Vaughan Company makes AMAZING SUPER DUPER Widgets. Management is now preparing detailed budgets for the third quarter, July through September, and has assembled the following information to assist in budget preparation: Sales Budget The marketing department has estimated sales as follows for the remainder of the year: (Actual sales in June were 6,000 units) The selling price of a SUPER DUPER widget is $50 and all sales are on account. Based on past experience, sales are collected in the following pattern: 60% in the month of sale 30% in month following the sale 10% are never collected (uncollectible) 2. Production Budget The company maintains a finished goods inventory equal to 20% of the following month's sales. The inventory of finished goods on July 1 is as it should be. Vaughan Company Produntion D....... Raw Materials Purchasing Budget Each unit of SUPER DUPER widget requires 5 pounds of WHAM compound. To prevent shortages, the company would like the inventory of WHAM compound on hand at the end of each month to equal 30% of the following month's production needs. The inventory on July 1 is 14,250 pounds. WHAM compound costs $0.70 per pound and Vaughan pays for 40% of its purchases in the month of purchase; the remainder is paid in the following month. $38,080 of WHAM compound was purchased in June and 40% was paid for in June. Now we need to prepare the Ending FG Inventory Budget. Vaughan Company 7. Now it is time for the Selling and Administrative Budget. It too will be divided into a variable portion and a fixed portion. Assume that variable S\&A costs are $3 per unit plus bad debt expense. Further assume that monthly Fixed Costs are as follows: Advertising $28,200, Executive Salaries $74,000, Other $20,000, and Office depreciation is $3,000. S\&A are paid in the month incurred. The next Budget is the Direct Labor Budget. Let's assume that each unit takes 1.2 DLH to make and each DLH costs $16. Let's further assume that labor is paid in the month incurred. 5. Next we will prepare our FOH budget. FOH is applied based on DLH. Estimated variable FOH is expected to be $500,000 and estimated DLH are expected to be 400,000 . Fixed FOH is estimated to be $11,340 per month with $4,000 of that amount being depreciation of factory equipment and building. Like DL, assume that FOH is paid in the month incurred. From here we go to the cash budget. We need to know cash receipts, cash disbursements, Cash flows/deficit, and the financing section. Vaughan's cash guidelines are as follows: They have a line of credit that can be accessed in $1,000 increments at an annual interest rate of 12%. Money will be borrowed on the last day of a given month and paid back on the last day of the month when it can be. Minimum cash balance required by Vaughan is $50,000. The beginning cash balance on July 1 is $50,000. Interest is paid when money is paid back. From here we move on to the Budgeted Income Statement. 10. And last but not least, we have the budgeted Balance Sheet! We need to know what our balance sheet looked like on July 1, so here goes: Vaughan Company Balance Sheet 7/1/ Year 2024 Assets: Cash (given) A/R (given) RM Inventory (14,250 * \$0.70) FG Inventory Land Building\&Equipment Less A/D Total Assets Vaughan Company Budgeted Balance Sheet 9/30/Year 2024 Liabilities \& SE : A/P (given) \$ 22,848 \begin{tabular}{rr} 50,000 \\ 90,000 \\ 9,975 \\ 50,560 \\ 19,000 \\ \\ 250,000 \\ & (60,000) \\ \hline$ & 409,535 \\ \hline \hline \end{tabular} Common Stock 225,000 Retained Earnings 161,687 Total Liab \& SE: 409,535 Liabilities \& SE : A/P Common Stock Retained Earnings Total Liab \& SE