ABC, Inc., manufactures kitchen tiles. The following information is available:
Beginning cash balance for May is $500,000
The company budgeted sales at 600,000 units per month in April, June, and July and at 450,000 units in May. The selling price is $4 per unit. All sales are cash sales. That is, customers must pay ABC, Inc. before the tiles are shipped to the customer
The inventory of finished goods on April 1 was 120,000 units. The finished goods inventory at the end of each month equals 20 percent of sales anticipated for the following month. There is no work in process.
The inventory of raw materials on April 1 was 57,000 pounds. At the end of each month, the raw materials inventory equals no less than 40 percent of production requirements for the following month.
Selling expenses are 10 percent of gross sales. Administrative expenses, which include depreciation of $2,500 per month on office furniture and fixtures, total $165,000 per month.
The manufacturing budget for tiles, based on normal production of 500,000 units per month, follows:
Required
1. Prepare schedules computing inventory budgets by months for:
a. Production in units for April, May, and June.
b. Raw materials purchases in pounds for April and May.
2. Prepare a Projected Operating Income Statement for May.
3. Prepare a Cash Budget for May. ABC, Inc. pays cash for all purchases.
4. Prepare a Flexible Budget for 400,000 units of sale for May.