The management of Zigby Manufacturing prepared the following balance sheet for March 31. Assets Cash Accounts receivable Raw materials inventory Finished goods inventory Equipment Less: Accumulated depreciation ZIGBY MANUFACTURING Balance Sheet March 31 Liabilities and Equity $ 40,000 Liabilities 344,400 Accounts payable 98,500 Loan payable 325,540 Long-term note payable Equity 450,000 Common stock Retained earnings $ 1,258,440 Total liabilities and equity $ 201,000 12,000 500,000 $ 713,000 $ 600,000 150,000 335,000 210,440 545,440 $ 1,258,440 Total assets To prepare a master budget for April, May, and June, management gathers the following information. a. Sales for March total 20,500 units. Budgeted sales in units follow: April, 20,500; May, 19,500; June, 20,000; and July, 20,500. The product's selling price is $24.00 per unit and its total product cost is $19.85 per unit. b. Raw materials inventory consists solely of direct materials that cost $20 per pound. Company policy calls for a given month's ending materials inventory to equal 50% of the next month's direct materials requirements. The March 31 raw materials inventory is 4,925 pounds. The budgeted June 30 ending raw materials inventory is 4,000 pounds. Each finished unit requires 0.50 pound of direct materials. c. Company policy calls for a given month's ending finished goods inventory to equal 80% of the next month's budgeted unit sales. The March 31 finished goods inventory is 16,400 units. d. Each finished unit requires 0.50 hour of direct labor at a rate of $15 per hour. e. The predetermined variable overhead rate is $2.70 per direct labor hour. Depreciation of $20,000 per month is the only fixed factory overhead item. f. Sales commissions of 8% of sales are paid in the month of the sales. The sales manager's monthly salary is $3,000. g. Monthly general and administrative expenses include $12,000 for administrative salaries and 0.9% monthly interest on the long- term note payable. h. The company budgets 30% of sales to be for cash and the remaining 70% on credit. Credit sales are collected in full in the month following the sale (no credit sales are collected in the month of sale). i. All raw materials purchases are on credit, and accounts payable are solely tied to raw materials purchases. Raw materials purchases are fully paid in the next month (none are paid in the month of purchase). j. The minimum ending cash balance for all months is $40,000. If necessary, the company borrows enough cash using a loan to reach the minimum. Loans require an interest payment of 1% at each month-end (before any repayment). If the month-end preliminary cash balance exceeds the minimum, the excess will be used to repay any loans. k. Dividends of $10,000 are budgeted to be declared and paid in May. I. No cash payments for income taxes are budgeted in the second calendar quarter. Income tax will be assessed at 35% in the quarter and budgeted to be paid in the third calendar quarter. m. Equipment purchases of $100,000 are budgeted for the last day of June. Cash Budget April $ 40,000 May June Beginning cash balance Add: Cash receipts from sales Total cash available Less: Cash payments for: Direct labor Variable overhead Sales commissions General & administrative salaries Dividends Purchases of equipment Loan interest 147,750 26,595 42,360 16,500 149,250 26,865 40,440 16,500 10,000 153,000 27,540 41,400 16,500 0 0 0 100,000 0 120 0 0 233,325 243,055 338,440 Total cash payments Preliminary cash balance Ending cash balance Loan balance April May June Loan balance - Beginning of month Additional loan (loan repayment) Loan balance - End of month $ 0 ZIGBY MANUFACTURING Budgeted Income Statement For Three Months Ended June 30 $ 1,440,000 1,191,000 249,000 Sales Cost of goods sold Gross profit Selling, general and administrative expenses Sales salaries expense General administrative salaries expense Loan interest expense 120 Total operating expenses 120 248,880 Income taxes expense Net income $ 248,880 336,000 80,000 325,540 $ 741,540 700,000 210,000 ZIGBY MANUFACTURING Budgeted Balance Sheet June 30 Assets Cash Accounts receivable Raw materials inventory Finished goods inventory Total current assets Equipment Accumulated depreciation Equipment, net Total assets Liabilities and Equity Liabilities Accounts payable $ Bank loan payable Income taxes payable Total current liabilities Long-term note payable Equity Common stock $ Retained earnings 490,000 $ 1,231,540 182,000 0 182,000 500,000 335,000 Total Equity Total Liabilities and Equity 335,000 $ 1,017,000