Waterways Corporation is preparing its budget for the coming year, 2011. The first step is to plan for the first quarter of that coming year. Waterways gathered the following information from the managers.

Sales
Unit sales for November 2010 112,500
Unit sales for December 2010 102,083
Expected unit sales for January 2011 113,333
Expected unit sales for February 2011 112,500
Expected unit sales for March 2011 116,667
Expected unit sales for April 2011 125,000
Expected unit sales for May 2011 137,500
Unit selling price $12

Waterways likes to keep 10% of the next month’s unit sales in ending inventory. All sales are on account. 85% of the Accounts Receivable are collected in the month of sale, and 15% of the Accounts Receivable are collected in the month after sale. Accounts receivable on December 31, 2010, totaled $183,750.

Direct Materials

Item__ Amount used per unit Inventory, Dec. 31
Metal 1 lb @ 58¢ per lb. 5,177.5 lbs
Plastic 12 oz @ 6¢ per oz 3,883.125 lbs
Rubber 4 oz @ 5¢ per oz 1,294.375 lbs
2 lbs per unit 10,355.0 lbs

Metal, plastic, and rubber together are 75¢ per pound per unit.

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 December 31, 2010, totaled $120,595. Raw Materials on December 31, 2010, totaled 10,355 pounds.

Direct Labor
Labor requires 12 minutes per unit for completion and is paid at a rate of $8 per hour.
Manufacturing Overhead
Indirect materials 30¢ per labor hour
Indirect labor 50¢ per labor hour
Utilities 45¢ per labor hour
Maintenance 25¢ per labor hour
Salaries $42,000 per month
Depreciation $16,800 per month
Property taxes $2,500 per month
Insurance $1,200 per month
Janitorial $1,300 per month

Selling and Administrative
Variable selling and administrative cost per unit is $1.62.
Advertising $15,000 a month
Insurance $1,400 a month
Salaries $72,000 a month
Depreciation $2,500 a month
Other fixed costs $3,000 a month

Other Information
The Cash balance on December 31, 2010, totaled $100,500, but management has decided it would like to maintain a cash balance of at least $800,000 beginning on January 31, 2011. 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 Romney’s 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. A $500,000 equipment purchase is planned for February.

Instructions
For the first quarter of 2011, do the following.
(a) Prepare a sales budget.
(b) Prepare a production budget.
(c) Prepare a direct materials budget.
(d) Prepare a direct labor budget. (For calculations, round to the nearest hour.)
(e) Prepare a manufacturing overhead budget. (Round amounts to the nearest dollar.)
(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.

WATERWAYS CONTINUING PROBLEM: WCP21

(This is a continuation of the Waterways Problem from Chapters 14 through 20.)

Waterways Corporation is continuing its budget preparations. Waterways had the following static budget and overhead costs for March.

Waterways Corporation Waterways Corporation
Manufacturing Overhead Budget (Static) Manufacturing Overhead Costs (Actual)
For the Month of March For the Month of March
Budgeted production in units 117,500 Production in units 118,500
Budgeted costs Costs
Indirect materials $ 7,050 Indirect materials $ 7,100
Indirect labor 11,750 Indirect labor 11,825
Utilities 10,575 Utilities 10,700
Maintenance 5,875 Maintenance 5,900
Salaries 42,000 Salaries 42,000
Depreciation 16,800 Depreciation 16,800
Property taxes 2,500 Property taxes 2,500
Insurance 1,200 Insurance 1,200
Janitorial 1,300 Janitorial 1,300
Total budgeted costs $99,050 Total costs $99,325

Waterways produced 118,500 units in March rather than the budgeted number of units.

Instructions
(a) Prepare a flexible overhead budget based on the following amounts produced.
(1) 115,500 units
(2) 116,500 units
(3) 117,500 units
(4) 118,500 units
(5) 119,500 units
(b) Prepare a flexible budget report showing the differences (favorable and unfavorable) in manufacturing overhead costs for the month of March.
(c) Prepare a responsibility report for the manufacturing overhead for March, assuming only variable costs are controllable.