Waterways Continuing Problem (This is a continuation of the Waterways Problem from Chapters 1 through 9.) WCP.10 Waterways Corporation has recently acquired a small manufacturing operation in British Columbia that produces one of its more popular items. This plant will provide these units for resale in retail hardware stores in British Columbia and Alberta. Because the budget prepared by the plant was incomplete, Jordan Leigh. Waterways' CFO, was sent to B.C. to oversee the plant's budgeting process for the second quarter of 2021. Jordan asked the various managers to collect the following information for preparing the second-quarter budget Sales Unit sales for February 2021 Unit sales for March 2021 Expected unit sales for April 2021 Expected unit sales for May 2021 Expected unit sales for June 2021 Expected unit sales for July 2021 Expected unit sales for August 2021 $ 90,000 102,000 110,000 115,000 120.000 135,000 160,000 Average unit selling price $15 474 CHAPTER 10 Budgetary Planning Based on the experience in the home plant, Jordan has sug. cested that the B.C. plant keep 10% of the next month's unit sales in ending inventory. The plant has contracts with some of the major home hardware giants, so all sales are on account: 50% of the accounts receivable is collected in the month of sale, and the bal- ance is collected in the month after sale. This was the same collec- tion pattern as the previous year. The new plant has no bad debts. Selling and Administrative Variable selling and administrative expenses per unit are $1.62. Advertising $15,000 a month Depreciation $2,500 a month Insurance com $1,400 a month Other fixed costs o lo $3,000 a month Salaries $72,000 a month Direct Materials The combined quantity of direct materials (consisting of metal, plastic, and rubber) used in each unit is 1.1 kg. Metal, plastic, and rubber together amount to $1.50 per kg. Inventory of combined direct materials on March 31 consisted of 12.155 kg, This plant likes to keep 10% of the materials needed for the next month in its ending inventory. Fifty percent of the payables is paid in the month of purchase, and 50% is paid in the month after purchase. Accounts payable on March 31 will total $120,600. Other Information The cash balance on March 31 will be $100.500, but Waterways has decided it would like to maintain a cash balance of at least $500,000 beginning on April 30. The company has an open line of credit with its bank. The terms of the agreement require borrowing to be in $1,000 increments at 3% interest. Borrowing is considered to be on the first day of the month and repayments and interest payments are on the last day of the month. In May, $845,000 of new equipment to update operations will be purchased. Three months' insurance is prepaid on the first day of the first month of the quarter. Direct Labour Labour requires 15 minutes per unit for completion and is paid at an average rate of S18 per hour. Manufacturing Overhead Indirect materials Indirect labour Utilities Maintenance Salaries Depreciation Property taxes Insurance Janitorial $0.30 per labour hour $0.50 per labour hour $0.45 per labour hour $0.25 per labour hour S42,065 per month S16,800 per month $2,400 per month $1,200 per month $2,600 per month Instructions For the second quarter of 2021: 25 N o ise a. Prepare a sales budget. b. Prepare a schedule for expected cash collections from customers. c. Prepare a production budget. d. Prepare a direct materials budget. c. Prepare a schedule for expected payments for materials purchases. f. Prepare a direct labour budget. g. Prepare a manufacturing overhead budget. h. Prepare a selling and administrative expenses budget. i. Prepare a cash budget. Include supporting calculations. AS
