Second Quarter Budgeting for Waterways Corporation

Sales Budget for Second Quarter 2021

Waterways Corporation has recently acquired a small manufacturing operation in British Columbia that produces one of its more popular items. This plant will provide these units for resale in retail hardware stores in British Columbia and Alberta. Because the budget prepared by the plant was incomplete, Jordan Leigh, Waterways’ CFO, was sent to B.C. to oversee the plant’s budgeting process for the second quarter of 2021. Jordan asked the various managers to collect the following information for preparing the second-quarter budget. Sales Unit sales for February 2021 $90,000 Unit sales for March 2021 102,000 Expected unit sales for April 2021 110,000 Expected unit sales for May 2021 115,000 Expected unit sales for June 2021 120,000 Expected unit sales for July 2021 135,000 Expected unit sales for August 2021 160,000 Average unit selling price $13 Based on the experience in the home plant, Jordan has suggested that the B.C. plant keep 10% of the next month’s unit sales in ending inventory. The plant has contracts with some of the major home hardware giants, so all sales are on account; 50% of the accounts receivable is collected in the month of sale, and the balance is collected in the month after sale. This was the same collection pattern as the previous year. The new plant has no bad debts. Direct Materials The combined quantity of direct materials (consisting of metal, plastic, and rubber) used in each unit is 1.30 kg. Metal, plastic, and rubber together amount to $1.50 per kg. Inventory of combined direct materials on March 31 consisted of 14,365 kg. This plant likes to keep 10% of the materials needed for the next month in its ending inventory. Fifty percent of the payables is paid in the month of purchase, and 50% is paid in the month after purchase. Accounts payable on March 31 will total $124,800. Direct Labour Labour requires 15 minutes per unit for completion and is paid at an average rate of $10 per hour. Manufacturing Overhead Indirect materials $0.30 per labour hour Indirect labour $0.60 per labour hour Utilities $0.50 per labour hour Maintenance $0.30 per labour hour Salaries $44,200 per month Depreciation $15,000 per month Property taxes $2,150 per month Insurance $1,200 per month Janitorial $2,500 per month Selling and Administrative Variable selling and administrative expenses per unit are $1.40. Advertising $13,000 a month Depreciation $2,800 a month Insurance $1,100 a month Other fixed costs $3,400 a month Salaries $74,000 a month Other Information The cash balance on March 31 will be $136,500, but Waterways has decided it would like to maintain a cash balance of at least $500,000 beginning on April 30. The company has an open line of credit with its bank. The terms of the agreement require borrowing to be in $1,000 increments at 2% interest. Borrowing is considered to be on the first day of the month and repayments and interest payments are on the last day of the month. In May, $900,000 of new equipment to update operations will be purchased. Three months’ insurance is prepaid on the first day of the first month of the quarter. 1) For the second quarter of 2021, prepare a sales budget. 2) For the second quarter of 2021, prepare a schedule for expected cash collections from customers. 3) For the second quarter of 2021, prepare a production budget. 4) For the second quarter of 2021, prepare a direct materials budget. 5) For the second quarter of 2021, prepare a schedule for expected payments for materials purchases. 6) For the second quarter of 2021, prepare a direct labour budget. 7) For the second quarter of 2021, prepare a manufacturing overhead budget 8) For the second quarter of 2021, prepare a selling and administrative expenses budget. 9) For the second quarter of 2021, prepare a cash budget