The facts and figures relating to Irrigation Corporation are as follows. Irrigation Corporation produces plastic garden sprinklers. The company is preparing its budget for 2016.
The first step is to plan for the first quarter of that coming year. Irrigation has collected the following information from the managers.
1. Sales:
Sales for November 2014 112,500 units
Sales for December 2014 102,100 units
Expected sales for January 2015 113,000 units
Expected sales for February 2015 112,500 units
Expected sales for March 2015 116,000 units
Expected sales for April 2015 125,000 units
Expected sales for May 2015 137,500 units
Selling price per unit $12
Irrigation likes to keep 10% of next month's unit sales in ending inventory. All sales are on credit. 85% of the accounts receivable are collected in the month of sale and 15% of the accounts receivable are collected in the month after sale. Accounts receivable on December 31, 2015, totaled $183,780.
2. Direct Materials:
2 pounds of direct materials is needed to produce one unit. Irrigation likes to keep 5% of the materials needed for the next month's production in its ending inventory. Raw materials on hand on December 31, 2015, totaled 11,295 pounds.
Payment for materials is made within 15 days. 50% is paid in the month of purchase, and 50% is paid after the month of purchase. Accounts payable on December 31, 2015, totaled $120,595.
3. Direct Labor
Labor requires 12 minutes per unit for completion and is paid at a rate of $8 per hour.
4. Manufacturing Overhead
Indirect materials $0.30 per labor hour
Indirect labor $0.50 per labor hour
Utilities $0.45 per labor hour
Maintenance $0.25 per labor hour
Factory supervisor's salary $42,000 per month
Factory Depreciation $16,800 per month
Property taxes $ 2,675 per month
Insurance $ 1,200 per month
Repairs $ 1,300 per month
5. Selling and Administrative expenses
Salaries $72,000 per month
Advertising $15,000 per month
Insurance $ 1,400 per month
Office Depreciation $ 2,500 per month
Other fixed costs $ 3,000 per month
6. Other Information
The cash balance on December 31, 2015, totaled $100,500, but management has decided it would like to maintain a cash balance of at least $800,000 beginning on January 31, 2016.
Dividends are paid each month @ $2.50 per share for 5,000 shares.
The company has an open line of credit with national Bank. The terms of the agreement require borrowing to be in the increments of $1,000, and the interest rate is 8%. Irrigation borrows on the first day of the month and repays on the last day of the month if possible.
A $500,000 equipment purchase is planned for February 2016.
Instructions:
1. This group project requires the use of EXCEL spreadsheets to prepare various budgets for a manufacturing company.
2. The class is asked to form groups of not more than 4 students and allocate the task among them equitably.
3. All the members of the group must contribute to the effort and share the overall task, equitably.
4. The group should PREPAREthe following documents for the first quarter (January, February & March) of 2016 by using a MS EXCEL spreadsheet:
(a) Sales Budget
(b) Production Budget
(c) Direct Materials Purchase Budget
(d) Direct Labor Budget
(e) Manufacturing Overhead Budget
(f) Selling and Administration Budget
(g) Schedule of expected cash collections from customers
(h) Schedule for expected cash payments for materials purchases
(i) A Cash Budget.