Lane Products manufactures a popular kitchen utensil. The company recently expanded, and the controller believes that it will need to borrow cash to continue operations. It opened negotiations with the local bank for a one-month loan of $60,000 starting March 1. The bank would charge interest at the rate of 0.5 percent per month and require the company to repay interest and principal on March 31. In considering the loan, the bank requested a projected income statement and cash budget for March.The following information is available:The company budgeted sales at 22,000 units per month in February, April, and May and at 19,000 units in March. The selling price is $70 per unit.The company offers a 2 percent discount for cash sales. The company's experience is that bad debts average 1 percent of credit sales.The inventory of finished goods on February 1 was 3,400 units. The desired finished goods inventory at the end of each month equals 25 percent of sales anticipated for the following month. There is no work in process.The inventory of raw materials on February 1 was 2,780 pounds. At the end of each month, the raw materials inventory equals no less than 20 percent of production requirements for the following month. The company purchases materials in quantities of 300 pounds per shipment.Selling expenses are 6 percent of gross sales. Administrative expenses, which include depreciation of $1,250 per month on office furniture and fixtures, total $74,400 per month.The manufacturing budget for the utensil, based on normal production of 21,000 units per month, follows.Materials (½ pound per utensil, 10,500 pounds, $30 per pound)$ 315,000Labor130,000Variable overhead70,000Fixed overhead (includes depreciation of $40,000)130,000Total$ 645,000Required:a-1. Prepare schedules computing inventory budgets by months for production in units for February, March, and April.a-2. Prepare schedules computing inventory budgets by months for raw materials purchases in pounds for February and March.b. Prepare a projected income statement for March. Cost of goods sold should equal the variable manufacturing cost per unit times the number of units sold plus the total fixed manufacturing cost budgeted for the period. Assume that 40 percent of sales are cash sales. Complete this question by entering your answers in the tabs below.Required A1 Required A2 Required BPrepare schedules computing inventory budgets by months for production in units for February, March, and April.Total needsBudgeted production - UnitsLane ProductsProduction Schedule Budget (Units)For February, March, and AprilRequired A1February00MarchRequired A200April00 Required A1 Required A2Prepare a projected income statement for March. Cost of goods sold should equal the variable mantimes the number of units sold plus the total fixed manufacturing cost budgeted for the period. Asssales are cash sales.Note: Do not round intermediate calculations. Round your final answers to nearest whole dollar.Net salesCost of sales:Required BExpenses:Lane ProductsProjected Income StatementFor the Month of March$$$000000

Inventory budgeting involves forecasting and planning the quantity of raw materials,…

Answered: Lane Products manufactures a popular…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

Lane Products manufactures a popular kitchen utensil. The company recently expanded, and the controller believes that it will need to borrow cash to continue operations. It opened negotiations with the local bank for a one-month loan of $60,000 starting March 1. The bank would charge interest at the rate of 0.5 percent per month and require the company to repay interest and principal on March 31. In considering the loan, the bank requested a projected income statement and cash budget for March.

The following information is available:

The company budgeted sales at 22,000 units per month in February, April, and May and at 19,000 units in March. The selling price is $70 per unit.
The company offers a 2 percent discount for cash sales. The company's experience is that bad debts average 1 percent of credit sales.
The inventory of finished goods on February 1 was 3,400 units. The desired finished goods inventory at the end of each month equals 25 percent of sales anticipated for the following month. There is no work in process.
The inventory of raw materials on February 1 was 2,780 pounds. At the end of each month, the raw materials inventory equals no less than 20 percent of production requirements for the following month. The company purchases materials in quantities of 300 pounds per shipment.
Selling expenses are 6 percent of gross sales. Administrative expenses, which include depreciation of $1,250 per month on office furniture and fixtures, total $74,400 per month.
The manufacturing budget for the utensil, based on normal production of 21,000 units per month, follows.

Materials (½ pound per utensil, 10,500 pounds, $30 per pound)	$ 315,000
Labor	130,000
Variable overhead	70,000
Fixed overhead (includes depreciation of $40,000)	130,000
Total	$ 645,000

Required:

a-1. Prepare schedules computing inventory budgets by months for production in units for February, March, and April.

a-2. Prepare schedules computing inventory budgets by months for raw materials purchases in pounds for February and March.

b. Prepare a projected income statement for March. Cost of goods sold should equal the variable manufacturing cost per unit times the number of units sold plus the total fixed manufacturing cost budgeted for the period. Assume that 40 percent of sales are cash sales.

Complete this question by entering your answers in the tabs below.
Required A1 Required A2 Required B
Prepare schedules computing inventory budgets by months for production in units for February, March, and April.
Total needs
Budgeted production - Units
Lane Products
Production Schedule Budget (Units)
For February, March, and April
Required A1
February
0
0
March
Required A2
0
0
April
0
0

Required A1 Required A2
Prepare a projected income statement for March. Cost of goods sold should equal the variable man
times the number of units sold plus the total fixed manufacturing cost budgeted for the period. Ass
sales are cash sales.
Note: Do not round intermediate calculations. Round your final answers to nearest whole dollar.
Net sales
Cost of sales:
Required B
Expenses:
Lane Products
Projected Income Statement
For the Month of March
$
$
$
0
0
0
0
0
0

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