Skors, Inc., manufactures and sells snowboards. Skors manufactures a single model, the Pipex. In late 2017, Skors's
Question:
Skors, Inc., manufactures and sells snowboards.
Skors manufactures a single model, the Pipex. In late 2017, Skors's management accountant gathered the following data to prepare budgets for January 2018:
Budgeted balances at January 31, 2018 are as follows: | |||
Cash | ? | ||
Accounts receivable | ? | ||
Inventory | ? | ||
Property, plant, and equipment (net) | $853,000 | ||
Accounts payable | ? | ||
Long-term liabilities | 181,000 | ||
Stockholders' equity | ? | ||
Selected budgeted information for December 2017 follows: | |||
Cash balance, December 31, 2017 | $13,000 | ||
Budgeted sales | 1,780,000 | ||
Budgeted materials purchases | 610,000 | ||
Customer invoices are payable within 30 days. From past experience, Skors's accountant projects 45% of invoices will be collected in the month invoiced, and
55% will be collected in the following month. Accounts payable relates only to the purchase of direct materials. Direct materials are purchased on credit with 35%
of direct materials purchases paid during the month of the purchase, and 65% paid in the month following purchase. Fixed manufacturing overhead costs include
$31,000 of depreciation costs and fixed nonmanufacturing overhead costs include $11,000 of depreciation costs. Direct manufacturing labor and the remaining manufacturing and nonmanufacturing overhead costs are paid monthly.
All property, plant, and equipment acquired during January 2018 were purchased on credit and did not entail any outflow of cash. There were no borrowings or repayments with respect to long-term liabilities in January 2018.
On December 15, 2017, Skors's board of directors voted to pay a $195,000 dividend to stockholders on January 31, 2018.
Variable manufacturing overhead is $9 per direct manufacturing labor-hour. There are also $55,000 in fixed manufacturing overhead costs budgeted for January 2018.
Skors combines both variable and fixed manufacturing overhead into a single rate based on direct manufacturing labor-hours. Variable marketing costs are allocated at the rate of $280 per sales visit. The marketing plan calls for 37 sales visits during January 2018.
Finally, there are $34,000 in fixed nonmanufacturing costs budgeted for January 2018.
Materials and Labor Requirements | ||
Direct materials | ||
Wood | 10 | board feet (b.f.) per snowboard |
Fiberglass | 8 | yards per snowboard |
Direct manufacturing labor | 5 | hours per snowboard |
Skors' CEO expects to sell 2,000 snowboards during January 2018 at an estimated retail price of $650 per board. Further, the CEO expects 2018 beginning inventory of 300 snowboards and would like to end January 2018 with 500 snowboards in stock.
Direct Materials Inventories | ||||
Beginning Inventory 1/1/2018 | Ending Inventory 1/31/2018 | |||
Wood | 2,030 | b.f. | 1,530 | b.f. |
Fiberglass | 1,030 | yards | 2,030 | yards |
Other data include:
2017 Unit Price | 2018 Unit Price | |||
Wood | $31.00 | per b.f. | $33.00 | per b.f. |
Fiberglass | $7.00 | per yard | $8.00 | per yard |
Direct manufacturing labor | $27.00 | per hour | $28.00 | per hour |
The inventoriable unit cost for ending finished-goods inventory on December 31, 2017, is $300.00. Assume Skors uses a FIFO inventory method for both direct materials and finished goods. Ignore work in process in your calculations.
Revenue Budget | ||||||
For January 2018 | ||||||
Units | Selling price | Total revenues | ||||
Snowboards | 2,000 | $650 | $1,300,000 | |||
Direct Materials Purchases Budget | ||||||
For January 2018 | ||||||
Materials | ||||||
Wood | Fiberglass | Total | ||||
Physical Units Budget | ||||||
To be used in production | 22,000 | b.f. | 17,600 | yards | ||
Add target ending inventory | 1,530 | b.f. | 2,030 | yards | ||
Total requirement | 23,530 | b.f. | 19,630 | yards | ||
Deduct beginning inventory | 2,030 | b.f. | 1,030 | yards | ||
Purchases to be made | 21,500 | b.f. | 18,600 | yards | ||
Cost Budget | ||||||
Purchases | $709,500 | $148,800 | $858,300 | |||
Direct Manufacturing Labor Costs Budget | |||||||||
For January 2018 | |||||||||
Output Units | DMLH | Total | Hourly | ||||||
Produced | per Unit | Hours | Wage Rate | Total | |||||
Snowboards | 2,200 | 5 | 11,000 | $28 | $308,000 | ||||
Total labor hours | x | Variable manufacturing overhead rate | = | Variable manufacturing overhead costs |
11,000 | x | 9 | = | $99,000 |
Ending Inventories Budget | ||||||
For January 2018 | ||||||
Quantity | Cost per unit | Total | ||||
Direct materials | ||||||
Wood | 1,530 | $33 | $50,490 | |||
Fiberglass | 2,030 | 8 | 16,240 | |||
Finished goods | ||||||
Snowboard | 500 | $604 | 302,000 | |||
Total ending inventory | $368,730 | |||||
1. | Prepare a cash budget for January 2018. Show supporting schedules for the calculation of collection of receivables and payments of accountspayable, and for disbursements for fixed manufacturing and nonmanufacturing overhead. |
2. | Skors is interested in maintaining a minimum cash balance of $135,000 at the end of each month. Will Skors be in a position to pay the $195,000 dividend on January 31? |
3. | Why do Skors'smanagers prepare a cash budget in addition to therevenue, expenses, and operating income budget? |
4. | Prepare a budgeted balance sheet for January 31, 2018by calculating the January 31, 2018 balances in (a) cash (b) accounts receivable (c) inventory(d) accounts payable and (e) plugging in the balance for stockholders' equity. |
