1. Expected sales, in kilograms, for the four quarters of fiscal 2019 and the first and second quarter of fiscal 2020 are as follows. Notice that there is no seasonality in demand. Quarter One 2019 2,275 Quarter Two 2019 2,275 Quarter Three 2019 2,275 Quarter Four 2019 2,275 Quarter One 2020 2,275 Quarter Two 2020 2,275

Cannabis is sold for $5.00 per gram.

All sales are on account. Sixty-five percent of sales are collected in the quarter of sale, twenty-five percent of sales are collected in the quarter following the sale, and the final ten percent of sales are collected in second quarter after the sale. Assume that 70% of the current accounts receivable will be collected in the first quarter of fiscal 2019 and the remaining 30% will be collected in the second quarter of 2019. Assume that there are no bad debts incurred. 2. The company's system for growing cannabis consists of 3 processes: growing; harvesting, trimming, and drying; and packaging. The growing process takes 16 weeks, the harvesting, trimming, and drying process takes 4 weeks, and the packaging process takes 2 weeks for each harvested crop. The company plans to package 13 harvests in fiscal 2019, each harvest is 700 kilograms. A. For each crop harvest, the growing process uses the following amount of direct materials: $105,000 for seeds/clones mixed with growing medium The growing process requires well-trained and highly skilled employees, therefore employees in the growing process are paid $50 per hour. 70 labour hours are required to plant a single crop. 13.125 labour hours are required per week for each of the weeks that the plants are growing. B. The harvesting, trimming, and dying process also requires well-trained and highly skilled employees, therefore these employees are paid $50 per hour. The entire harvesting, trimming, and drying process for each crop requires 2,800 direct labour hours. The actual harvest uses 20% of the labour hours and is completed in the 1st week. A rough trim uses 30% of the labour hours and is completed at the end of the 2nd week. A fine trim uses the remaining 50% of the labour hours and is spread evenly across the final two weeks of the drying time. C. The company packages 367.5 kilograms of each harvest in 3.5 gram packages and the remaining 332.5 kilograms in 1 gram packages. The company pays $0.72 per package. The packaging process requires skilled employees who are paid $35 per hour. 2,000 total labour hours are required to package a single crop harvest. These hours are spread evenly across the 2 weeks it takes to package a harvest. Current company policy is to maintain an ending seed/clone and growing medium mixture equal to 40% of a single crop planting. The company also has a policy of maintaining an ending package direct material inventory of 50% of a single crop harvest. All direct materials are purchased on account. The company pays for 70% of their purchases in the quarter incurred and the remaining 30% in the following quarter. All of the accounts payable on the balance sheet from Jan. 31, 2019 will be paid in the first quarter. The company uses a weighted average process costing system consisting of the 3 processes outlined above. The company also use weighted average to value inventory and cost of goods sold. The company is scheduled to produce 2,100 kilograms in the first quarter, 2,450 kilograms in the second quarter, 2,100 kilograms in the third quarter, and 2,450 kilograms in the fourth quarter. 3. Total estimated variable overhead costs for fiscal 2019 (for the amount of sales estimated in part 1 above) are as follows: Indirect Materials $ 1,506,900 Indirect Labor 652,990 Employee Benefits 251,150 Utilities 2,511,500 Quality Inspections 100,460 Total $ 5,023,000 Variable overhead is allocated according to a predetermined overhead rate based on number of grams produced for the year. 50% of the variable overhead is allocated during the growing process. 20% of the variable overhead is allocated during the harvesting, trimming, and drying process. The remaining 30% of the variable overhead is allocated during the packaging process. All variable overhead is paid in the quarter incurred. Due to the unique design of The company's facility cash payments for the variable utility overhead costs are not even between the quarters. The quarterly percentages for the actual usage of the variable overhead utility costs are as follows: the first quarter (February through April) accounts for 31.25%, the second quarter (May through July) accounts for 12.5%, the third quarter (August through October) accounts for 18.75%, the fourth quarter (November through January) accounts for 37.5%. 4. Total estimated fixed overhead costs of fiscal 2019 are as follows: Insurance $ 226,050 Package Design 150,700 Utilities 376,750 Depreciation 5,274,500 Property Taxes 602,800 Genetic Research 904,200 Total $ 7,535,000 For budgeting purposes all fixed overhead costs are spread evenly across the four quarters of fiscal 2019. 45% of the fixed overhead is allocated during the growing process. 15% of the fixed overhead is allocated during the harvesting, trimming, and drying process. The remaining 40% of the fixed overhead is allocated during the packaging process. Aside from property taxes, fixed manufacturing overhead is paid for in the quarter that it is incurred. Property taxes are paid in full at the end of the first quarter. All fixed manufacturing overhead is allocated according to a predetermined overhead rate based on annual direct labor hours (for each process). 5. Variable selling and administrative expenses include shipping costs and other administration costs. It costs The company $25 to ship a kilogram. Variable administrative costs are $10 per kilogram. The variable selling and administrative costs are paid in the quarter incurred. Estimated fixed selling and administrative expenses for fiscal 2019 are as follows: Salaries $ 2,724,800 Travel 1,362,400 Depreciation 1,703,000 Marketing 340,600 Other 681,200 Total $ 6,812,000 Fixed selling and administrative expenses are spread evenly across the 4 quarters for budgeting purposes. Applicable fixed selling and administrative expenses are paid equally across the quarters. 6. The company makes quarterly income tax payments during the year based on projected yearly net income. The company is subject to a 25% income tax rate. 7. The company has the following financing related activities: The company has a mortgage on their facilities. This mortgage requires monthly cash payments of $60,000. The principal portion of these payments for each month in the coming year are as follows: February $ 10,524 March $ 10,577 April $ 10,630 May $ 10,683 June $ 10,736 July $ 10,790 August $ 10,844 September $ 10,898 October $ 10,953 November $ 11,008 December $ 11,063 January $ 11,118 For each month the balance of the $60,000 mortgage payment covers the interest due at the time of that payment. The company has an operating line of credit established with its bank. The line of credit permits The company to borrow in increments of $5,000 to cover any cash shortfalls. The company has an internal operating policy of maintaining a minimum quarterly ending cash balance of $100,000. Assume that all borrowing occurs at the beginning of the quarter in which the funds are required, and all repayment occurs at the end of the quarter in which funds are available for repayment. Simple interest at the rate of 6% per annum must be paid at the end of each quarter on all outstanding short-term loans. All repayments must be in multiples of $1,000, and no repayments are permitted in a quarter in which any short-term borrowing occurs. The company currently has $100,000,000 in an outstanding long-term loan with an annual interest rate of 9% and makes semi-annual interest only payments with the principle due at the end of the loan. The loan is due in 2038. Interest payments on this loan are made on January 1st and July 1st. 8. The companys unclassified balance sheet for January 31, 2019 is expected to be: Cash $ 101,000 Accounts Receivable 4,000,000 Raw Materials Inventory (1) (6) 180,000 Works in Process Inventory (2) (6) 2,389,931 Finished Goods Inventory (3) (6) 770,000 Plant, Property, and Equipment 165,000,000 Accumulated Depreciation 4,335,000 Total Assets $168,105,931 Accounts Payable (4) $ 435,000 Short-Term Debt (5) 20,000 Long-Term Debt 109,895,128 Common Stock 56,530,000 Retained Earnings 1,225,803 Total Liabilities and Equity $168,105,931 These balance sheet figures must be taken as given. (1) $40,000 in seeds/clones and growing medium mix which equals 40% of the needs for a single crop, and $140,000 in 200,000 packages. (2) Consists of: $1,343,624 in the growing process. This total cost includes 4 crops currently growing. Grand total is an anticipated 2,800 kilograms of finished product, 700 kilograms per crop. o One crop is 1 week old and accounts for $186,164. Included in this amount are all of the direct material costs for the growing process, direct labour cost for 83.125 hours, 1/16 of the total variable overhead from the growing process, and 83.125 hours worth of fixed overhead. o Another crop is 5 weeks old and accounts for $285,992. Included in this amount are all of the direct material costs for the growing process, direct labour cost for 135.625 hours, 5/16 of the total variable overhead from the growing process, and 135.625 hours worth of fixed overhead. o The 3rd crop is 9 weeks old and accounts for $385,820. Included in this amount are all of the direct material costs for the growing process, direct labour cost for 188.125 hours, 9/16 of the total variable overhead from the growing process, and 188.125 hours worth of fixed overhead. o The 4th crop is 13 weeks old and accounts for $485,648. Included in this amount are all of the direct material costs for the growing process, direct labour cost for 240.625 hours, 13/16 of the total variable overhead from the growing process, and 240.625 hours worth of fixed overhead. $625,288 in the harvesting, trimming, and drying process amount consists of transferred in costs, direct labour cost for the week of harvesting, fixed overhead for the direct labour hours from the week of harvesting, and one quarter of the variable overhead. Represents 700 kilograms of anticipated finished product (one crop harvest). Has been in the process for 1 week. $421,019 in the packaging process, amount consists of transferred in costs only. Represents 350 kilograms, half of a crop harvest. To be packaged in 60,000 3.5 gram packages and 140,000 1 gram packages. (3) 350 kilograms at a cost of $2.20 per gram. Represents half of a crop harvest. 45,000 packages of 3.5 grams and 192,500 packages of 1 gram. (4) Used for direct material purchases only. (5) From the companys line of credit terms outlined above in #7 financing activities. (6) Existing inventory will be used or sold in the 1st quarter of 2019. Required 1. Begin by preparing a Base Case master budget (and label this Excel spreadsheet Base Case) for The company for each quarter of 2019 and for the year in total. The following component budgets must be included (also see the Marking Rubric): a. Beginning balance sheet (classified). b. Sales budget c. Schedule of receipts d. Production budget e. Direct materials purchases budget f. Schedule of disbursements for materials g. Direct labour budget h. Overhead budget (be sure to show disbursements for overhead). i. Selling and administrative budget (be sure to show disbursements for selling and administrative expenses). j. Cash budget