The Master Budget 555 PROBLEMS Group A P9-54A Comprehensive budgeting problem (Le Damon Manufacturing is preparing its master budget for the first que budgeting problem (Learning Objectives 2 & 3) ing year. The following data pertanto s preparing its master budget for the first quarter of the upcom- u facturing's operations Current Assets as of December 31 (prior year): Cash.. $ 4,600 Accounts receivable, net $ 46,000 Inventory $ 15,600 Property, plant, and equipment, net $121,000 Accounts payable. $ 43,000 Capital stock...... $125,000 Retained earnings... $ 23,000 a. Actual sales in December were $71,000. Selling price per unit is projected to remain stable at $12 per unit throughout the budget period. Sales for the first five months of the upcoming year are budgeted to be as follows: CHAPTER 9 January ...... ........... $ 99,600 February .......... . $118,800 $115,200 April. $108,000 M ay....................... $103,200 b. Sales are 35% cash and 65% credit. All credit sales are collected in the month following the sale. Damon Manufacturing has a policy that states that each month's ending inventory of finished goods should be 10% of the following month's sales in units). d. Of each month's direct materials purchases, 20% are paid for in the month of our chase, while the remainder is paid for in the month following purchase. Three pounds of direct material is needed per unit at $2 per pound. Ending inventory of direct materials should be 20% of next month's production needs. Most of the labor at the manufacturing facility is indirect, but there is some direct Labor incurred. The direct labor hours per unit is 0.05. The direct labor rate per hour is 59 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: January ... $3,807 February .. .. .............. $4,442 $4,293 Monthly manufacturing overhead costs are $5,500 for factory rent, $2,900 for other fixed manufacturing expenses, and $1.10 per unit for variable manufacturing over head. No depreciation is included in these figures. All expenses are paid in the month in which they are incurred. Computer equipment for the administrative offices will be purchased in the upcoming quarter. In January, Damon Manufacturing will purchase equipment for $5,000 (cash), while February's cash expenditure will be $12,200 and March's cash expenditure will be $16,600 h. Operating expenses are budgeted to be $1.25 per unit sold plus faxed operating expenses of $1,800 per month. All operating expenses are paid in the month in which they are incurred. i. Depreciation on the building and equipment for the general and administrative offices is budgeted to be $4,800 for the entire quarter, which includes depreciation on new acquisitions j. Damon 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 $130,000. The interest rate on these loans is 1% per month simple inter. est (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 bor. rowed 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: 2 Cash Collections Budget For the Quarter Ended March 31 Month January February March Quarter 5 6 7 8 Cash sales Credit sales Total cash collections 2. Prepare a production budget, using the following format: 2. Prepare a production budget, using the following format: ABC Production Budget For the Quarter Ended March 31 Month January February March Quarter 5 Unit sales monopole 6 7 8 9 Plus: Desired ending inventory Total needed Less: Beginning inventory Number of units to produce "Hint: Unit sales Sales in dollars/Selling price per unit 3. Prepare a direct materials budget, using the following format: 2.1 3 Direct Materials Budget For the Quarter Ended March 31 January Month February March Quarter 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 19 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