Question: Cash budgeting, budgeted balance sheet. Refer to the information in Problem. Budgeted balances at January 31, 2018 are as follows:
Customer invoices are payable within 30 days. From past experience, Skulas's accountant projects 40% of invoices will be collected in the month invoiced, and 60% will be collected in the following month. Accounts payable relates only to the purchase of direct materials. Direct materials are purchased on credit with 50% of direct materials purchases paid during the month of the purchase, and 50% paid in the month following purchase. Fixed manufacturing overhead costs include $64,000 of depreciation costs and fixed nonmanufacturing overhead costs include $10,000 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, Skulas's board of directors voted to pay a $160,000 dividend to stockholders on January 31, 2018.
1. Prepare a cash budget for January 2018. Show supporting schedules for the calculation of collection of receivables and payments of accounts payable, and for disbursements for fixed manufacturing and nonmanufacturing overhead.
2. Skulas is interested in maintaining a minimum cash balance of $120,000 at the end of each month. Will Skulas be in a position to pay the $160,000 dividend on January 31?
3. Why do Skulas's managers prepare a cash budget in addition to the revenue, expenses, and operating income budget?
4. Prepare a budgeted balance sheet for January 31, 2018 by 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.
Problem: Comprehensive operating budget. Skulas, Inc., manufactures and sells snowboards. Skulas manufactures a single model, the Pipex. In late 2017, Skulas's management accountant gathered the following data to prepare budgets for January 2018:
Skulas's CEO expects to sell 2,900 snowboards during January 2018 at an estimated retail price of $650 per board. Further, the CEO expects 2018 beginning inventory of 500 snowboards and would like to end January 2018 with 200 snowboards in stock.
Variable manufacturing overhead is $7 per direct manufacturing labor-hour. There are also $81,000 in fixed manufacturing overhead costs budgeted for January 2018. Skulas 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 $250 per sales visit. The marketing plan calls for 38 sales visits during January 2018. Finally, there are $35,000 in fixed nonmanufacturing costs budgeted for January 2018. Other data include:
The inventoriable unit cost for ending finished-goods inventory on December 31, 2017, is $374.80. Assume Skulas uses a FIFO inventory method for both direct materials and finished goods. Ignore work in process in your calculations.
1. Prepare the January 2018 revenues budget (in dollars).
2. Prepare the January 2018 production budget (in units).
3. Prepare the direct material usage and purchases budgets for January 2018.
4. Prepare a direct manufacturing labor costs budget for January 2018.
5. Prepare a manufacturing overhead costs budget for January 2018.
6. What is the budgeted manufacturing overhead rate for January 2018?
7. What is the budgeted manufacturing overhead cost per output unit in January 2018?
8. Calculate the cost of a snowboard manufactured in January 2018.
9. Prepare an ending inventory budget for both direct materials and finished goods for January 2018.
10. Prepare a cost of goods sold budget for January 2018.
11. Prepare the budgeted income statement for Skulas, Inc., for January 2018.
12. What questions might the CEO ask the management team when reviewing the budget? Should the CEO set stretch targets? Explain briefly.
13. How does preparing the budget help Skulas's management team better manage the company?