The sales department of LDonovan Manufacturing, Inc. has completed the following sales forecast for the months of January through March 20X1 for its only two products: 50,000 units of J to be sold at $90 each and 30,000 units of K to be sold at $70 each. The desired unit inventories at March 31, 20X1, are 10% of the next quarter's unit sales forecast, which are 60,000 units of J and 30,000 units of K. The January 1, 20X1, unit inventories were 5,000 units of J and 2,000 units of K. Each unit of J requires 3 pounds of material A and 2 pounds of material B for its manufacture; K requires 2 pounds of A and 4 pounds of B. The purchase cost of A is $9 per pound and the purchase cost of B is $5 per pound. Materials A and B on hand at January 1, 20X1, were 19,000 pounds of A and 7,000 pounds of B. Desired inventories at March 31, 20X1, are 14,000 pounds of A and 8,000 pounds of B. Each unit of J requires 0.5 hours of direct labor in the factory; each unit of K requires 1.0 hour of direct labor. The average hourly rate for direct labor is $12 per hour. Estimated manufacturing overhead cost is $6 per direct labor hour plus $90.000 per month. Selling and administrative expenses are estimated to be 10% of sales revenue plus $180,000 Cash sales for the first quarter are estimated to be $300,000 per month. It is forecast that 30% of the credit sales for the quarter ended March 31, 20X1, will occur in January, 30% in February, and 40% in March. Of credit sales (December through March), 40% will be collected as cash in the month of sale and 55% will be collected in the following month. The remainder will be uncollectible. Cash collected in January 20X1 from December 20X0 sales will be $1,050,000. The January 1, 20X1, cash balance was $70,000. The minimum acceptable cash balance at the end of each month is $60,000. Short-term borrowings (6-month term) are made in multiples of $10,000. Interest is charged at the rate of 1% per month on short-term borrowings. The first interest payment is made the month following the borrowing. Cash disbursements (excluding interest on short-term borrowings) are estimated as follows: per month.
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.
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![The sales department of LDonovan Manufacturing, Inc. has completed the
following sales forecast for the months of January through March 20X1 for its only two products:
50,000 units of J to be sold at $90 each and 30,000 units of K to be sold at $70 each. The desired
unit inventories at March 31, 20X1, are 10% of the next quarter's unit sales forecast, which are
60,000 units of J and 30,000 units of K. The January 1, 20X1, unit inventories were 5,000 units of
J and 2,000 units of K.
Each unit of J requires 3 pounds of material A and 2 pounds of material B for its manufacture; K
requires 2 pounds of A and 4 pounds of B. The purchase cost of A is $9 per pound and the purchase
cost of B is $5 per pound. Materials A and B on hand at January 1, 20X1, were 19,000 pounds of A
and 7,000 pounds of B. Desired inventories at March 31, 20X1, are 14,000 pounds of A and 8,000
pounds of B.
Each unit of J requires 0.5 hours of direct labor in the factory; each unit of K requires 1.0 hour
of direct labor. The average hourly rate for direct labor is $12 per hour. Estimated manufacturing
overhead cost is $6 per direct labor hour plus $90.000 per month. Selling and administrative expenses
are estimated to be 10% of sales revenue plus $180,000
Cash sales for the first quarter are estimated to be $300,000 per month. It is forecast that 30%
of the credit sales for the quarter ended March 31, 20X1, will occur in January, 30% in February,
and 40% in March. Of credit sales (December through March), 40% will be collected as cash in the
month of sale and 55% will be collected in the following month. The remainder will be uncollectible.
Cash collected in January 20X1 from December 20X0 sales will be $1,050,000.
The January 1, 20X1, cash balance was $70,000. The minimum acceptable cash balance at
the end of each month is $60,000. Short-term borrowings (6-month term) are made in multiples of
$10,000. Interest is charged at the rate of 1% per month on short-term borrowings. The first interest
payment is made the month following the borrowing. Cash disbursements (excluding interest on
short-term borrowings) are estimated as follows:
per
month.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F53abc3b2-970e-4849-84fb-4045c7793b8b%2F99fd3421-5d3c-4077-85c8-5554638e4aa5%2Fsywaot3.jpeg&w=3840&q=75)
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