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		111,000
Unit sales for December 2019		103,000
Expected unit sales for January 2020		114,000
Expected unit sales for February 2020		112,000
Expected unit sales for March 2020		116,000
Expected unit sales for April 2020		124,000
Expected unit sales for May 2020		137,000
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 $185,400. 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 11,380 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 $104,585.

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		50		per labor hour
Maintenance		30		per labor hour
Salaries		$41,000		per month
Depreciation		$17,800		per month
Property taxes		$2,800		per month
Insurance		$1,100		per month
Maintenance		$1,400		per month

Selling and Administrative
Variable selling and administrative cost per unit is $1.70.
Advertising		$16,000	a month
Insurance		$1,500	a month
Salaries		$71,000	a month
Depreciation		$2,700	a month
Other fixed costs		$3,200	a month

Other Information The Cash balance on December 31, 2019, totaled $100,000, 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 $2.70 per share for 5,180 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.

(a)

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Your answer is correct.

For the first quarter of 2020, prepare a sales budget.

WATERWAYS CORPORATION Sales Budget For the First Quarter of 2020March 2020For the Month Ending March 2020
First Quarter
		January		February		March		Quarter
Direct LaborDirect MaterialsExpected Unit SalesProduction UnitsTotal SalesUnit Selling Price
Direct LaborDirect MaterialsExpected Unit SalesProduction UnitsTotal SalesUnit Selling Price		$		$		$		$
Direct LaborDirect MaterialsExpected Unit SalesProduction UnitsTotal SalesUnit Selling Price		$		$		$		$

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(b)

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Your answer is partially correct.

For the first quarter of 2020, prepare a production budget.

WATERWAYS CORPORATION Production Budget For the Month Ending March 2020For the First Quarter of 2020March 2020
	First Quarter
		January		February		March		Quarter
Direct Materials PurchasesDesired Ending Direct MaterialsTotal Required UnitsBeginning Direct MaterialsExpected Unit SalesBeginning Finished Goods UnitTotal Materials RequiredDirect Materials Per UnitDesired Ending Finished Goods UnitRequired Production Units
AddLess: Beginning Finished Goods UnitDesired Ending Direct MaterialsDirect Materials Per UnitRequired Production UnitsDesired Ending Finished Goods UnitTotal Required UnitsDirect Materials PurchasesBeginning Direct MaterialsExpected Unit SalesTotal Materials Required
Required Production UnitsDesired Ending Finished Goods UnitTotal Materials RequiredBeginning Direct MaterialsExpected Unit SalesBeginning Finished Goods UnitTotal Required UnitsDesired Ending Direct MaterialsDirect Materials PurchasesDirect Materials Per Unit
AddLess: Beginning Finished Goods UnitRequired Production UnitsTotal Materials RequiredTotal Required UnitsDirect Materials PurchasesDesired Ending Finished Goods UnitDirect Materials Per UnitDesired Ending Direct MaterialsExpected Unit SalesBeginning Direct Materials
Direct Materials Per UnitTotal Materials RequiredTotal Required UnitsRequired Production UnitsBeginning Finished Goods UnitBeginning Direct MaterialsDirect Materials PurchasesDesired Ending Finished Goods UnitDesired Ending Direct MaterialsExpected Unit Sales