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 102,000

Expected unit sales for January 2020 114,000

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 $183,600.

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 11,390 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 $103,735.

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. $18,300 per month

Property taxes $2,400 per month

Insurance. $1,300 per month

Maintenance $1,400 per month

Selling and Administrative

Variable selling and administrative cost per unit is $1.50.

Advertising $14,000 a month

Insurance $1,600 a month

Salaries $71,000 a month

Depreciation $2,600 a month

Other fixed costs $3,200 a month

Other Information

The Cash balance on December 31, 2019, totaled $101,000, but management has decided it would like to maintain a cash balance of at least $800,000 beginning on January 31, 2020. Dividends are paid each month at the rate of $2.40 per share for 4,890 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 $490,000 equipment purchase is planned for February.

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