Reference no: EM132730123
Question 1 - Preparing Operating Budgets
Iguana, Inc., manufactures bamboo picture frames that sell for $25 each. Each frame requires 4 linear feet of bamboo, which costs $2.00 per foot. Each frame takes approximately 30 minutes to build, and the labor rate averages $12.00 per hour. Iguana has the following inventory policies:
- Ending finished goods inventory should be 40 per cent of next month's sales.
- Ending direct materials inventory should be 30 per cent of next month's production.
Expected unit sales (frames) for the upcoming months follow:
March - 275
April - 250
May - 300
June - 400
July - 375
August - 425
Variable manufacturing overhead is incurred at a rate of $0.30 per unit produced. Annual fixed manufacturing overhead is estimated to be $7,200 ($600 per month) for expected production of 4,000 units for the year. Selling and administrative expenses are estimated at $650 per month plus $0.60 per unit sold.
Question 2 - Preparing Budgeted Income Statement
Refer to the information in Q1.
Required: Prepare Iguana's budgeted income statement for quarter 2.
Question 3 - Preparing Cash Budget
Refer to the information in PA8-1. Iguana, Inc., had $10,800 cash on hand on April 1. Of its sales, 80 per cent is in cash. Of the credit sales, 50 per cent is collected during the month of the sale, and 50 per cent is collected during the month following the sale.
Of direct materials purchases, 80 per cent is paid for during the month purchased and 20 per cent is paid in the following month. Direct materials purchases for March 1 totaled $2,000.
All other operating costs are paid during the month incurred. Monthly fixed manufacturing overhead includes $150 in depreciation. During April, Iguana plans to pay $3,000 for a piece of equipment.
Required - Prepare the following for Iguana for quarter 2:
1. Budgeted cash receipts. Include each month (April to June) as well as quarter 2 totals.
2. Budgeted cash payments.
3. Cash budget. Assume the company can borrow in increments of $1,000 to maintain a $10,000 minimum cash balance. No interest is charged if the loan is paid off by the end of the next quarter.