Garneau manufacturing Ltd. produces and distributes a special type of chemical compound called compound WX....
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Garneau manufacturing Ltd. produces and distributes a special type of chemical compound called compound WX. The information below about Garneaus operations has been assembled to assist budget preparation. The company is preparing its master budget for the first quarter of 2019. The budget will detail each months activity and the activity for the quarter in total. The master budget will be based on the following information:
Selling price is $60 per unit in 2018 and will not change for the first two quarters of 2019. Actual and estimates sales are as follows:
Actual 2018
Estimated 2019
November: 10,000 Units
January: 11,000 units
December: 12,000 units
February: 10,000 units
March: 13,000 units
April: 11,000 units
May: 11,000 units
The company produces enough units each month to meet that months sales plus a desired inventory level equal to 20% of next months estimated sales. Finished Goods inventory at the end of 2018 consisted of 2,200 units at a variable cost of $33
The company purchases enough raw materials each month for the current months production requirement and 25% of next months production requirements. Each unit of product requires 5 kilograms of raw material at 0.60 per kilogram. There were 13,500 kilograms of raw materials in inventory at the end of 2018. Garneau pays 40% of raw material purchases in the month of purchase and the remaining 60% in the following month.
Each unit of finished product requires 1.25 labor-hours. The average wage rate is $16 per hour.
Variable manufacturing overhead is 50% of the direct labor cost
Credit sales are 60% of total sales. The company collects 50% during the second month
Fixed overhead costs (per month) are as follows:
Factory supervisors salary
75,000
Factory insurance
1,400
Factory rent
8,000
Depreciation of factory equipment
1,200
Total fixed selling and administrative expenses are as follows:
Advertising
300
Depreciation
9,000
Insurance
250
Salaries
4,000
Other
14,550
Variable selling and administrative expenses consist of $4 for shipping and 10% of sales for commissions
The company will acquire assets for use in the sales office at a cost of $300,000 which will be paid at the end of January 2019. The monthly depreciation expense on the additional capital assets will be $6,000
The balance sheet as of December 31, 2018, is as follows:
Assets
Cash
80,000
Accounts Receivable
612,000
Inventory: Raw materials
8,100
Finished goods
72,600
80,700
Plant and equipment
1,000,000
Less accumulated depreciation
(1,000,000)
900,000
Total Assets
1,672,700
Liabilities and Equity
Accounts payable
24,000
6% long-term notes payable
900,000
Common shares
735,000
Retained earnings
13,700
Total Liabilities and shareholders equity
1,672,700
Additional information is as follows:
All cash payments except purchases of raw materials are made monthly as incurred
All borrowing occur at the beginning of each month and all repayments occur at the end of the month. Borrowings and repayments may occur in any amount
All interest on borrowed funds is paid at the end of each month at a rate of 0.5% per month
All minimum cash balance of $30,000 is required at the end of each month
Required:
2. Prepare a budgeted contribution format income statement for each of the first three months of 2019 and a budgeted balance sheet as at march 31, 2019
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