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I am the head accountant for E-Lan Electronics, I am responsible to prepare the company’s master budget for the next fiscal period. The administrative and divisional managers have prepared the appropriate information (found below) for me I need to prepare the budget. In addition to the compiled information, I will also find the budgets, reports, questions, and statements required by the CFO.

Step 1

E-Lan Electronics produces Widgets for sale at local electronic stores. The company is in the process of creating a master budget for the first quarter of the coming year. Results from the prior year are:

Last Year                           Units

January                             220,000

February                           268,000

March                               240,000

April                                   210,000

May                                   230,000

Unit Sales are to expected increase 15% and each unit is expected to sell for $39. The management prefers to maintain ending finished goods inventory equal to 10% of next month’s sales.

1. I will need to prepare an sales budget for E-Lan Electronics

2. Prepare a production budget for E-Lan Electronics

Step 2

E-Lan Electronics is now preparing the budget for direct materials purchases, direct labor, and manufacturing overhead.

Each unit production requires                  1 Gizmo and                                   3 Flobs

E-Lan pays                                                     $ 7 per Gizmo and                        $ 2.50 per Flob

Management prefers to maintain ending raw materials inventory equal to materials 30% of next month needed in production.

Raw materials inventory at the end of last year met that requirement.

Each unit of production requires 0.8 direct labor hours at a cost of $ 18.00 per hour.

Variable overhead costs are:

Indirect materials                          $ 0.38 per unit

Indirect Labor                                $ 1.20 per unit

Other                                               $ 1.12 per unit

Fixed overhead costs per month:

Salaries                                            $ 212,000

Rent                                                 $ 16,000

Depreciation                                  $ 27,000

1. I need to prepare an direct materials purchases budget for E-Lan Electronics

2. I need to prepare an direct labor budget for E-Lan Electronics

3. I need to prepare an manufacturing overhead budget for E-Lan Electronics

Step 3

E-Lan Electronics expects the following as pertaining to the capital expenditures and cash budgets.

Capital Expenditures

The company plans to purchase selling and administrative equipment totaling $ 180,000

The company plans to purchase Production equipment totaling $ 3,100,000

Both will be purchased at the end of the March from operating cash flow and will not affect depreciation expense for the first quarter.

Cash Budget

All sales are on credit. The company expects to collect 75% of sales in the month of sale, 22% of sales in the month following the sale, 3% percent will be uncollectable. Accounts receivable at the end of last year totaled $ 1,980,000 this represents the collectable amount of December sales.

The company give credit terms of 2 / EOM, n/EOM second month

All direct materials purchases are on credit. The company expects to pay 70% of purchases in the month of purchase and 30% the following month.

Accounts Payable to be paid in January is $ 1,640,000

The company has a credit line of $3,000,000 for operations with an interest rate of 12% APR. At the end of every month, the cash balance should be a minimum of $ 50,000.

The cash budget should include an estimate of amounts to be borrowed or returned to the credit line, and an estimated balance of the credit line.

The Credit line has a balance at the end of December of $ 362,000

The company has good credit and can borrow funds on a secured basis at 4% but has not done so.

E-Lan Electronics expects the following Selling and Administrative Expenses

Salaries                             $ 15,000

Rent                                   $ 17,000

Advertising                       $ 82,000

Depreciation                    $ 18,500

Other                                 $ 6,700

Sales Commissions         $ 1.50 Per Unit  

Interest 12% annual rate. Paid on last months ending balance of Credit Line

1. I need to prepare an Selling and Administrative Budget

2. I need to prepare an capital expenditures budget

3. I need to prepare an cash budget

4. What Problems exists in regards to the operating line? What is the cause? What should be done to remedy the situation?

How much would it save the company going forward?

5. Prepare a budgeted Income Statement

(Cost of Goods Sold should be calculated based on estimated costs of production for the quarter.)

Step 4

Net Plant and Equipment as of December 31 was                          $ 7,800,000

Common Stock account Did not change                                            $ 1,200,000

Retained Earnings as of December 31 was                                       $ 8,575,191.93

I need to prepare the Budgeted Balance Sheet.