Waterways for Chapter 9 (WCP-9)

Fall

Waterways Corporation is preparing its budget for the coming year. The first step is to plan for the first quarter of that coming year. Waterways gathered the following information from the managers.

Sales:

Actual unit sates for November	112,500
Actual unit sales for December	102,100
Expected unit sales for January	113,000
Expected unit sales forFebruary	112,500
Expected unit sales forMarch	116,000
Expected unit sales forApril	125,000
Expected unit sales forMay	137,500
Unit selling price	$12

Waterways wants to keep 10% of the next month’s unit sales in ending inventory. All sales are on account. 85% of the Accounts Receivableare collected in the month of sale and 15% of the Accounts Receivable are collected in the month after sale. Accounts receivable on December 31totaled 183,780.

Direct Materials:

The product uses metal, plastic, and rubber. In total, each unit requires 2 pounds of material at an average cost of 0.75 per pound.

Waterways likes to keep 5% of the materials needed for the next month in its ending inventory. 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 December31totaled $120,595. Raw materials on December 31totaled 11,295 pounds.

Direct Labor:

Labor requires 12 minutes per unit for completion and is paid at a rate of $18 per hour.

Manufacturing Overhead:

Indirect materials	30 cents per labor hour
Indirect labor	50 cents per labor hour
Utilities	45 cents per labor hour
Maintenance	25 cents per labor hour
Salaries	$42,000 per month
Depreciation	$16,800 per month
Property taxes	$2,675 per month
Insurance	$1,200 per month
Janitorial	$1,300 per month

Selling and Administrative Expenses:

Variable selling and administrative cost per unit is $1.60.

Advertising	$15,000 per month
Insurance	$1,400 per month
Salaries	$72,000 per month
Depreciation	$2,500 per month
Other fixed costs	$3,000 per month

Other Information:

The cash balance on December 31totaled $100,500, but management has decided that it wants to maintain a cash balance of at least $800,000 beginning January 31. Dividends are paid each month at the rate of $2.50 per share for 5,000 shares outstanding. The company has an open line of credit with the First National Bank. The terms of the agreement requires borrowing to be in $1,000 increments at 8% interest.Waterways borrows on the first day of the month and repays on the last day of the month. Reserve repayment, if required, until Waterwayscan pay the entire amount. A $500,000 equipment purchase is planned for February.

Instructions (Do allparts):

Note: All budgets and schedules should be prepared by month for thefirst quarter (January, February, and March). Round all figures to the nearest dollar. For labor hours round to whole hours.

a. Prepare a sales budget.

b. Prepare a production budget.

c. Prepare a direct materials budget.

d. Prepare a direct labor budget.

e. Prepare a manufacturing overhead budget.

f. Prepare a selling and administrative budget.

g. Prepare a schedule for expected cash collections from customers.

h. Prepare a schedule for expected payments for materials purchases.

i. Prepare a cash budget.