Question: Rand Co., a new startup business , is preparing their budget for the first quarter 2021 ending March 31. Budgeted sales of the companys only
Rand Co., a new startup business, is preparing their budget for the first quarter 2021 ending March 31.
Budgeted sales of the companys only product for the next five months are:
| January | 9,200 units |
| February | 5,600 units |
| March | 6,300 units |
| April | 3,700 units |
| May | 5,000 units |
The selling price is $81 per unit.
Prepare the following elements of the master budget for this problem:
SCHEDULE OF EXPECTED CASH COLLECTIONS
SCHEDULE OF EXPECTED CASH DISBURSEMENTS FOR MATERIAL
60% of a months purchases are paid for in the month of purchase; 40% is paid for in the following month.
No discounts are given for early payment.
The accounts payable balance on December 31 was $0.
DIRECT LABOR BUDGET
Each unit produced requires .65 hours of direct labor.
Each hour of direct labor costs the company $11.80.
Management fully adjusts the workforce to the workload each month.
MANUFACTURING OVERHEAD BUDGET
Variable manufacturing overhead is $3.75 per direct labor-hour.
Fixed manufacturing overhead is $113,000 per month. This includes $6,500 in depreciation, which is not a cash outflow.
ENDING FINISHED GOODS INVENTORY BUDGET
Rand Co., a new startup business, uses absorption costing in its budgeted income statement and balance sheet.
Manufacturing overhead is applied to units of product on the basis of direct labor-hours.
The company has no work in process inventories.
SELLING AND ADMINISTRATIVE EXPENSE BUDGET
Variable selling and administrative expenses are $1.80 per unit sold.
Fixed selling and administrative expenses are $88,500 per month and include $16,500 in depreciation.
CASH BUDGET
1. A line of credit is available at a local bank.
a. All borrowing occurs at the beginning of the month, and all repayments occur at the end of the month. Borrowing occurs in increments of $1,000.
b. Any interest incurred during the first quarter will be paid at the end of the quarter. The interest rate is 18% per year.
2. Rand Co., a new startup business, desires a cash balance of at least $30,000 at the end of each month. The cash balance at the beginning of January was $18,000.
3. Cash dividends of $18,000 are to be paid to stockholders in February.
4. Equipment purchases of $169,000 are scheduled for January and $376,000 for February. This equipment will be installed and tested during the first quarter and will not become operational until April, when depreciation charges will commence.
Additional Information:
The following balances exist on January 1:
Land $300,000
Equipment $162,000
Common Stock $480,000
Required:
6. What is the estimated finished goods inventory balance at the end of March?
7 What is the estimated cost of goods sold and gross margin for March?
8. What is the estimated total selling and administrative expense for February?
9. What is the estimated net operating income for March?
10. What is the estimated retained earnings balance for March?
| Rand Co. | ||
| Answer 1 | February | Note |
| Monthly Sales units | 5,600.00 | A |
| Sell price per unit | 81.00 | B |
| Budgeted Sales for February | 453,600.00 | C=A*B |
| Workings for answer 2 and 3 | January | February | March | Total | Note |
| Monthly Sales units | 9,200.00 | 5,600.00 | 6,300.00 | D | |
| Sell price per unit | 81.00 | 81.00 | 81.00 | E | |
| Budgeted Sales Revenue | 745,200.00 | 453,600.00 | 510,300.00 | 1,709,100.00 | F=D*E |
| Answer 2 | February |
| Expected cash collections for February | 555,660.00 |
| Answer 3 | March |
| Accounts receivable balance at the end of March | 178,605.00 |
| Workings for answer 4 | January | February | March | April | Note |
| Next month's sales | 5,600.00 | 6,300.00 | 3,700.00 | 5,000.00 | G |
| Ratio of inventory to future sales | 18% | 18% | 18% | 18% | H |
| Budgeted ending inventory (units) | 1,008.00 | 1,134.00 | 666.00 | 900.00 | I=G*H |
| Add: Monthly Sales (Units) | 9,200.00 | 5,600.00 | 6,300.00 | 3,700.00 | J |
| Required units of available production | 10,208.00 | 6,734.00 | 6,966.00 | 4,600.00 | K=I+J |
| Less: Opening | - | 1,008.00 | 1,134.00 | 666.00 | L= I of previous month. For January its 0. |
| Units to be produced | 10,208.00 | 5,726.00 | 5,832.00 | 3,934.00 | M |
| Materials purchases budget | January | February | March | April | |
| Units to be produced | 10,208.00 | 5,726.00 | 5,832.00 | 3,934.00 | See M |
| Material required per unit | 6.50 | 6.50 | 6.50 | 6.50 | N |
| Material required for production | 66,352.00 | 37,219.00 | 37,908.00 | 25,571.00 | O=M*N |
| Add: Closing | 4,466.28 | 4,548.96 | 3,068.52 | P= 12% of O of next month. | |
| Total material required | 70,818.28 | 41,767.96 | 40,976.52 | ||
| Less: Opening | - | 4,466.28 | 4,548.96 | Q= 12% of O of same month. For January its 0. | |
| Material to be purchased (pounds) | 70,818.00 | 37,302.00 | 36,428.00 | R |
| Answer 4 | February | Note |
| Material to be purchased (pounds) | 37,302.00 | See R |
| Material price per pound | 0.58 | S |
| Estimated cost of raw materials purchases for February | 21,635.00 | T=R*S |
| Answer 5 | March | |
| Material to be purchased (pounds) | 36,428.00 | See R |
| Material price per pound | 0.58 | See S |
| Estimated cost of raw materials purchases for March | 21,128.00 | U=R*S |
| 40% of March month purchases | 8,451.20 | V=U*40% |
| Estimated accounts payable balance at the end of March | 8,451.20 | See V |
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