Watson Products is a merchandising company that sells baby lotion in New York. The company is about to prepare its budgets for the first quarter of the year 20x2. The following information has been assembled to assist in preparing the company's budgets of the quarter. a. Account balances from the post-closing trial balance on December 31, 20x1 follows: Credit Cash.. Account receivable. Inventory (8,100 bottles) Land. Building Accumulated depreciation - Building .......... Accounts Payable (from inventory purchased) ...... Capital Stock... Retained Earnings... Debit $ 42,000 369,000 145,800 150,000 200,000 $ 20,000 113,760 705,000 68.040 5906.800 $906.800 b. Actual sales and budgeted sales are as follows (selling price per bottle 530): Actual Sales Budgeted Sales 20x1 November $360,000 20x2 January $540,000 December $420,000 February $600,000 March $750,000 April $840,000 Sales are 25% for cash and 75% on credit. Eighty percent (80%) of a month's credit sales are collected in the first month after sales, and the remainder 20% are collected in the second month after sales. c. The Company maintains its ending inventory at 45% of the following month's cost of goods sold. d. The purchase cost per bottle of lotion for the quarter is the same as the inventory on December 31, 20x1. Inventory purchases are paid 60% in the month of purchase, and the remaining balance are paid in the following month. Inventory purchases of the quarter 20x2 January $? February $7 March $2 e. Monthly operating expenses are budgeted and paid when incurred as follows: Sales commission.... Delivery expense Salaries expense.... Advertising expense. Depreciation expense... Other expenses. 5% of sales 2% of sales $15,000 $ 4,000 $2,000 3% of sales Land will be purchased for cash: 20x2: January $ 100,000 February $ 80,000 & The company must maintain a minimum cash balance of 540,000. All borrowings are done at the beginning of a month and all repayments are made at the end of a month. Borrowings and repayments of principal must be in multiples of $1,000. Interest is paid only when principal is repaid. The interest rates 12% per annum 6000 Example of an answer 1. Total gross profit of the quarter 2. Total operating expenses in the income statement of the first quarter 3. Total cash disbursements for operating expenses of the quarter 4. Total Inventory purchases for the quarter 5. Total cash disbursement for inventory purchases in the first quarter 6. Total cash collected from sales in the quarter 7. Total cash disbursements of the quarter 8. The amount of cash the company will borrow in January 9. Total cash repayment will be made in February 10. Interest expense in the income statement of the quarter. b. Factory salaries and wages expenses $21.100 are distributed as follows: Direct laborers' wages expense: Normal hour... 120 hours @ $60 Idle hour. 10 hours @ $60 Overtime hour 30 hours @ $90 $16,100 Fringe benefit. 160 hours @ $35 Supervisory salaries 5,000 $21.100 The company treats part of fringe benefit relating to direct labor as added direct labor cost, and the remaining balance as part of manufacturing overhead b. Factory salaries and wages expenses $21,100 are distributed as follows: Direct laborers' wages expense: Normal hour 120 hours @ $60 Idle hour... 10 hours @ $60 Overtime hour 30 hours @ $90 $16,100 Fringe benefit. 160 hours @ $35 Supervisory salaries.. 5.000 $21.100 The company treats part of fringe benefit relating to direct labor as added direct labor cost, and the remaining balance as part of manufacturing overhead
