Reference no: EM131811139
Waterways Corporation is preparing its budget for the coming year, 2017. The first step is to plan for the first quarter of that coming year. Waterways gathered the following information from the managers.
| Sales |
| Unit sales for November 2016 |
112,500 |
| Unit sales for December 2016 |
102,100 |
| Expected unit sales for January 2017 |
113,000 |
| Expected unit sales for February 2017 |
112,500 |
| Expected unit sales for March 2017 |
116,000 |
| Expected unit sales for April 2017 |
125,000 |
| Expected unit sales for May 2017 |
137,500 |
| Unit selling price |
$12 |
Waterways likes to keep 10% of the next month's unit sales in ending inventory. All sales are on account. 85% of the Accounts Receivable are collected in the month of sale, and 15% of the Accounts Receivable are collected in the month after sale. Accounts receivable on December 31, 2016, totaled $183,780.
| Direct Materials |
| Item |
Amount Used per Unit |
| Metal |
1 lb @ 58¢ per lb. |
| Plastic |
12 oz @ 6¢ per oz |
| Rubber |
4 oz @ 5¢ per oz |
| 2 lbs per unit |
Metal, plastic, and rubber together are 75¢ per pound per unit.
Waterways likes to keep 5% of the materials needed for the next month in its ending inventory. Payment for materials is made within 15 days. 50% is paid in the month of purchase, and 50% is paid in the month after purchase. Accounts Payable on December 31, 2016, totaled $120,595. Raw Materials on December 31, 2016, totaled 11,295 pounds.
Direct Labor
Labor requires 12 minutes per unit for completion and is paid at a rate of $8 per hour.
| Manufacturing Overhead |
| Indirect materials |
30¢ |
per labor hour |
| Indirect labor |
50¢ |
per labor hour |
| Utilities |
45¢
|
per labor hour |
| Maintenance |
25¢
|
per labor hour |
| Salaries |
$42,000 |
per month |
| Depreciation |
$16,800 |
per month |
| Property taxes |
$2,675 |
per month |
| Insurance |
$1,200 |
per month |
| Maintenance |
$1,300 |
per month |
| Selling and Administrative |
| Variable selling and administrative cost per unit is $1.60. |
| Advertising |
$15,000 |
a month |
| Insurance |
$1,400 |
a month |
| Salaries |
$72,000 |
a month |
| Depreciation |
$2,500 |
a month |
| Other fixed costs |
$3,000 |
a month
|
Other Information
The Cash balance on December 31, 2016, totaled $100,500, but management has decided it would like to maintain a cash balance of at least $800,000 beginning on January 31, 2017. Dividends are paid each month at the rate of $2.50 per share for 5,000 shares outstanding. The company has an open line of credit with Romney's Bank. The terms of the agreement requires borrowing to be in $1,000 increments at 8% interest. Waterways borrows on the first day of the month and repays on the last day of the month. A $500,000 equipment purchase is planned for February.