Prepare a contribution margin income statement.

Prepare a narrative report explaining how the expenses on the income statement were determined.

Prepare a cash budget. Be sure that you show all cash inflows and outflows.

Prepare a narrative report explaining your cash budget process.

Harvey Manufacturing manufactures and sells two industrial products: a self-balancing screw driver and a self- balancing saw. Both products are manufactured in a single plant. Harvey's general manager, Mr. Lipscomb, and president, Mr. Owens, want a budget prepared for each quarter of the fiscal year 2018. They have asked various employees to gather information that they believe will be necessary for preparation of a budget. The information is presented below. Neither Mr. Lipscomb nor Mr. Owens is skilled in budget preparation. Both executives have used budgets and have participated to some degree in budget preparation in prior years, but neither has prepared a full budget. Sales in units and selling price (SP) in dollars per unit Historical sales for 2017 for each of the two products are shown below. (There is a typo in the budget, 2012. Please replace with 2017.) SP 120 122 125 Product Sales for 2012 Screwdriver Saws Units SP Units 20,100 98 13,500 20,000 98 13,000 19,900 13,500 19,000 100 12,000 21,500 100 13,000 22,000 102 14,000 22,000 102 15,000 20,000 102 14,500 19,500 13,500 | 19,000 100 13,000 19,000 100 12,500 18,000 100 12,500 125 January February March April May June July August September October November December 130 130 100 130 125 125 125 125 Harvey's sales typically peak in the summer months, beginning with May. Harvey's general manager, Mr Lipscomb, recommends that the budget be prepared with the units sold in the high sales months of May, June, and July be used as the bases for determining the annual forecast. Mr. Lipscomb's recommendation is that annual sales be budgeted at 22,000 units per month for screwdrivers and 15,000 units per month for saws. Mr. Lipscomb also believes that the budgeted selling price per unit should be equal to the highest selling price that could be achieved in 2017. He would like to budget $102 per unit for screwdrivers and $130 per unit for saws. Mr. Lipscomb states that his management team experimented with pricing in the prior year, beginning with the first month of the year. Production Requirements Each unit produced requires the following materials, labor, and overhead, all of which is variable. The company applies variable overhead on the basis of direct labor hours. Standard costs per unit Units 5 Direct materials Metal Plastic Handles Screwdrivers Unit cost lbs 8.00 5.00 unit 3.00 Cost 40.00 15.00 3.00 58.00 Units 4 3 Saws Unit cost 8.00 5.00 lbs lbs Cost 32.00 15.00 Ibs 47.00 Direct labor Variable manufacturing OH Total 2 2 hrs hrs 24.00 3.00 85.00 hrs hrs 16.00 1.50 1.50 48.00 4.50 99.50 Inventories are listed below. The beginning inventories are the actual amounts on hand at the beginning of the year. The ending inventories shown are the amounts that the operations manager has determined to be necessary to ensure smooth production processes in the following quarter. | Inventories Screwdrivers, finished Saws, finished Metal Plastic Handles First Quarter Beginning Ending 20,000 25,000 8,000 10,000 32,000 36,000 29,000 32,000 6,000 7,000 Other information - Fixed manufacturing overhead Fixed manufacturing overhead is $214,000, including $156,000 of non-cash expenditures. Fixed manufacturing overhead is allocated on total units produced. -Beginning cash is $1,800,000. -Sales are on credit. Sales are collected 50 percent in the current period and the remainder in the next period. There are no bad debts. -Sales for the last quarter were $8,400,000. -Purchases for direct materials and labor costs are paid for in the quarter acquired. -Manufacturing overhead expenses are paid in the quarter incurred. -Selling and administrative expenses are all fixed and are paid in the quarter incurred. Estimated selling and administrative expenses for the next period are $340,000 per quarter, including $90,000 of depreciation. Harvey Manufacturing manufactures and sells two industrial products: a self-balancing screw driver and a self- balancing saw. Both products are manufactured in a single plant. Harvey's general manager, Mr. Lipscomb, and president, Mr. Owens, want a budget prepared for each quarter of the fiscal year 2018. They have asked various employees to gather information that they believe will be necessary for preparation of a budget. The information is presented below. Neither Mr. Lipscomb nor Mr. Owens is skilled in budget preparation. Both executives have used budgets and have participated to some degree in budget preparation in prior years, but neither has prepared a full budget. Sales in units and selling price (SP) in dollars per unit Historical sales for 2017 for each of the two products are shown below. (There is a typo in the budget, 2012. Please replace with 2017.) SP 120 122 125 Product Sales for 2012 Screwdriver Saws Units SP Units 20,100 98 13,500 20,000 98 13,000 19,900 13,500 19,000 100 12,000 21,500 100 13,000 22,000 102 14,000 22,000 102 15,000 20,000 102 14,500 19,500 13,500 | 19,000 100 13,000 19,000 100 12,500 18,000 100 12,500 125 January February March April May June July August September October November December 130 130 100 130 125 125 125 125 Harvey's sales typically peak in the summer months, beginning with May. Harvey's general manager, Mr Lipscomb, recommends that the budget be prepared with the units sold in the high sales months of May, June, and July be used as the bases for determining the annual forecast. Mr. Lipscomb's recommendation is that annual sales be budgeted at 22,000 units per month for screwdrivers and 15,000 units per month for saws. Mr. Lipscomb also believes that the budgeted selling price per unit should be equal to the highest selling price that could be achieved in 2017. He would like to budget $102 per unit for screwdrivers and $130 per unit for saws. Mr. Lipscomb states that his management team experimented with pricing in the prior year, beginning with the first month of the year. Production Requirements Each unit produced requires the following materials, labor, and overhead, all of which is variable. The company applies variable overhead on the basis of direct labor hours. Standard costs per unit Units 5 Direct materials Metal Plastic Handles Screwdrivers Unit cost lbs 8.00 5.00 unit 3.00 Cost 40.00 15.00 3.00 58.00 Units 4 3 Saws Unit cost 8.00 5.00 lbs lbs Cost 32.00 15.00 Ibs 47.00 Direct labor Variable manufacturing OH Total 2 2 hrs hrs 24.00 3.00 85.00 hrs hrs 16.00 1.50 1.50 48.00 4.50 99.50 Inventories are listed below. The beginning inventories are the actual amounts on hand at the beginning of the year. The ending inventories shown are the amounts that the operations manager has determined to be necessary to ensure smooth production processes in the following quarter. | Inventories Screwdrivers, finished Saws, finished Metal Plastic Handles First Quarter Beginning Ending 20,000 25,000 8,000 10,000 32,000 36,000 29,000 32,000 6,000 7,000 Other information - Fixed manufacturing overhead Fixed manufacturing overhead is $214,000, including $156,000 of non-cash expenditures. Fixed manufacturing overhead is allocated on total units produced. -Beginning cash is $1,800,000. -Sales are on credit. Sales are collected 50 percent in the current period and the remainder in the next period. There are no bad debts. -Sales for the last quarter were $8,400,000. -Purchases for direct materials and labor costs are paid for in the quarter acquired. -Manufacturing overhead expenses are paid in the quarter incurred. -Selling and administrative expenses are all fixed and are paid in the quarter incurred. Estimated selling and administrative expenses for the next period are $340,000 per quarter, including $90,000 of depreciation