LBL Corporation is preparing its master budget for the first quarter of the upcoming year. The following contains detail on LBL's operations necessary for their master budget:
• Sales Information:
o Actual / Projected Sales are as follows:
- December (Prior Year; Actual): $70,000
- January (Estimated): $80,000
- February (Estimated): $92,000
- March (Estimated): $99,000
- April (Estimated): $97,000
- May (Estimated): $85,000
o Units are sold at $10 each
o Sales in a month are paid in cash for 30% and on credit for the remainder with credit collection occurring in the month following the sale.
HINT: To help you with several budgets, you will need sales in UNITS (not total dollars as listed above). You can calculate the number of sales units by taking the total sales / sales price per unit.
• Partial balance sheet as of 12/31 of the prior year:
o Cash $4,500
o A/R, net $49,000
o Inventory $15,600
o PP&E $120,000
o A/P $42,400
o Capital Stock $125,500
o Retained Earnings $23,000
HINT: You may not need all this information.
• LBL plans to produce enough units for sales expected in the period as well as have a cushion in ending finished goods inventory of 25% of the following month's sales units expected.
• Direct Materials:
o Two square feet of materials are needed to create each unit.
o When LBL purchases raw materials, they pay 20% in the month of purchase and the rest the following month. The cost is $2.00 per square foot of material.
o Management wants ending inventory to be equal to 15% of next month's production needs.
HINT: Direct materials are the only thing that LBL pays for, in part, in the following month. All other expenses are paid for in the month they occur. Therefore, the balance for A/P is for raw materials.
• Direct Labor:
o There is little DL necessary at LBL with only 0.01 direct labor hours needed per unit.
o Labor costs are paid in the month incurred at a rate of $11 per hour.
• Other Manufacturing Costs:
o Variable overhead costs $1.20 per unit.
o LBL pays plant rent at a steady rate of $5,000 per month and $3,000 per month for all other fixed manufacturing costs. For the units expected for the year, fixed overhead costs are $0.80 per unit.
o All expenses are paid in the period incurred, and the above costs do not include depreciation.
• Capital Expenditures: New computer equipment will be phased into LBL's admin offices over the next year with first quarter purchases as follows: January: $15,000, February: $11,000, and March: $16,000.
• Operating Expenses:
o Budgeted costs are $1.00 per unit.
o Depreciation for the admin office's buildings/equipment is estimated at $4,400 for the quarter.
o Additionally, they pay $1,000 for fixed operating expenses per month
• Financing:
o LBL wants cash to be at a minimum balance of $4,000 each month.
o In case of a cash shortage, they have a line of credit with a bank for up to $50,000, which is borrowed and repaid in $1,000 increments. Simple interest applies to borrowed amounts at 1% per month outstanding with accumulated interest paid at the end of each quarter for any borrowed amounts throughout the period. If the company has surplus cash beyond the minimum balance required in a month, it would repay as much of any outstanding loans as possible without violating its minimum balance policy.
HINT: For the financing portion, the company must borrow $19,000 in January and $4,000 in February, but they can pay a portion of this back ($7,000) in March as well as $650 in interest costs.
• Taxes:
o The current applicable tax rate is 30%.
o While taxes are incurred each month of operations, it is paid quarterly with a $10,000 payment expected in February only.
Homework Required: Using the information above, prepare the following budgets for the first quarter (January, February, March AND a
Quarter total, where applicable) in Excel:
1. Sales budget
2. Production budget
3. Direct material budget
4. Schedule of cash collections
5. Cash payments for:
a. Direct material purchases (based off of purchases found in requirement 3. above)
b. Direct labor
c. Manufacturing overhead
d. Operating expenses
Create a separate budget for each cash payments budget listed above.
6. Combined cash budget
HINT: Many of the items on here will come from previous budgets you created in 1-5 above.
7. Budgeted manufacturing overhead per unit (HINT: There is no time period/monthly budget needed for this)
HINT: The Fixed MOH per unit was given to you.
8. Budgeted income statement for the quarter ending March 31 (Hint 1: This is a quarterly statement, so you do not need to do each month but rather a combined statement for January 1 through March 31; Hint 2: The COGS amount is found, in part, by using the COGS per unit you find in budget 7. above).