Hansell Company's management wants to prepare budgets for one of its products, Duraflex, for July 2019. The firm sells the product for $84 per unit and has the following expected sales (in units) for these months in 2019:

 

April---- May----June----July----August----September 

4,600----5,800----5,900----6,800----7,800----7,200

 

The production process requires 4 pounds of Dura-1000 and 2 pounds of Flexplas. The firm's policy is to maintain an ending inventory each month equal to 10% of the following month's budgeted sales, but in no case less than 500 units. All materials inventories are to be maintained at 5% of the production needs for the next month, but not to exceed 1,000 pounds. The firm expects all inventories at the end of June to be within the guidelines. The purchases department expects the materials to cost $1.25 per pound and $5.00 per pound for Dura-1000 and Flexplas, respectively.

 

The production process requires direct labor at two skill levels. The rate for labor at the K102 level is $50 per hour and $20 per hour for the K175 level. The K102 level can process one batch of duraflex per hour; each batch consists of 100 units. The manufacturing of Duraflex also requires one-tenth of an hour of K175 workers' time for each unit manufactured.

 

Hansell Company expects its trial balance on June 30 to be as follows:

 

HANSELL COMPANY

Budgeted Trial 

Balance June 30, 2019 

 Debit Cash$44,000   

 Debit Accounts receivable 88,000    

Credit Allowance for bad debts   $3,900

Debit  Inventory 28,000    

Debit Plant, property, and equipment 728,000    

Credit Accumulated depreciation    358,400 

Credit Accounts payable    106,400 

Credit Wages and salaries payable    27,000 

Credit Note payable    225,000 

Credit Stockholders' equity    167,300 

 

Total Debit=$888,000  Credit=$888,000 

 

Typically, cash sales for Hansell represent 20% of sales while credit sales represent 80%. Credit sales terms by the company are 2/10, n/30. Hansell bills customers on the first day of the month following the month of sale. Experience has shown that 60% of the company's billings will be collected within the discount period, 25% by the end of the month after sales, 10% by the end of the second month after the sale, and 5% will ultimately be uncollectible. The company writes off uncollectible accounts after 12 months.

 

The purchase terms for materials are 2/15, n/60. Hansell makes all payments within the discount period. Experience has shown that 80% of the purchases are paid in the month of the purchase and the remainder are paid in the month immediately following. In June 2019, the firm budgeted purchases of $27,600 for Dura-1000 and $24,200 for Flexplas.

 

Variable manufacturing overhead is budgeted at $1,300 per batch (of 100 units) plus $80 per direct labor hour. In addition to variable overhead, the firm has a monthly fixed factory overhead of $55,200, of which $25,200 is depreciation expense. The firm pays all manufacturing labor and factory overhead when incurred.

 

Total budgeted marketing, distribution, customer service, and administrative costs for 2019 are $2,697,000. Of this amount, $1,350,000 is considered fixed and includes depreciation expense of $135,000. The remainder varies with sales. The budgeted total sales for 2019 are $4 million. All marketing and administrative costs are paid in the month incurred.

 

Management desires to maintain an end-of-month minimum cash balance of $44,000. The firm has an agreement with a local bank to borrow its short-term needs in multiples of $1,000 up to $100,000 at an annual interest rate of 12%. Borrowings are assumed to occur at the end of the month. Bank borrowing at July 1 is $0.

 

 

On the basis of the preceding data and projections, prepare the following budgets:

 

a. Sales budget for July (in dollars).

b. Production budget for July (in units).

c. Production budget for August (in units).

d. Direct materials purchases budget for July (in pounds).

e. Direct materials purchases budget for July (in dollars).

f. Direct manufacturing labor budget for July (in dollars).

 

Required:

Using the information presented above:

1. Prepare the cash budget for July 2019.

2. Prepare the budgeted income statement for July 2019. (Assume that the company uses a LIFO cost-flow assumption.)

Answer rating: 100% (QA)

To prepare the cash budget for July 2019 we need to consider the cash receipts and cash disbursements for the month Lets start by calculating the cash ... View the full answer