308.1

Project Description:

company a is a high-end ceiling fan manufacturer established six years ago. it has one luxury fan model that is unique and has wide market acceptance.
sales data
actual sales data – year 10 (last 2 months)
projected sales data – year 11 (first 5 months)
month
units sold
november, x6
3,000
december, x6
2,400
january, x7
3,500
february, x7
4,000
march, x7
3,500
april, x7
3,400
may, x7
4,000
selling price is $100 per unit.
all sales are on credit.
ending inventory
raw materials: outlined in direct materials below
work in process: no work in process inventory; all work completed on last day of quarter
finished goods: 20% of next month’s sales projection
average unit cost in year 10: –$64
inventory method used: fifo
direct cost data
direct materials:
motors are purchased ready to use from an outside supplier at a cost of $14 each. company a’s management desires to maintain a motor inventory based on 20% of the next month’s projected production.
blades are produced in the plant. each fan requires 10 blades. the material is purchased in 4 ft. x 8 ft. sheets at $24 per sheet. fifteen blades can be cut out of each sheet. experience has shown that, on average, the number of defective blades produced by the cutting process is equal to 6% of the number of good blades. defective blades must be discarded. in case of machine breakdowns, management desires an ending inventory of finished blades each month equal to 10% of the next month’s total projected blade production.
direct labor:
total payroll expense including benefits is $63 per hour for the production workers required to operate the blade-cutting machine, and $63 per hour for the workers required to staff the assembly/packing workstation. the standard labor allowance is 0.2 hours per fan on the blade-cutting machine and 0.2 hours per fan at the assembly/packing workstation.
overhead:
variable manufacturing overhead and fixed overhead items are presented below.
accounts receivable
all sales are made on credit. historically, 26% of receivables have been collected during the month of sale, 50% collected in the month following the sale, and 20% collected two months after the sale. the company has experienced 4% bad debt on its credit sales.
accounts payable
all materials are purchased on credit. normally, one half of the purchases are paid during the month in which they were purchased and one half paid the following month. the accounts payable balance shown on the year 10 balance sheet represents one half of the december purchases. the company does not receive any purchase discounts from its suppliers.
indirect labor costs
company sales representatives
3% commission on sales each month
sales manager
$5,000/mo. plus 50% override on sales commissions
production supervisor
$4,000/mo.
administrative expenses (salaries)
$8,000/mo.
other expenses
yearly insurance premiums
$36,000 on october 1; 80% related to factory operations
factory utilities
january – $15,000; february – $17,000; march – $15,200
usage estimated at 90% factory and 10% administrative
advertising expenses
7% of monthly sales
factory building mortgage
(20 years at 8%)
building purchased four years ago for $430,000 (total cost)
down payment of $190,000
mortgage paid at the end of each quarter
travel expenses
4% of monthly sales
factory maintenance
10% of monthly blade material costs
factory janitor services
$3,000/mo.
cash control
the cash on hand at the beginning of each month must be maintained at $60,000 for any contingencies that might arise. if the operations do not provide this balance, the company will use its preapproved line of credit at 8% and borrow sufficient funds to meet the minimum required cash balance. when there is a credit line balance due, it will be paid in the next month that generates a projected cash balance over the $60,000 minimum.
depreciable assets
the factory building was purchased on january 1, year 3. it is being depreciated using straight line depreciation for 20 years. salvage value of the building is estimated at $70,000.
the blade-cutting machine was purchased on december 31, year 10, for $240,000 cash. it is being depreciated over eight years using the double declining balance method. depreciation is recognized on long-term assets at the end of each quarter.
dividend policy
the company declares $58,000 annual dividend to its shareholders in the first month of the quarter. dividends are paid in the second month of the quarter.
task:
a. using the attached “budgeting template” and the information provided in the given, create the budgets listed below for the first three months of year 11.
1. sales budget
2. production budget
3. direct materials budget
4. direct labor budget
5. manufacturing overhead budget
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Project Stats:

Price Type: Negotiable

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