Answer Happy

1.Brad Harmon, MAK’s sales manager, reported that the company sold 60,000 candles in December. He has developed the following sales forecast. The expected sales price is $35 per candle.JanuaryFebruaryMarchAprilMay55,00050,00045,00046,00048,0002.All sales are made on account. Historically, the company has collected 75% of its sales in the month of sale and 20% in the month following the sale. The remaining 5% of sales are uncollectible.3.Sales personnel receive a 3% commission on every candle sold in addition to their monthly salaries. The following monthly fixed selling and administrative expenses are planned for the quarter. However, these amounts do not include the depreciation increase resulting from the budgeted equipment purchase in March (see part 8).Monthly Fixed Selling andAdministrative CostsDepreciation$5,000Salaries of sales personnel33,255Advertising12,000Management salaries24,000 Total costs$74,2554.The company requires ending finished goods inventory to equal 15% of the following month’s budgeted sales, in units. On December 31, 8,200 candles were on hand.5.Ten ounces of raw materials are required to create each finished candle. The company wants to have raw materials on hand at the end of each month equal to 20% of the following month’s production needs. On December 31, 109,000 ounces of materials were on hand.6.The raw materials used in production cost $2.00 per ounce. Eighty percent of the month’s purchases are paid for in the month of purchase; the rest is paid in the following month. No discount is available.7.The standard labor allowed for one candle is 18 minutes. The current direct labor rate is $16 per hour.8.On March 1, the company plans to spend $72,000 to replace its office equipment that is fully depreciated. The new equipment is expected to have a ten-year life, with no residual value.9.The budgeted monthly variable and fixed overhead are as follows. Variable overhead is based on the number of units produced. The fixed overhead budget is based on an annual production of 600,000 candles.Monthly FixedOverheadVariable Cost/UnitDepreciation$ 15,000Indirect materials33,000$0.20Indirect labor86,0000.40Utilities27,0000.20Property taxes16,000Maintenance35,5000.40 Total costs$212,500$1.2010.MAK must maintain a minimum cash balance of $100,000. An open line of credit at a local bank allows the company to borrow up to $200,000 per quarter in $1,000 increments.11.All borrowing is done at the beginning of the month, and all repayments are made at the end of a month in $1,000 increments. Accrued interest is paid only when the principal is repaid. The interest rate is 6% per year.12.A quarterly dividend of $60,000 will be declared and paid in January.13.Income taxes payable for the first quarter will be paid on January 15. MAK’s tax rate is 35%.14.The December 31 balance sheet is as follows:December 31Cash$ 105,000Accounts receivable420,000Raw materials inventory218,000Finished goods inventory248,050Plant & equipment640,000Accumulated depreciation(160,000) Total assets$ 1,471,050Accounts payable$ 243,000Income taxes payable76,000Common stock245,000Retained earnings907,050 Total liabilities and equities$ 1,471,050
January
February
March
April
May
Monthly Fixed Selling andAdministrative Costs
Depreciation
Salaries of sales personnel
Advertising
Management salaries
Total costs
Monthly FixedOverhead
Variable Cost/Unit
Depreciation
Indirect materials
Indirect labor
Utilities
Property taxes
Maintenance
Total costs
December 31
Cash
Accounts receivable
Raw materials inventory
Finished goods inventory
Plant & equipment
Accumulated depreciation
Total assets
Accounts payable
Income taxes payable
Common stock
Retained earnings
Total liabilities and equities
Selling and Administrative Expense Budget January 57750 33255 12000 $ February $2500 33255 12000 $ March 47250 33255 12000 Quarter 33255

Direct Labor Budget O 0 0 O $ S January February $ March

Manufacturing Overhead Budget O 0 O 0 O O January 11 February [.

Materials Purchases Budget 0 0 O 0 0 0 0 O O $ $ January $ February March