Question

Anchor Manufacturing has forecasted sales of 5,000 units of its product at $75 each for the next month. Beginning inventory consists of 800 pounds of direct materials and 300 units of finished goods. The managers would like to end the month with 1,200 pounds of raw materials, no units in work in process, and 500 units in finished goods. The firm accounts for inventory using the first-in, first-out (FIFO) method.
Three pounds of materials are required per unit of product manufactured. Each unit also requires two hours of direct labor time. Materials cost $0.50 per pound, and labor is paid $15 per hour. Forecasted overhead is $20,000 plus $2 per unit manufactured. Sales commissions are paid at the rate of $1 per unit, and administrative costs are estimated to be $15,000 for the month.
The firm’s customers usually pay 25% of their bill in the month of the sale and 73% in the next month (the other 2% are generally uncollectible). The firm pays its materials suppliers 70% in the month of purchase and 30% in the following month. Laborers, sales personnel, administrators, and all overhead purchases are paid in the month that services are received. Overhead costs include $5,000 of depreciation on plant and equipment. Sales last month were $240,000, and direct materials purchases were $6,000. A partially complete balance sheet as of the beginning of the month is given here.


REQUIRED
A. Complete the beginning balance sheet.
B. Prepare a master budget, including budgeted financial statements, for next month.
C. Analyze the income statement, cash budgets, and balance sheet, particularly the changes in receivables and inventory. What changes would you suggest to improve Anchor’sperformance?


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  • CreatedJanuary 26, 2015
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