Waterways Corporation is preparing its budget for the coming year, 2020. The first step is to plan for the first quarter of that coming year. The company has gathered information from its managers in preparation of the budgeting process.
| Sales | | |
| Unit sales for November 2019 | | 114,000 |
| Unit sales for December 2019 | | 101,000 |
| Expected unit sales for January 2020 | | 112,000 |
| Expected unit sales for February 2020 | | 113,000 |
| Expected unit sales for March 2020 | | 117,000 |
| Expected unit sales for April 2020 | | 126,000 |
| Expected unit sales for May 2020 | | 138,000 |
| Unit selling price | | $12 |
Waterways likes to keep 10% of the next months unit sales in ending inventory. All sales are on account. 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, 2019, totaled $181,800. Direct Materials Direct materials cost 80 cents per pound. Two pounds of direct materials are required to produce each unit. Waterways likes to keep 5% of the materials needed for the next month in its ending inventory. Raw Materials on December 31, 2019, totaled 11,210 pounds. Payment for materials is made within 15 days. 50% is paid in the month of purchase, and 50% is paid in the month after purchase. Accounts Payable on December 31, 2019, totaled $102,600.
| Direct Labor |
| Labor requires 12 minutes per unit for completion and is paid at a rate of $9 per hour. |
| Manufacturing Overhead |
| Indirect materials | | 30 | | per labor hour |
| Indirect labor | | 50 | | per labor hour |
| Utilities | | 40 | | per labor hour |
| Maintenance | | 30 | | per labor hour |
| Salaries | | $41,000 | | per month |
| Depreciation | | $16,400 | | per month |
| Property taxes | | $2,800 | | per month |
| Insurance | | $1,200 | | per month |
| Maintenance | | $1,200 | | per month |
| Selling and Administrative |
| Variable selling and administrative cost per unit is $1.70. |
| Advertising | | $14,000 | a month |
| Insurance | | $1,300 | a month |
| Salaries | | $73,000 | a month |
| Depreciation | | $2,800 | a month |
| Other fixed costs | | $2,800 | a month |
Other Information The Cash balance on December 31, 2019, totaled $102,000, but management has decided it would like to maintain a cash balance of at least $700,000 beginning on January 31, 2020. Dividends are paid each month at the rate of $2.30 per share for 5,140 shares outstanding. The company has an open line of credit with Romneys Bank. The terms of the agreement requires borrowing to be in $1,000 increments at 9% interest. Waterways borrows on the first day of the month and repays on the last day of the month. A $550,000 equipment purchase is planned for February.
- For the first quarter of 2020, prepare a cash budget.
Waterways Continuing Problem 09 Waterways Corporation is preparing its budget for the coming year, 2020. The first step is to plan for the first quarter of that coming year. The company has gathered information from its managers in preparation of the budgeting process. Sales Unit sales for November 2019 Unit sales for December 2019 Expected unit sales for January 2020 Expected unit sales for February 2020 Expected unit sales for March 2020 Expected unit sales for April 2020 Expected unit sales for May 2020 Unit selling price 114,000 101,000 112,000 113,000 117,000 126,000 138,000 $12 Waterways likes to keep 10% of the next month's unit sales in ending inventory. All sales are on account. 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, 2019, totaled $181,800. Direct Materials Direct materials cost 80 cents per pound. Two pounds of direct materials are required to produce each unit. Waterways likes to keep 5% of the materials needed for the next month in its ending inventory. Raw Materials on December 31, 2019, totaled 11,210 pounds. Payment for materials is made within 15 days. 50% is paid in the month of purchase, and 50% is paid in the month after purchase. Accounts Payable on December 31, 2019, totaled $102,600. Direct Labor Labor requires 12 minutes per unit for completion and is paid at a rate of $9 per hour. Manufacturing Overhead Indirect materials 30+ per labor hour Indirect labor 50 per labor hour Utilities 40 per labor hour Maintenance 30 per labor hour Salaries $41,000 per month Depreciation $16,400 per month Property taxes $2,800 per month Insurance $1,200 per month Maintenance $1,200 per month Selling and Administrative Variable selling and administrative cost per unit is $1.70. Advertising $14,000 a month Insurance $1,300 a month Salaries $73,000 a month Depreciation $2,800 a month Other fixed costs $2,800 a month Other Information The Cash balance on December 31, 2019, totaled $102,000, but management has decided it would like to maintain a cash balance of at least $700,000 beginning on January 31, 2020. Dividends are paid each month at the rate of $2.30 per share for 5,140 shares outstanding. The company has an open line of credit with Romney's Bank. The terms of the agreement requires borrowing to be in $1,000 increments at 9% interest. Waterways borrows on the first day of the month and repays on the last day of the month. A $550,000 equipment purchase is planned for February. For the first quarter of 2020, prepare a cash budget. (Round answers to O decimal places, e.g. 2,520.) WATERWAYS CORPORATION Cash Budget First Quarter January February March Quarter $ $ $ Answer of Part 1&2: WATERWAYS CORPORATION SALES BUDGET For the Quarter Ended March 31 January February Expected Unit Sales 112,000 113,000 Unit Selling Price 12 12 Total Sales 1.344.000 1.356.000 March 117.000 12 1.404.000 Quarter 342.000 12 4104.000 Quarter Budgeted Unit Sales Add: Desired Ending Inventory Total Needs Less: Beginning Inventor Budgeted Production WATERWAYS CORPORATION PRODUCTION BUDGET For the Quarter Ended March 31 First Quarter January February 112,000 113,000 11.300 11.700 123.300 124,700 11,200 11,300 112,100 113.400 March 117,000 12.600 129,600 11.700 117 900 April 126,000 13.800 139,800 12.600 127 200 343.400 Quarter Answer of Part 3: WATERWAYS CORPORATION DIRECT MATERIAL PURCHASES BUDGET For the Quarter Ended March 31 First Quarter January February Budgeted Production in Units 112.100 113.400 DM Required per unit 2 2 Budgeted DM reduired of Production 224,200 226,800 Add: Desired Ending Inventory of DM 11,340 11.790 Budgeted DM required 235,540 238,590 Less: Beginning DM 11,210 11,340 Budgeted DM Purchases 224,330 227.250 Cost per unit of DM 0.80 0.80 Budgeted DM Purchases 179,464 181,800 March 117.900 2 235,800 12,720 248.520 11.790 236,730 0.80 189,384 550,648 Answer of Part 4: Quarter WATERWAYS CORPORATION DIRECT LABOR BUDGET For the Quarter Ended March 31 First Quarter January February 112.100 113.400 0.20 0.20 22,420 22.680 9 9 201.780 204.120 Units to be produced Direct Labor time per Unit Total Required Direct Labor Hours Direct Labor Cost per Hour Total Direct Labor Cost March 117.900 0.20 23.580 9 212.220 618.120 Waterways Corporation Manufacturing Overhead Budget January Febrary March Quarter Variable Cost : Indirect material (Direct Labour Hrs * 30%) Indirect Labour (Direct Labour Hrs * 50%) Utilities (Direct Labour Hrs * 40%) Maintenance (Direct Labour Hrs * 30%) 6,726.00 11,210.00 8,968.00 6,726.00 6,804.00 11,340.00 9,072.00 6,804.00 7,074.00 11.790.00 9,432.00 7,074.00 20,604.00 34,340.00 27,472.00 20,604.00 33,630.00 34.020.00 35,370.00 103.020.00 Total Variable Cost Fixed Cost : Salaries Depriciation Property Tax Insurances Maintenance 41,000.00 16,400.00 2,800.00 1,200.00 1,200.00 41,000.00 16,400.00 2,800.00 1,200.00 1,200.00 41,000.00 16,400.00 2,800.00 1,200.00 1,200.00 123,000.00 49,200.00 8,400.00 3,600.00 3,600.00 Total Fixed Cost 62,600.00 62,600.00 62,600.00 187,800.00 Total Manufacturing Overhead 96,230.00 96,620.00 97,970.00 290,820.00 Waterways Corporation Selling & Administrative Overhead Budget January Febrary March Quarter Sales Units Variable cost per unit 112000 1.7 113000 1.7 117000 1.7 342000 1.7 Total variable Cost 190,400.00 192,100.00 198,900.00 581,400.00 Fixed Cost : Advertising Insurances Salaries Depriciation Other Fixed Cost 14,000.00 1,300.00 73,000.00 2,800.00 2,800.00 14,000.00 1,300.00 73,000.00 2,800.00 2,800.00 14,000.00 1,300.00 73,000.00 2,800.00 2,800.00 42,000.00 3,900.00 219,000.00 8,400.00 8,400.00 Total Fixed Cost 93,900.00 93,900.00 93,900.00 281,700.00 Total Selling & Administrative Overhead 284,300.00 286,000.00 292,800.00 863,100.00 B E F G A Schedule of cash collections Acc receivable 31/12/19 January sales February sales March sales Cash collections January February March Quarter 27270 27270 (181800*15%) 1142400201600 1344000 (112000*12) 1152600 203400 1356000 (113000*12) 1193400 1193400 (117000*12*85%) 1169670 1354200 1396800 3920670 Schedule of expected cash payment for purchases January February March Quarter 1 Acc payable 31/12/19 51300 51300 (102600*50%) 2 Januray 92174 92174 184348 3 february 90900 90900 181800 4 March 93772 93772 5 Total cash payments 143474 183074 184672 511220 6 7 Working note: Production budget 8 January February March Quarter April December Unit sales 112000 113000 117000 342000 126000 101000 0 (+) ending inventory 11300 11700 12600 35600 13800 11200 1 (-) beginning invenstory 11200 11300 11700 34200 35600 10100 2 Estimated production 112100 113400 117900 343400 104200 102100 3 Raw Material purchase budget 5 January February March Quarter April 6 Estimated production 112100 113400 117900 343400 104200 7 Direct material needed 2 2 2 2 3 Total direct material need 224200 226800 235800 686800 208400 9 (+) ending inventory 11340 11790 10420 33550 0 (-) beginning invenstory 5105 11340 11790 28235 1 Estimated purchase 230435 227250 234430 692115 2 Cost per unit of direct mate 0.8 0.8 0.8 0.8 3 Total cost 184348 181800 187544 553692 A
