You are the assistant controller for Gnomes Incorporated. After the abysmal failure of their original business plan, Gnomes has found success by selling various styles of terracotta garden gnomes. You have been asked to prepare the master budget for the quarter ended June 30^th, 2016. You have assembled the following information:

The garden gnomes sell for $40 each. Recent and forecasted sales (in units) are as follows:

January (actual) 800

February (actual) 900

March (actual) 1,800

April 2,800

May 3,500

June 4,900

July 3,600

August 2,200

September 1,400

Inventories of finished goods on hand at the end of each month are to be equal to 50% of the following months' budgeted sales. As of March 31st the company had 1,400 statuettes in inventory.

Each statuette requires two kilograms of clay, which the company purchases for $3 per kilogram. Gnomes keep an ending inventory of clay at the end of each month equal to 60% of the next months production needs. As of March 31st the company had 3,780 kilos of clay on hand.

Purchases of raw materials are paid for as follows: 50% in the month of purchase and the remaining 50% in the following month. All sales are on credit, with no discount, and payable within 15 days. The company has found, however, that only 30% of a months sales are collected by month-end. An additional 50% is collected in the month following, and the remaining 20% is collected in the second month following. Bad debts have been negligible.

Each statuette requires 30 minutes to cast and paint. Employees who make the statuettes are paid $12 per hour and never work overtime (i.e. the company has enough casual workers that they can call in if additional work is required).

Manufacturing overhead includes all the costs of production other than direct materials and direct labor. The variable component is $4 per statuette in production and the fixed component is $10,000 per month (this amount includes depreciation of $3,000 per month on the kilns and molds). Direct labor hours are used as an allocation base for assigning manufacturing overhead to units produced.

Gnomes monthly operating expenses are given below:

Variable:

Shipping costs $5 per statuette sold

Fixed:

Wages & salaries $8,000

Utilities 3,000

Insurance expired 1,500

Depreciation 750

Miscellaneous 2,000

All operating expenses are paid during the month in cash, with the exception of the depreciation and insurance expenses. Management has decided to release a new line of zombie-themed gnomes. To accommodate the expected increase in demand the company will be purchasing a new kiln in April for $20,000 and some new molds in May for $10,000. Gnomes declare a dividend of $5,000 on the last day of each quarter which is then paid in the first month of the next quarter.

The balance sheet at March 31^st is given below:

Assets

Cash $ 12,000

Accounts receivable 57,600

Inventory, raw materials 11,340

Inventory, finished goods 26,020

Unexpired insurance 13,500

Fixed assets 163,500

Accumulated depreciation (47,000) 116,500

Total Assets $ 236,960

Liabilities and Shareholders Equity

Accounts payable, purchases $ 8,430

Dividends payable 5,000

Capital stock, no par 60,000

Retained earnings 163,530

Total liabilities and shareholders equity $ 236,960

Management of Gnomes requires a minimum ending cash balance each month of $10,000. The company can borrow money from its bank at 12% annual interest. All borrowing must be done at the beginning of a month, and repayments must be made at the end of the quarter. Repayments of principal must be in round $1,000 amounts. Borrowing is also in round $1,000 amounts. Interest is computed and paid at the end of each quarter on all loans outstanding during the quarter. Round all interest payments to the nearest whole dollar. Compute interest using whole months. The company wishes to use any excess cash to pay loans off as rapidly as possible.

REQUIRED:

1. Prepare a Sales and Administration Budget.
2. Prepare a Cash Budget.
3. Prepare a schedule of Cost of Goods Manufactured.