Preparation of a Complete Master Budget

The management of Rigby Manufacturing prepared the following balance sheet for
March 2018:
RIGBY MANUFACTURING
Balance Sheet
As of March 31, 2018
Assets Liabilities and Equity
Cash $ 40,000 Accounts payable $ 200,500
Accounts receivable 390,000 Short-term notes payable 10,000
Raw Materials 98,500 Total current liabilities 210,500
Finished goods inventory 295,000 Long-term note payable 500,000
Total current assets 823,500 Total liabilities 710,500
Equipment 600,000 Common stock 335,000
Accumulated depreciation (150,000) Retained earnings 228,000
Equipment, net 450,000 Total stockholders equity 563,000
Total Assets $ 1,273,500 Total liabilities and equity $ 1,273,500
To prepare a master budget for April, May, and June of 2018, management gathers the
following information: Sales for March total 20,000 units. Forecasted sales in units
are as follows:
a. April, 22,000; May, 19,000; June, 21,000; and July, 22,000. Sales of 240,000
units are forecasted for the entire year. The product’s selling price is $27.00 per
unit and its total product cost is $22.00 per unit.
b. Company policy calls for a given month’s ending raw materials inventory to
equal 50% of the next month’s materials requirements. The March 31 raw
materials inventory is 5,200 pounds, which complies with the policy. The
expected June 30 ending raw materials inventory is 5,000 units. Raw materials
cost $21 per unit. Each finished unit requires 0.50 units of raw materials.
c. Company policy calls for a given month’s ending finished goods inventory to
equal 80% of the next month’s expected unit sales. The March 31 finished
goods inventory is 17,600 units, which complies with the policy.
d. Each finished unit requires 0.50 hours of direct labor at a rate of $18 per hour.
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e. Overhead is allocated based on direct labor hours. The predetermined variable
overhead rate is $4.00 per direct labor hour. Depreciation of $20,000 per month
is treated as fixed factory overhead.
f. Sales representatives’ commissions are 10% of sales and are paid in the month
of the sales. The sales manager’s monthly salary is $4,000.
g. Monthly general and administrative expenses include $15,000 administrative
salaries and 1.0% monthly interest on the long-term note payable.
h. The company expects 25% of sales to be for cash and the remaining 75% on
credit. Receivables are collected in full in the month following the sale (none
are collected in the month of the sale).
i. All raw materials purchases are on credit, and no payables arise from any other
transactions. One month’s raw materials purchases are fully paid in the next
month.
j. The minimum ending cash balance for all months is $40,000. If necessary, the
company borrows enough cash using a short-term note to reach the minimum.
Short-term notes require an interest payment of 1% at each month-end (before
any repayment). If the ending cash balance exceeds the minimum, the excess
will be applied to repaying the short-term notes payable balance.
k. Dividends of $10,000 are to be declared and paid in May.
l. No cash payments for income taxes are to be made during the second calendar
quarter. Income tax will be assessed at 20% in the quarter and paid in the third
calendar quarter.
m. Equipment purchases of $75,000 are budgeted for the last day of June.
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Required:
Prepare the following budgets and other financial information as required. All budgets
and other financial information should be prepared for the second calendar quarter,
except as otherwise noted below. Round calculations up to the nearest whole dollar.

1. Sales budget.
2. Production budget.
3. Raw materials budget.
4. Direct labor budget.
5. Factory overhead budget.
6. Selling expense budget.
7. General and administrative expense budget.
8. Cash budget.
9. Monthly Income Statement for the quarter
   An excel template is provided for the completion of the problem, and must be used.
   There are five sheets/tabs on the workbook/spreadsheet; 1) Sales & Production Data,
   2) Expense Budgets, 3) Cash Budget, 4) Income Statement, and 5) the March 31, 2018
   Balance Sheet (Beginning Balances). Each sheet contains templates for completing
   requirements 1-9. The spreadsheet contains indicators that will check your final totals
   for each requirement and determine if the figure entered is “Correct”, or if you need to
   “Try again”.
   This template is available on MyWesley under Handouts.
   The following check figures are also noted for you:
   (2) Units to produce: April, 19,600; May, 20,600
   (3) Cost of raw materials purchases: April, $204,750
   (5) Total overhead cost: April, $59,200
   (8) Ending cash balance: April $68,900
   (9) Total net income (approximately $50,000)
   

Sample Solution