$1.$INVENTORY POLICY$1\mathrm{.}1$Raw MaterialsSufficient materials should be on hand at the end of the month to meet $30\%$ of the nextmonth's production.Finished GoodsSufficient units should be on hand at the end of the month to meet $30\%$ of the next month's sales$\mathrm{.}1\mathrm{.}2$ Opening Inventory @ January $1,2024$Wet Materials $4,800$ litresDry Materials $8,000$ kgFinished Goods $16,000$ units$1\mathrm{.}3$ Closing Inventory @ December $31,2024$Wet Materials $5,445$ litresDry Materials $9,075$ kgFinished Goods $18,150$ units$2.$ ADMINISTRATIVE EXPENSESThe activity for administrative expenses is units produced$\mathrm{.}3.$ FLEXIBLE BUDGETThe static budget is predicated on sales of $165,000$ units.The Actual results are based on actual sales of $175,000$ units.Management Accounting Budgeting CaseYou work for a firm of management accountants who have recently been engaged by a clientwho operates in the baking industry. Your team has been assigned to provide the consultancyservices requested to prepare financial budgets for the client to form part of its funding proposal.You have been provided with the following exhibits:A$.$ Background information about the client, Sweet Heat Treats & More $($SHTM$)$B$.$ Summarized Statement of Financial Positon for December $31,2023$C$.$ Budget Assumptions for $2024$D$.$ Actual performance for the first quarter of $2024$Required: Assuming that today is April $8,2024,$ complete the following tasks outlined below:$1.$Prepare the functional budgets $[62$ marks$]1\mathrm{.}1$ Sales Budget$1\mathrm{.}2$ Production Budget$1\mathrm{.}3$ Direct Materials Budget$1\mathrm{.}4$ Direct Labits Budget$1\mathrm{.}5$ Manufacturing Overheads Budget$1\mathrm{.}6$ Selling and Administration Budget$2.$Prepare the cash budget $[31$ marks$]3.$Prepare a flexible budget for the first quarter of $2024[7$ marks$]$EXHIBIT A $|$ CLIENT BACKGROUND INFORMATIONBackground: Sweet Heat Treats & More $($SHTM$)$SHTM Bakery is a student$-$founded bakery located on the vibrant campus of the University ofJamaica in Kingston, Jamaica. Established in $2013,$ SHTM began as a platform for culinary artsstudents to gain practical experience in a real$-$world bakery setting. Over the years, the Bakerygrew into a beloved campus destination, known for its delicious baked goods, warm atmosphere,and commitment to quality ingredients.Driven by the success of its student$-$run model and the growing demand for its products, SHTMis now poised to take the exciting step of expanding into a fully commercial bakery operation.This expansion will enable us to not only offer its delectable treats to a wider customer base butalso create valuable employment opportunities within the Kingston community.Ready to Rise: The Road to CommercializationWith a proven track record of success and a clear vision for the future, SHTM is now seekingfunding to transition into a fully commercial bakery operation. This expansion will allow theBakery to: Expand its production capacity: They plan to invest in new equipment and ingredients to meetthe increased demand from a wider customer base. Diversify its product offerings: It aims to introduce new and exciting items to its menu, cateringto a broader range of tastes and preferences. Create employment opportunities: The expansion will allow us to hire qualified bakers andstaff, contributing to the economic growth of the Kingston community.Enhance the community: They envision SHTM Bakery as a vibrant gathering place, offering notonly delicious treats but also a warm and welcoming atmosphere for people to connect.The Bakey approached the Tourism Enhancement Fund for financial support, and they requesteda budget $($cash flow projections$)$ to support the funding request.EXHIBIT B $|$ SUMMA IZED STATEMENT OF FINANCIAL POSITION $($Dec$.31,2023)$SHTM Summarized Statement of Financial PositionAs at December $31,2023$NON$-$CURRENT ASSETSProperty, Plant & Equipment $=$ $$25,000,000$CURRENT ASSETSInventory $-$ Raw Materials $=$ $$50,000$Inventory $-$ Finished Goods $=$ $$250,000$Accounts Receivables $=$ $$400,000$Cash $=$ $$3,250,000$Total Current assets $=$ $$3,950,000$Total assets $=$ $$28,950,000$LONG$-$TERM LIABILITESBank Loan $=$ $$3,000,000$CURRENT LIBIALITIESAccounts Payables $=$ $$250,000$EQUITY $=$ $$25,700,000$Total $=$ $$28,950,000$EXHIBIT C BUDGET ASSUMPTIONSC$1$:SALESUnits:$55,000$ per month up to June $2024.$ There is a projected increase of $10\%$ for the remaining$6$ months.Price:$$460\mathrm{.}00$ per unit.Collection: Cash Sales: $50\%$Sales on Account: $50\%$ collected as follows:$1.10\%$ in the month of sale$2.50\%$ in the month following sale$3.35\%$ two months following sale$4.5\%$ deemed uncollectableThe accounts receivables balance for December $2023$ is broken down as follows:$$60,000$ balance from November $2023$ paid in full in Jan. $2024$$$340,000$ from December $2023$ payable in Jan. and Feb. $2024$C$2$ DIRECT LABOURUnit: Direct labor hour per unit of output is $0\mathrm{.}30$Rate: The average direct labour hour cost per hour is $$480.$C$3$: PRODUCTIONDirect Materials: Dry Ingredients, Wet IngredientsPer$-$Unit Usage$0\mathrm{.}50$ Kg$,0\mathrm{.}3$ litreCost per. $$200$ Kg$,$ $$90$ litreInventory Policy: Sufficient materials should be on hand at the beginning of the month to meet$30\%$ of the next month's production needs.Payments: Materials are purchased on account and paid for as follows:$1.45\%$ month of purchase$2.35\%$ month following purchase$3.20\%$ two months following purchaseThe accounts payables balance at December $2023$ is broken down as follows:$$25,000$ balance from November $2023($paid in full Jan. $2024)$ $$225,000$ balance from December$2023($paid $$175,000$ Jan. $2024$ and $$50,000$ Feb. $2024)$C$4$ OVERHEADPolicy: Overhead each month is estimated using a flexible budget formula. $($Activity is measuredin direct labour hours$).$Overhead$-$ PowerFixed$-$Variable$-$$$40$Overhead $-$ MaintenanceFixed $-$$$30,000$Variable$-$$$40$Overhead $-$ SupervisionFixed$-$$$575,000$Variable$-$Overhead $-$OtherFixed $-$$$25,000$Variable $-$$$3\mathrm{.}20$C$5$ SELLING EXPENSESPolicy: Selling expenses are also estimated using a flexible budget formula. $($Activity ismeasured in units sold$).$Expense$-$ SalariesFixed$-$$$50,000$Variable$-$$$1\mathrm{.}50$Expense DeliveryFixed $-$ $$55,000$Variable$-$$$1\mathrm{.}00$ADMINISTRATIVE EXPENSESPolicy: Administrative expenses are estimated using past cost. The estimate for generaladministrate expenses are done using the least squares and other administrate expenses areestimated using the high low method. $($In both activity is measured by units produced over thepast $6$ months.$)$General Administrative ExpenseCost:Jul $$489,450$Aug $$512,475$Sep $$517,080$Oct $$427,743$Nov $$524,448$Dec $$525,369$Other Administrative ExpensesCost:Jul $$61,500$Aug $$632,500$Sep $$636,000$Oct $$567,750$Nov $$641,250$Dec $$642,300$Production:Jul $45,000$ unitsAug $47,500$ unitsSep $48,000$ unitsOct $38,300$ unitsNov $48,800$ unitsDec $48,900$ unitsC$7$ NON$-$CURRENT ACQUISITIONSItem$-$ Computer SystemCost$-$$$1,350,000$Month Acquired $-$May $2024$Item$-$Commercial Baking EquipmentCost $$1,000,000$Moth Acquired$-$ July $2024$Cost$-$ $$4,000,000$Month Acquired $-$December $2024$Item $-$TrolliesCost$-$ $$2,500,000$Month Acquired$-$ August $2024$Item$-$ Cooling TraysCos$-$t$$750,000$Month Acquired $-$December $2024$Item $-$Delivery TruckCost$-$ $$10,075,000$Month Acquired $-$May $2024$Cost$-$$$16,935,000$Month Acquired$-$October $2024$C$8$FINANCINGC$8\mathrm{.}1$ The Bakery maintains a minimum closing balance of $$500,000$ each month C$8\mathrm{.}2$ SOBANational Bank provides a line of credit of up to $$15,000,000$ payable in full $($principal andinterest$)$ three months after the disbursement of the loan. A full month's interest is payable in themonth the loan is disbursed. Interest rate on the line of credit is $20\%$ per annum.C$8\mathrm{.}3$The loan balance on the statement of financial position is repayable in full over $12$ monthscommencing January $2024.$ The monthly payments $($principal and interest$)$ is $$262,500$ permonth.EXHIBIT D $|$ ACTUAL PERFORMANCE FOR QUARTER $1$ ENDED MARCH $31,2024$REVENUES:BUDGET$-$$$75,900,000$ACTUAL$-$$$79,695,000$VARIABLE COSTS:Materials $-$ DryBudget$-$ $$16,600,000$Actual $-$$$17,015,000$Materials $-$ WetBudget $-$ $$4,482,000$Actual$-$ $$5,154,300$LabourBudget$-$ $$23,832,000$Actual$-$ $$24,546,960$PowerBudget$-$ $$3,723,750$Actual$-$ $$4,170,600$MaintenanceBudget$-$$$1,986,000$Actual$-$ $$1,787,400$Other Manufacturing OHBudget$-$$$158,880$Actual$-$$$160,469$SalariesBudget$-$ $$247,500$Actual$-$ $$264,825$DeliveryBudget$-$ $$165,000$Actual$-$ $$178,200$General AdminBudget$-$$$1,524,255$Actual $-$$$1,554,740$Other AdminBudget$-$$$1,158,500$Actual$-$$$1,129,538$Total Variable CostsBudget $$53,877,885$Actual $$55,962,031$CONTRIBUTIONBudget$-$$$22,022,115$Actual $-$ $$23,732,969$FIXED COSTSMaintenanceBudget$-$$$90,000$Actual$-$$$72,000$Other Manufacturing OHBudget$-$$$75,000$Actual$-$$$75,000$SupervisionBudget$-$$$1,725,000$Actual $-$$$1,880,250$SalariesBudget$-$$$150,000$Actual $-$$$155,000$DeliveryBudget$-$$$165,000$Actual$-$$$155,000$General AdminBudget$-$$$225,000$Actual$-$ $$205,000$Other AdminBudget$-$$$900,000$Actual$-$