of the month. If loan repayments can be made, they are paid on the last day of the month.

In April, Royal plans to pay a cash dividend of $49,000. Additionally, it will pay an income tax instalment of $19,000 each month. Royal plans to purchase $143,700 of equipment in May and $48,300 of equipment in June. Both of these payments will be paid with cash in the respective month of pur