- Sales: quarter 1, 40,000 bags; quarter 2, 56,000 bags. Selling price is $60 per bag.
- Direct materials: each bag of Snare requires 4 pounds of Gumm at a cost of $3.80 per pound and 6 pounds of Tarr at $1.50 per pound.
- Desired inventory levels:
Type of Inventory January 1 April 1 July 1 Snare (bags) 8,000 15,000 18,000 Gumm (pounds) 9,000 10,000 13,000 Tarr (pounds) 14,000 20,000 25,000 - Direct labor: direct labor time is 15 minutes per bag at an hourly rate of $16 per hour.
- Selling and administrative expenses are expected to be 15% of sales plus $175,000 per quarter.
- Interest expense is $100,000.
- Income taxes are expected to be 30% of income before income taxes.
| January | February | |
| Sales | $360,000 | $400,000 |
| Direct materials purchases | 120,000 | 125,000 |
| Direct labor | 90,000 | 100,000 |
| Manufacturing overhead | 70,000 | 75,000 |
| Selling and administrative expenses | 79,000 | 85,000 |
All sales are on account. Collections are expected to be 50% in the month of sale, 30% in the first month following the sale, and 20% in the second month following the sale. Sixty percent (60%) of direct materials purchases are paid in cash in the month of purchase, and the balance due is paid in the month following the purchase. All other items above are paid in the month incurred except for selling and administrative expenses that include $1,000 of depreciation per month.
Other data
- Credit sales: November 2020, $250,000; December 2020, $320,000.
- Purchases of direct materials: December 2020, $100,000.
- Other receipts: January-collection of December 31, 2020, notes receivable $15,000, February-proceeds from sale of securities $6,000.
- Other disbursements: February-payment of $6,000 cash dividend.
The company's cash balance on January 1, 2021, is expected to be $60,000. The company wants to maintain a minimum cash balance of $50,000.
Instructions
- Prepare schedules for (1) expected collections from customers and (2) expected payments for direct materials purchases for January and February.
- Prepare a cash budget for January and February in columnar form
| Department | Quarter 1 | Quarter 2 | Quarter 3 | Quarter 4 |
| Auditing | 2,300 | 1,600 | 2,000 | 2,400 |
| Tax | 3,000 | 2,200 | 2,000 | 2,500 |
| Consulting | 1,500 | 1,500 | 1,500 | 1,500 |
Average hourly billing rates are auditing $80, tax $90, and consulting $110.
Instructions
Prepare the service revenue (sales) budget for 2020 by listing the departments and showing for each quarter and the year in total, billable hours, billable rate, and total revenue.
| Month | Units | Month | Units |
| January | 10,000 | March | 5,000 |
| February | 8,000 | April | 4,000 |
Each unit requires 2 pounds of raw materials costing $3 per pound. On December 31, 2020, the ending raw materials inventory was 4,000 pounds. Management wants to have a raw materials inventory at the end of the month equal to 20% of next month's productions requirements
Instructions
Prepare a direct materials purchases budget by month for the first quarter.