1. Sales forecast: January: 1,100 units; February: 1,500 units; March: 2,300 units; April: 2,500 units. The unit sales price is $38. All sales are on credit and collections are 30% in the month of sale and 70% the following month. Accounts receivable as of December 31, 2014 is $15,900 and this amount is expected to be collected in January 2015.
2. End of month inventory must equal 70% of next month’s sales. The inventory at the end of December 2014 was 1,200 units.
3. The following are the expected costs for direct materials, direct labor and manufacturing overhead:
DM DL Overhead
January $8/unit $15/unit $7,500 + $1.00 per unit produced
February $8/unit $15/unit $7,500 + $1.00 per unit produced
March $8/unit $15/unit $7,500 + $1.00 per unit produced
A. Direct materials are paid 20% in the month incurred and 80% in the following month.
Account payable for materials as of December 31, 2014 is $5,000; this amount will be paid in January 2015.
B. Direct labor is paid in the month incurred.
C. Overhead costs are paid in the month incurred. Fixed overhead includes depreciation of $2,500 per month.
4. Selling costs are sales commissions: $.50 per unit sold; shipping costs: $.20 per unit sold. Administrative costs per month are: salaries: $1,500; rent: $500; depreciation: $800. All costs are paid in month incurred.
5. The company plans to buy equipment costing $10,000 in January.
6. The cash balance as of December 31, 2014 is $10,550. The company borrows money only if the cash balance falls below $2,000 at the end of the month. The company has a revolving credit with US Bank to borrow in increments of $1,000 at the beginning of each month at interest of 12% annual rate. The company repays interest at the end of each month and principle (or portion) at the end of the month when they have the resources to do so. As of December 31, 2014 the company has no outstanding loans.
Required:
Based on the information given, prepare the following budgets for each month of the first quarter of 2015 and the quarter totals:
Sales Budget, including a schedule of expected cash collections;
Production Budget (in units);
Direct material , including schedule of expected cash disbursements;
Direct labor budget;
Manufacturing Overhead Budget;
Selling and Administrative Expenses Budget;
Cash Budget.