Problem $20-4$B

Manufacturing: Preparation of a complete master budget

P$\_(1)$P$\_(2)$P$\_(3)$

The management of Nabar Manufacturing prepared the following balance sheet for June $30.$

NABAR MANUFACTURING

Balance Sheet

June $30$ To prepare a master budget for July, August, and September, use the following information.

a$.$ Sales were $20,000$ units in June. Budgeted sales in units follow: July, $21,000$; August, $19,000$; September, $20,000$; and October,

$24,000.$ The product's selling price is $$17$ per unit and its total product cost is $$14\mathrm{.}35$ per unit.

b$.$ Company policy calls for a given month's ending finished goods inventory to equal $70\%$ of the next month's budgeted unit sales.

The June $30$ finished goods inventory is $16,800$ units.

c$.$ Raw materials inventory consists solely of direct materials that cost $$8$ per pound. Company policy calls for a given month's ending

materials inventory to equal $20\%$ of the next month's direct materials requirements. The June $30$ raw materials inventory is $4,375$

pounds. The budgeted September $30$ ending raw materials inventory is $1,980$ pounds. Each finished unit requires $0\mathrm{.}50$ pound of

direct materials.

d$.$ Each finished unit requires $0\mathrm{.}50$ hour of direct labor at a rate of $$16$ per hour.

e$.$ The predetermined variable overhead rate is $$2\mathrm{.}70$ per direct labor hour. Depreciation of $$20,000$ per month is the only fixed

factory overhead item.

f$.$ Monthly general and administrative expenses include $$9,000$ administrative salaries and $0\mathrm{.}9\%$ monthly interest on the long$-$term

note payable.

g$.$ Sales commissions of $10\%$ of sales are paid in the month of the sales. The sales manager's monthly salary is $$3,500.$

h$.$ The company budgets $30\%$ of sales to be for cash and the remaining $70\%$ on credit. Credit sales are collected in full in the month

following the sale $($no credit sales are collected in the month of sale$).$

i$.$ All raw materials purchases are on credit, and accounts payable are solely tied to raw materials purchases. Raw materials

purchases are fully paid in the next month $($none are paid in the month of purchase$).$

j$.$ Dividends of $$20,000$ are budgeted to be declared and paid in August.

k$.$ Income Taxes Payable at June $30$ are budgeted to be paid in July. Income tax expense will be assessed at $35\%$ in the quarter and

budgeted to be paid in October.

Equipment purchases of $$100,000$ are budgeted for the last day of September.

m$.$ The minimum ending cash balance for all months is $$40,000.$ If necessary, the company borrows enough cash using a loan to reach the minimum. Loans require an interest payment of $1\%$ at each month$-$end $($before any repayment$).$ If the month$-$end preliminary cash balance exceeds the minimum, the excess will be used to repay any loans.

Required

Prepare the following budgets for the months of July, August, and September, except as noted below.

Cash budget.

Budgeted income statement for entire quarter $($not monthly$).$

Budgeted balance sheet at September $30.$