Question - You are the president of Campus Sweaters, Inc. Campus Sweaters manufacturers wool pullover v-neck sweaters of various sizes and colors. You are preparing the budgets for the first quarter of 2016 (January, February, and March). You have the following historical and projected sales in units:
Actual or Projected Month Units
Actual November 9,000
Actual December 8,000
Projected January 11,000
Projected February 10,000
Projected March 6,000
Projected April 7,000
Projected May 7,000
Projected June 7,000
It takes ten skeins of yarn to make one sweater. Each skein costs $1.30. Past experience shows you need to have enough sweaters on-hand to fill the next month and one half of sales (approximately forty-five days). Also, you need enough yarn to manufacture the next month's production.
You will have 12,000 sweaters in finished inventory and 80,000 skeins of yarn in raw materials inventory as of December 31, 2015. You purchased $90,000 of yarn in December that must be paid for in January. The Company incurred $7,500 of overhead cost during December 2015, and $13,500 of selling expenses in the last half of December. These also must be paid in January. The company policy is to pay prior month's charges on account on the tenth day of the following month unless otherwise designated.
INCOME STATEMENTS:
Actual or Projected Sales Actual Projected
Month November December January February March
Sales $240,000 $270,000 $300,000 $270,000 $210,000
Cost of sales 144,000 162,000 180,000 162,000 126,000
Gross margin 96,000 108,000 120,000 108,000 84,000
Operating Expenses:
Selling 24,000 27,000 30,000 27,000 21,000
Administration 35,000 45,000 50,000 45,000 30,000
Rent 10,000 10,000 10,000 10,000 10,000
Sales salaries 20,000 20,000 20,000 20,000 20,000
Totals 89,000 102,000 110,000 102,000 81,000
Operating Income 7,000 6,000 10,000 6,000 3,000
Interest Expense 0 0 ? ? ?
Net Income $7,000 $6,000
A worker, using a knitting machine, can make five sweaters in an hour. The cost of direct labor per hour, including fringe, is $20.00. You incurred $13,000 of direct labor cost between December 16 and December 31, 2015 which will be paid on January 7, 2016. The manufacturing overhead rate is $5.00 per direct labor hour. All sweaters are sold wholesale to retail outlets at $30.00 each.
Salaries and wages are paid as follows: The pay period from the first to the fifteenth of the month is paid on the twenty-second day of each month; the pay period from the sixteenth to the thirty-first is paid on the seventh day of the following month.
Rent is paid in advance on the first day of each month. Fifty percent of the selling expenses are paid in the month incurred, and fifty percent in the following month. All manufacturing overhead and administrative costs are paid on the tenth day of the following month.
The cash in the bank on December 31, 2015 was forecast at $30,000. There were no outstanding borrowings. The company has a $500,000 line of credit at 12% per annum at the Old Rusty Bucket State Bank of Oreana. All borrowings, and any subsequent repayments, must be made on the fifteenth day of the month. All loan takedowns must be repaid by December 31, 2016. Repayments can be made when extra cash is available, but are due on the fifteenth day of any month. The company has the policy to have at least $25,000 in the bank account at the end of each month even if they have to borrow it. However, more may be required depending on cash needs during the first week of the following month.
20% of the sales are collected in the month of sale. Seventy percent are collected in the next month, and five percent are collected in the third month.
Use the information above to complete the following activities:
Prepare a production budget for Campus Sweaters, Inc. for each of the following months: January, February, March 2016.
Prepare a raw materials budget for each month.
Prepare a raw materials budget in dollars for each month.
Prepare a cost of goods manufactured schedule for each month.
Prepare a cash budget for each month.
Attachment:- Budget Template.rar