The management of Zigby Manufacturing prepared the following balance sheet for March 31. ZIGBY MANUFACTURING Balance Sheet March 31 Assets Liabilities and Equity Cash $ 104,000 Liabilities Accounts receivable 895,440 Accounts payable $ 522,600 Raw materials inventory 256,100 Loan payable 12,000 Finished goods inventory 846,404 Long-term note payable 1,300,000 $ 1,834,600 Equipment $ 1,560,000 Equity Less: Accumulated depreciation 390,000 1,170,000 Common stock 871,000 Retained earnings 566,344 1,437,344 Total assets $ 3,271,944 Total liabilities and equity $ 3,271,944 To prepare a master budget for April, May, and June, management gathers the following information. Sales for March total 53,300 units. Budgeted sales in units follow: April, 53,300; May, 50,700; June, 52,000; and July, 53,300. The product’s selling price is $24.00 per unit and its total product cost is $19.85 per unit. Raw materials inventory consists solely of direct materials that cost $20 per pound. Company policy calls for a given month’s ending materials inventory to equal 50% of the next month’s direct materials requirements. The March 31 raw materials inventory is 12,805 pounds. The budgeted June 30 ending raw materials inventory is 10,400 pounds. Each finished unit requires 0.50 pound of direct materials. Company policy calls for a given month’s ending finished goods inventory to equal 80% of the next month’s budgeted unit sales. The March 31 finished goods inventory is 42,640 units. Each finished unit requires 0.50 hour of direct labor at a rate of $15 per hour. The predetermined variable overhead rate is $2.70 per direct labor hour. Depreciation of $52,000 per month is the only fixed factory overhead item. Sales commissions of 8% of sales are paid in the month of the sales. The sales manager’s monthly salary is $7,800. Monthly general and administrative expenses include $31,200 for administrative salaries and 0.9% monthly interest on the long-term note payable. The company budgets 30% of sales to be for cash and the remaining 70% on credit. Credit sales are collected in full in the month following the sale (no credit sales are collected in the month of sale). All raw materials purchases are on credit, and accounts payable are solely tied to raw materials purchases. Raw materials purchases are fully paid in the next month (none are paid in the month of purchase). The minimum ending cash balance for all months is $104,000. If necessary, the company borrows enough cash using a loan to reach the minimum. Loans require an interest payment of 1% at each month-end (before any repayment). If the month-end preliminary cash balance exceeds the minimum, the excess will be used to repay any loans. Dividends of $26,000 are budgeted to be declared and paid in May. No cash payments for income taxes are budgeted in the second calendar quarter. Income tax will be assessed at 35% in the quarter and budgeted to be paid in the third calendar quarter. Equipment purchases of $260,000 are budgeted for the last day of June. Required: Sales budget. Production budget. Direct materials budget.
Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
The management of Zigby Manufacturing prepared the following
ZIGBY MANUFACTURING | |||||
Balance Sheet | |||||
March 31 | |||||
Assets | Liabilities and Equity | ||||
Cash | $ 104,000 | Liabilities | |||
895,440 | Accounts payable | $ 522,600 | |||
Raw materials inventory | 256,100 | Loan payable | 12,000 | ||
Finished goods inventory | 846,404 | Long-term note payable | 1,300,000 | $ 1,834,600 | |
Equipment | $ 1,560,000 | Equity | |||
Less: |
390,000 | 1,170,000 | Common stock | 871,000 | |
566,344 | 1,437,344 | ||||
Total assets | $ 3,271,944 | Total liabilities and equity | $ 3,271,944 |
To prepare a
- Sales for March total 53,300 units. Budgeted sales in units follow: April, 53,300; May, 50,700; June, 52,000; and July, 53,300. The product’s selling price is $24.00 per unit and its total product cost is $19.85 per unit.
- Raw materials inventory consists solely of direct materials that cost $20 per pound. Company policy calls for a given month’s ending materials inventory to equal 50% of the next month’s direct materials requirements. The March 31 raw materials inventory is 12,805 pounds. The budgeted June 30 ending raw materials inventory is 10,400 pounds. Each finished unit requires 0.50 pound of direct materials.
- Company policy calls for a given month’s ending finished goods inventory to equal 80% of the next month’s budgeted unit sales. The March 31 finished goods inventory is 42,640 units.
- Each finished unit requires 0.50 hour of direct labor at a rate of $15 per hour.
- The predetermined variable
overhead rate is $2.70 per direct labor hour. Depreciation of $52,000 per month is the only fixed factory overhead item. - Sales commissions of 8% of sales are paid in the month of the sales. The sales manager’s monthly salary is $7,800.
- Monthly general and administrative expenses include $31,200 for administrative salaries and 0.9% monthly interest on the long-term note payable.
- The company budgets 30% of sales to be for cash and the remaining 70% on credit. Credit sales are collected in full in the month following the sale (no credit sales are collected in the month of sale).
- All raw materials purchases are on credit, and accounts payable are solely tied to raw materials purchases. Raw materials purchases are fully paid in the next month (none are paid in the month of purchase).
- The minimum ending cash balance for all months is $104,000. If necessary, the company borrows enough cash using a loan to reach the minimum. Loans require an interest payment of 1% at each month-end (before any repayment). If the month-end preliminary cash balance exceeds the minimum, the excess will be used to repay any loans.
- Dividends of $26,000 are budgeted to be declared and paid in May.
- No cash payments for income taxes are budgeted in the second calendar quarter. Income tax will be assessed at 35% in the quarter and budgeted to be paid in the third calendar quarter.
- Equipment purchases of $260,000 are budgeted for the last day of June.
Required:
- Sales budget.
- Production budget.
- Direct materials budget.
- Direct labor budget.
- Factory overhead budget.
- Selling expense budget.
- General and administrative expense budget.
- Schedule of cash receipts.
- Schedule of cash payments for direct materials..
Cash budget .Budgeted income statement for entire second quarter (not monthly).- Budgeted balance sheet at June 30.
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 2 images
- Direct labor budget.
- Factory
overhead budget. - Selling expense budget.
- General and administrative expense budget.
- Schedule of cash receipts.
- Schedule of cash payments for direct materials..
Cash budget .Budgeted income statement for entire second quarter (not monthly).- Budgeted
balance sheet at June 30.