for the coming year, 2020. The first step is to plan for the first quarter of that coming year. The company has gathered information from its managers in preparation of the budgeting process. Sales Unit sales for November 2019 111,000 Unit sales for December 2019 101,000 Expected unit sales for January 2020 113,000 Expected unit sales for February 2020 113,000 Expected unit sales for March 2020 118,000 Expected unit sales for April 2020 124,000 Expected unit sales for May 2020 137,000 Unit selling price $12
Master Budget
A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.
Sales Budget and Selling
A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.
Waterways Corporation is preparing its budget for the coming year, 2020. The first step is to plan for the first quarter of that coming year. The company has gathered information from its managers in preparation of the budgeting process.
| Sales | ||
| Unit sales for November 2019 | 111,000 | |
| Unit sales for December 2019 | 101,000 | |
| Expected unit sales for January 2020 | 113,000 | |
| Expected unit sales for February 2020 | 113,000 | |
| Expected unit sales for March 2020 | 118,000 | |
| Expected unit sales for April 2020 | 124,000 | |
| Expected unit sales for May 2020 | 137,000 | |
| 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
Direct Materials
Direct materials cost 80 cents per pound. Two pounds of direct materials are required to produce each unit.
Waterways likes to keep 5% of the materials needed for the next month in its ending inventory. Raw Materials on December 31, 2019, totaled 11,300 pounds. 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, 2019, totaled $102,740.
| Direct Labor |
| Labor requires 12 minutes per unit for completion and is paid at a rate of $6 per hour. |
| Manufacturing |
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| Indirect materials | 30¢ | per labor hour | ||
| Indirect labor | 50¢ | per labor hour | ||
| Utilities | 50¢ | per labor hour | ||
| Maintenance | 30¢ | per labor hour | ||
| Salaries | $42,000 | per month | ||
| $17,300 | per month | |||
| Property taxes | $2,600 | per month | ||
| Insurance | $1,300 | per month | ||
| Maintenance | $1,200 | per month |
| Selling and Administrative | |||
| Variable selling and administrative cost per unit is $1.40. | |||
| Advertising | $15,000 | a month | |
| Insurance | $1,300 | a month | |
| Salaries | $71,000 | a month | |
| Depreciation | $2,600 | a month | |
| Other fixed costs | $2,700 | a month |
Other Information
The Cash balance on December 31, 2019, totaled $103,000, but management has decided it would like to maintain a cash balance of at least $800,000 beginning on January 31, 2020. Dividends are paid each month at the rate of $2.30 per share for 4,940 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 6% interest. Waterways borrows on the first day of the month and repays on the last day of the month. A $480,000 equipment purchase is planned for February.
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WATERWAYS CORPORATION
Direct Labor Budget |
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First Quarter | |||||||
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January | February | March | Quarter | ||||
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Units to be Produced
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$
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$
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$
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$
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Direct Labor Time (Hours) Per Unit
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$ | $ | $ | $ | ||||
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Total Required Direct Labor Hours
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$
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$
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$ |
$
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Direct Labor Cost Per Hour
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$ | $ | $ | $ | ||||
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Total Direct Labor Cost
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$ | $ | $ | $ |
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Schedule of Expected Collections from Customers
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January
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February
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March
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Quarter
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| Accounts receivable, 12/31/19 |
$
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$ | $ |
$
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| January sales |
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| February sales |
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| March sales | ||||||||
| Total cash collections | $ | $ | $ | $ |
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Schedule of Expected Cash Payments for Purchases
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January
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February
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March
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Quarter
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| Accounts payable, 12/31/19 |
$
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$ | $ |
$
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| January |
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| February |
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| March | ||||||||
| Total payments | $ | $ | $ | $ |
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