Prepare a schedule of cash collections

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Reference no: EM1312554

Ravenna Manufacturing is preparing its master budget for the first quarter of the upcoming year: The following data pertain to Ravenna Manufacturing's operations:

Balance sheet totals as of December 31 (prior year):

Cash

$ 4,500

Accounts Receivable (net)

    $ 46,000

Finished Goods Inventory (2,075 units)

    $ 12,700

Direct Materials Inventory (1,150 lbs)

      $ 2,300

Property, Plant and Equipment (net)

   $122,000

Accounts Payable

    $ 42,400

Capital Stock

   $125,000

Retained Earnings

    $ 20,100

 

a.    Actual sales in December were $70,000. Selling price per unit is projected to remain stable at $10 per unit throughout the budget period. Sales for the first five months of the upcoming year are budgeted as follows:

January

$ 83,000

February

$ 99,000

March

$ 96,000

April

$ 90,000

May

$ 86,000

 

b.    Sales are 30% cash and 70% credit. All credit sales are collected in the month following the sale.

c.    Ravenna Manufacturing has a policy that states that each month's ending inventory of finished goods should be 25% of the following month's sales (in units).

d.    Of each month's direct materials purchases, 20% are paid for in the month of purchase, while the remainder is paid for in the month following purchase. Two pounds of direct material is needed per unit at $2.00 per pound. Ending inventory of direct materials should be 10% of next month's production needs.

e.    Most of the labor at the manufacturing facility is indirect, but there is some direct labor incurred. The direct labor hours per unit is .03. The direct labor rate per hour is $8.00 per hour. All direct labor is paid for in the month in which the work is performed.

 

f.     Month manufacturing overhead costs are $5,000 for factory rent, $3,000 for other fixed manufacturing expenses, and $1.20 per unit for variable manufacturing overhead. No depreciation is included in these figures. All expenses are paid in the month in which they are incurred.

g.    Computer equipment for the administrative offices will be purchased in the upcoming quarter. In January, the company will purchase equipment for $5,000 (cash), while February's cash expenditure will be $12,000 and March's cash expenditure will be $16,000.

h.    Operating expenses are budgeted to be $1.00 per unit sold plus fixed operating expenses of $1,000 per month. All operating expenses are paid in the month in which they are incurred.

i.     Depreciation on the building and equipment for the general and administrative offices is budgeted to be $4,900 for the entire quarter, which includes depreciation on new acquisitions.

j.     Ravenna Manufacturing has a policy that the ending cash balance in each month must be at least $4,000. The company has a line of credit with a local bank. It can borrow in increments of $1,000 at the beginning of each month, up to a outstanding loan balance of $125,000. The interest rate on these loans is 1% per month simple interest (not compounded). Ravenna Manufacturing would pay down on the line of credit balance if it has excess funds at the end of the quarter. The company would also pay the accumulated interest at the end of the quarter on the funds borrowed during the quarter.

k.    The company's income tax rate is projected to be 30% of operating income less interest expense. The company pays $10,000 cash at the end of February in estimated taxes.

REQUIREMENTS:

1.    Prepare a schedule of cash collections for January, February, and March and for the quarter in total.

2.    Prepare a production budget for January, February, and March and for the quarter in total. 

3.    Prepare a direct materials budget for January, February, and March and for the quarter in total. 

4.    Prepare a cash payments budget for the direct materials purchases from Requirement 3 for January, February, and March and for the quarter in total.    

5.    Prepare a direct labor budget for January, February, and March and for the quarter in total.

6.    Prepare a manufacturing overhead budget for January, February, and March and for the quarter in total. 

7.    Prepare an operating expense budget for January, February, and March and for the quarter in total.

8.    Prepare a cash budget for January, February, and March and for the quarter in total.

9.    Calculate the budgeted manufacturing cost per unit (assume that the fixed manufacturing overhead is budgeted to be $.70 per unit for the year)

10. Prepare a budgeted Income Statement for the quarter ended March 31. (Hint: Cost of Goods Sold = Budgeted cost of manufacturing each unit x Number of units sold)

Reference no: EM1312554

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