Waterways Corporation has recently acquired a small manufacturing operation in British Columbia that produces one of its more popular items. This plant will provide these units for resale in retail hardware stores in British Columbia and Alberta. Because the budget prepared by the plant was incomplete, Jordan Leigh, Waterways' CFO, was sent to B.C. to oversee the plant's budgeting process for the second quarter of 2013.
Jordan asked the various managers to collect the following information for preparing the second-quarter budget.
Sales
Unit sales for February 2013 ...................................................... $ 92,500
Unit sales for March 2013 .......................................................... 102,000
Expected unit sales for April 2013 ................................................ 105,000
Expected unit sales for May 2013 ................................................. 107,000
Expected unit sales for June 2013 ................................................. 120,000
Expected unit sales for July 2013 .................................................. 135,000
Expected unit sales for August 2013 ............................................... 157,500
Average unit selling price ................................................................ $ 15
Based on the experience from the home plant, Jordan has suggested that the B.C. plant keep 20% of the next month's unit sales in ending inventory. The plant has contracts with some of the major home hardware giants, so all sales are on account; 60% of the Accounts Receivable is collected in the month of sale, and the balance is collected in the month after sale. This was the same collection pattern from the previous year. The new plant has no bad debts.
Direct Materials
Item __________________ Amount used per unit ________ Inventory, March 31
Metal .......................... 180 g @ $3.27 per kg .................. 4,300 kg
Plastic .......................... 670 g @ $0.95 per kg .................. 3,500 kg
Rubber ......................... 250 g @ $1.70 per kg .................. 3,300 kg
Metal, plastic, and rubber together amount to $1.50 per kg per unit.
This plant likes to keep 10% of the materials needed for the next month in its ending inventory. Fifty percent of the payables is paid in the month of purchase, and 50% is paid in the month aft er purchase.
Accounts Payable on March 31 will total $120,600.
Direct Labour
Labour requires 15 minutes per unit for completion and is paid at an average rate of $18 per hour.
Manufacturing Overhead
Indirect materials .............................. $0.30 per labour hour
Indirect labour ................................. $0.50 per labour hour
Utilities .......................................... $0.45 per labour hour
Maintenance .................................... $0.25 per labour hour
Salaries ............................................. $42,065 per month
Manufacturing Overhead
Depreciation ................................. $16,800 per month
Property taxes ................................. $2,400 per month
Insurance ....................................... $1,200 per month
Janitorial ....................................... $2,600 per month
Selling and Administrative
Variable selling and administrative costs per unit is $1.62.
Advertising ................... $15,000 a month
Depreciation ................... $2,500 a month
Insurance ....................... $1,400 a month
Other fixed costs ............. $3,000 a month
Salaries ....................... $72,000 a month
Other Information:
The Cash balance on March 31 will be $100,500, but Waterways has decided it would like to maintain a cash balance of at least $500,000 beginning on April 30. The company has an open line of credit with its bank. The terms of the agreement require borrowing to be in $1,000 increments at 3% interest. Borrowing is considered to be on the first day of the month and repayments are on the last day of the month.
In May, $845,000 of new equipment to update operations will be purchased.
Three months' insurance is prepaid on the first day of the first month of the quarter.
Instructions
For the second quarter of 2013:
(a) Prepare a sales budget.
(b) Prepare a schedule for expected cash collections from customers.
(c) Prepare a production budget.
(d) Prepare a direct materials budget.
(e) Prepare a schedule for expected payments for materials purchases.
(f) Prepare a direct labour budget.
(g) Prepare a manufacturing overhead budget.
(h) Prepare a selling and administrative budget.
(i) Prepare a schedule for expected payments for materials purchases.
Include supporting calculations?