The facts and figures relating to Irrigation Corporation are as follows. Irrigation Corporation produces plastic garden sprinklers. The company is preparing its budget for 2015. The first step is to plan for the first quarter of the coming year. Irrigation has collected the following information from the managers. 1. Sales: Sales for October 2014 Sales for November 2014 Sales for December 2014 Expected sales for January 2015 110,200 units 112,500 units 102,100 units 113,000 units Expected sales for February 2015 Expected sales for March 2015 Expected sales for April 2015 Expected sales for May 2015 Selling price per unit 112,500 units 116,000 units 125,000 units 137,500 units $12 Irrigation likes to keep 10% of the previous month's unit sales in ending inventory. All sales are on credit. 85% of the accounts receivable are collected in the month of sale and 15% of the accounts receivable are collected in the month after sale. Accounts receivable on December 31, 2014, totaled $183,780. 2. Direct Materials 2 pounds of direct materials is needed to produce one unit. Irrigation likes to keep 5% of the materials needed for the previous month's production in its ending inventory. Raw materials on hand on December 31, 2014, totaled 11,295 pounds. Payment for materials is made within 15 days. 50% is paid in the month of purchase, and 50% is paid after the month of purchase. Accounts payable on December 31, 2014, totaled 5120,595. 3. Direct Labor Labor requires 12 minutes per unit for completion and is paid at a rate of 58 per hour. 4. Manufacturing Overhead Indirect materials Indirect labor Utilities Maintenance Factory supervisor's salary Factory Depreciation Property taxes Insurance Repairs $0.30 per labor hour $0.50 per labor hour $0.45 per labor hour $0.25 per labor hour 542,000 per month $16,800 per month $ 2,675 per month $1,200 per month $ 1,300 per month 5. Selling and Administrative expenses Salaries Advertising Insurance Office Depreciation Other fixed costs Commission $72,000 per month $15,000 per month $1,400 per month $ 2,500 per month $3,000 per month $0.25 per unit of sales Further information The cash balance on December 31, 2014, totaled $100,500, but management has decided it would like to maintain a cash balance of at least $800,000 beginning on January 31, 2015. Dividends are paid each month @ $2.50 per share for 5,000 shares. The company has an open line of credit with national Bank. The terms of the agreement require borrowing to be in the increments of $1,000, and the interest rate is 8%. Irrigation borrows on the first day of the month and repays on the last day of the month if possible. A $500,000 equipment purchase is planned for February 2015. Schedule of expected cash collections from customers Schedule for expected cash payments for materials purchases (h)
