MANAGERIAL ACCOUNTING CASE - PREPARATION OF A MASTER BUDGET
Required: Based on the following information, prepare the following budgets for each month and the quarter ending March 31, 2011: (Hint: First quarter consists of January, February and March.)
- Sales Budget, including a schedule of expected cash collections
- Production Budget (in units)
- Manufacturing Overhead Budget
- Selling and Administrative Expenses Budget
- Cash Budget
(Note: Even though you are not required to prepare Direct Materials and Direct Labor budgets, direct materials and direct labor information is necessary to prepare the Cash Budget.)
Information:
1. Sales forecast: January: 2,000 units; February: 1,700 units; March: 1,600 units; April: 1,500 units. The unit sales price is $16. All sales are on credit and collections are 40% in the month of sale and 60% the following month. Accounts receivable as of December 31, 2010 is $17,200 and this amount is expected to be collected in January 2011.
2.End of month inventory must equal 70% of next month's sales. The inventory at the end of December 2010 was 1,400 units.
3. The following are the expected costs for direct materials, direct labor and manufacturing overhead:
|
|
DM
|
DL
|
Overhead
|
|
January
|
$14,800
|
$6,300
|
$5,610 + $1.50 per unit produced
|
|
February
|
8,600
|
5,700
|
$5,610 + $1.50 per unit produced
|
|
March
|
8,400
|
5,300
|
$5,610 + $1.50 per unit produced
|
A. Direct materials are paid 25% in the month incurred and 75% in the following month. Account payable for materials as of December 31, 2010 is $5,400; this amount will be paid in January 2011.
B. Direct labor is paid in the month incurred.
C. Overhead costs are paid in the month incurred. Fixed overhead includes depreciation of $1,500 per month.
4. Selling costs are sales commissions: $.30 per unit sold; shipping costs: $.14 per unit sold. Administrative costs per month are: salaries: $1,200; rent: $400; depreciation: $800. All costs are paid in month incurred.
5. The company plans to buy equipment costing $10,000 in January.
6. The cash balance as of December 31, 2010 is $10,200. The company borrows money only if the cash balance falls below $2,000 at the end of the month.