Auto Parts Ltd is a worldwide part manufacturing firm based in North America. After many years in the market, the Peterborough division, which produces one product called "Auto Parts # 857," reached a spike in the sales level. The Management wants to have a significant investment to expand the facility and increase production, but it is requesting the division do a budget for the third quarter of 2022.
The actual sales from 2022 are
May 52,000 units
June 90,000 units
The division manager projected the following sales:
July 2022 105,000 units
August 2022 225,000 units
September 2022 122,000 units
October 2022 157,000 units
November 2022 162,000 units
The selling price is $12 per unit
1. From previous experience, Management has determined that finished goods ending inventory equal to 25% of the next month's unit sales are required to fit the buyer's demands.
2. Part # 857 requires one type of raw material: Plastic
• Each Auto Part # 857 requires 1.6 kilograms of Plastic at the cost of $1.75 per kilogram.
• The supplier of Plastic tends to be somewhat erratic, so Auto Parts Ltd finds it necessary to maintain an inventory balance equal to 20% of the material needed for the next month as a precaution against stock-outs. The direct material on June 30 is 42,400 Kg.
3. The beginning accounts payable will consist of $113,680.
4. Auto Parts Ltd pays for 60% of a month's purchases in the month of purchase and 40% in the following month.
5. The manufacturing overhead is based on direct labour hours. The workers receive an average of $15.00 per hour, including employee benefits. Each Auto Parts # 857 takes 12 minutes to complete.
6. Auto Parts Ltd allocates the manufacturing overhead based on direct labour hours; The variable manufacturing overhead is as follows: Maintenance $0.40; Utilities $0.60; Indirect
Labor $0.60; Indirect materials $0.40
7. The Monthly Fixed manufacturing overhead costs are as follows:
Janitorial $2,500
Insurance $1,750
Depreciation $15,200
Property Taxes $2,100
Salaries $44,800
Three months' property taxes are prepaid on the first day of the first month of the quarter.
8. Auto Parts Ltd allocates the selling and administration expenses based on unit sales; The variable selling and administration rate is $1.5 per unit of sales.
9. The Monthly Selling and administrative expenses are
Salaries $62,100
Other fixed costs $4,600
Insurance $1,200
Depreciation $2,800
Advertising $12,000
10. Sales are on account (credit); 60% of the sales are collected during the month of sales and 40% the following month. This was the same collection pattern as in previous years.
11. The company wants to maintain at the end of each month a minimum bank balance of $1,000,000. In case the company has a deficiency of money or is not able to reach this minimum bank balance, the company can borrow from a line of credit at the rate of 12% per annum. All borrowing is considered to happen on the first day of the month, and repayments are on the last day of the month. All borrowings and repayments from the bank should be in multiples of $5,000. It pays interest monthly. The cash balance on June 30 is $184,000.
12. In August, $950,000 of new equipment to update operations will be purchased with cash.
13. Three months' insurance is prepaid on the first day of the first month of the quarter. In addition, at the end of each quarter, the company pays $250,000 in dividends.
14.The company has a Common stock beginning balance is $150,840. The Retained Earnings Beginning Balance $600,507.
Direct Labour Budget for the third quarter
Direct Material Cash Disbursements