You are the assistant controller of Boomstick Corp. Boomstick sells one product, baseball bats made out of white ash. You have been charged with preparing a cash budget for the first quarter (January to March) so that management can be aware of any financing requirements. You have collected the following information to assist you in preparation of the quarterly budget:

Recent and forecasted sales in units are as follows:

October (actual) 6,000

November (actual) 4,500

December (actual) 12,000

January 10,000

February 26,000

March 35,000

April 30,000

May 30,000

June 28,000

Bats are sold to retailers for $50 each. The company has a policy of having an ending inventory each month equal to 75% of the next months sales. The inventory balance at December 31^st was 7,500 bats.

Each bat requires 3 board feet of white ash, which the company purchases for $5 per board foot. To protect against disruptions in production, management likes to keep enough white ash on hand at all times equal to 150% of the next months production needs. This requirement had been met on December 31^st in that the company had 99,000 board feet of white ash in the warehouse.

Purchases of white ash are paid for 50% at the time of purchase with the other 50% being paid the next month. All sales are on credit with 20% being collected in the month of sale, 55% being collected in the month following the month of sale and the remaining 25% being collected two months after the month of sale. Boom Stick has a tight credit policy and, as a result, does not have any bad debts.

Bats are hand cut taking, on average, 6 minutes to produce (i.e. .1 hours). Employees cutting the bats are paid $20 per hour and never work overtime.

Manufacturing overhead includes all the costs of production other than the white ash and direct labour. The variable component of manufacturing overhead is $3 per bat produced and the fixed component is $80,000 per month. Fixed manufacturing overhead includes $45,000 of depreciation. Manufacturing overhead is applied to bats produced on the basis of units of production.

Boomsticks monthly operating expenses are given below:

Variable:

Licensing fee paid to Nelson Cruz $1 per bat sold

Fixed:

Wages and salaries $30,000

Utilities 5,500

Insurance 2,500

Depreciation 15,000

Miscellaneous 6,000

All operating expenses are paid in the month for cash, with the exception of depreciation and insurance. Insurance is paid once a year at the end of December ($30,000) then expensed monthly over the following year. The company plans to purchase some new manufacturing equipment in February for $60,000. Boomstick declares a dividend of $20,000 on the last day of every quarter (i.e. March 31^st, June 30^th, September 30^th and December 31^st) and pays it one month later (i.e. the March dividend is paid April 30^th, the June dividend is paid July 31^st, etc.)

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

Assets

Cash $ 28,000

Accounts receivable 536,250

Inventory, white ash (raw materials) 495,000

Inventory, bats (finished goods) 169,251

Prepaid insurance 30,000

Fixed assets 840,000

Accumulated depreciation (270,000) 570,000

Total Assets 1,828,501

Liabilities and Shareholders Equity

Accounts payable, purchases 208,125

Dividends payable 20,000

Capital stock 10,000

Retained earnings 1,590,376

Total liabilities and shareholders equity 1,828,501

Management believes in keeping a minimum cash balance of $20,000 at the end of each month. The company can borrow from the bank at 12% annual interest. All borrowing must be done at the beginning of the month, and repayments must be done at the end of the month. Borrowings and repayments must also be in increments of $1,000. Interest is paid each month based on the short term loan balance at the end of the previous month. Round all interest payments to the nearest whole dollar. The company wishes to use any excess cash to pay off the loan as rapidly as possible.

Required:

1. Prepare a Sales Budget, Production Budget, Direct Materials Budget, Direct Labour Budget, Manufacturing Overhead Budget and Sales and Administration Budget.
2. Prepare Schedules of Expected Cash Collections and Expected Cash Disbursements for Materials as well as a Cash Budget.
3. Prepare a Budgeted Income Statement for the Quarter Ended March 31^st.
4. Prepare a Budgeted Balance Sheet at March 31^st.