Concept explainers
Problem 22-4B Manufacturing: Preparation of a complete
The management of Nabar Manufacturing prepared the following estimated
Assets Liabilities and Equity
Cash.............................. $ 40,000 Accounts payable................... $ 51,400
Raw materials inventory.............. 35,000 Short-term notes payable ............ 24,000
Finished goods inventory............. 241,080 Total current liabilities ............... 85,400
Total current assets.................. 565,980 Long-term note payable.............. 300,000
Equipment......................... 720,000 Total liabilities...................... 385,400
Equipment.net...................... 430,000
Total
Total assets......................... $1,045,980 Total liabilities and equity ............ $1,045,980
To prepare a master budget for July, August, and September of 2019. Management gathers the following information:
3. Sales were 20,000 units in June.
b. Company policy calls for a given month's ending finished goods inventory to equal 70% of the next month's expected unit sales. The June 30 finished goods inventory is 16,800 units, which does not comply with the policy.
C. Company policy calls for a given month's ending raw materials inventory to equal 20% of the next month's materials requirements. The June 30 raw materials inventory is 4,375 units (which also fails to meet the policy). The budgeted September 30 raw materials inventory is 1,980 units. Raw materials cost $8 per unit. Each finished unit requires 0.50 units of raw materials.
d. Each finished unit requires 0.50 hours of direct labor at a rate of $16 per hour. e.
$20,000 per month is treated as fixed factory overhead. f. Monthly general and administrative expenses include $9,000 administrative salaries and 0.9% monthly interest on the long-term note payable. g. Sales representatives commissions are 10% of sales and are paid in the month of the sales. The sales manager's monthly salary is $3,500.
h. The company expects 30% of sales to be for cash and the remaining 70% on credit. Receivables are collected in full in the month following the sale (none are collected in the month of the sale).
i. All raw materials purchases are on credit, and no payables arise from any other transactions. One month's raw materials purchases are fully paid in the next month.
j. Dividends of $20,000 are to be declared and paid in August.
k. Income taxes payable at June 30 will be paid in July. Income tax expense will be assessed at 35% in the quarter and paid in October.
l. Equipment purchases of $100,000 are budgeted for the last day of September.
m. The minimum ending cash balance for all months is $40,000. If necessary, the company borrows enough cash using a short-term note to reach the minimum. Short-term notes require an interest payment of 1% at each month-end (before any repayment). If the ending cash balance exceeds the minimum, the excess will be applied to repaying the short-term notes payable balance.

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Chapter 22 Solutions
FUND.ACCT.PRIN.(LOOSELEAF)-W/CONNECT
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