ACC7300 Master Budget Project Due December 16, 2020 As part of the continued advancement of technology, a drone camera market has emerged in recent years. The drone camera market has been growing as more photography enthusiasts have adopted this high-tech approach to capturing still images and video using remotely controlled devices. Eager to capture a share of this growing market, DroneZone entered the market in early 2019. DroneZone manufactures camera drones, selling primarily to retailers. DroneZone is pleased with its financial performance over its first few years of operations, optimistic to achieve continued financial success. For planning and control purposes the company utilizes a monthly master budget, which is usually developed at least three months in advance of the budget year. The company has a fiscal year ending December 31. It is now September 15, 2020. Your manager has asked to help prepare the Master Budget for the year ending December 31, 2021. Based on your discussions with the various departments throughout the company, you have collected the following relevant information for preparing the budget: Sales 1. The marketing department is forecasting the following annual sales: For the year ended December 31, 2020: 9,000 units at $1,000 each* For the year ended December 31, 2021: 10,000 units at $1,000 each *Expected sales for the year ended December 31, 2020 were based on actual sales to date and budgeted sales for the duration of the year. 2. Peak months for sales generally correspond with summer weather and gift-giving holidays. History shows that January is the slowest month, with only 1% of annual sales, followed closely behind by Feb-April with 2% of annual sales for each month. Sales spike during summer months with May, June, July, and August contributing 12%, 15%, 12%, and 10% of annual sales, respectively. With the back-to-school focus in September, there is a significant dip in camera drone sales to 3% of annual sales. As Christmas shopping picks up momentum, winter sales increase to 8% in October, 13% in November, and then peak at 20% in December. This pattern of sales is not expected to change in the next two years. Manufacturing Costs and Inventory 3. Each camera drones spends a total of 3.5 hours in production. 4. Due to the highly technical nature of DroneZones manufacturing process, DroneZones direct labour rate has averaged $30.00 per hour for 2020. This rate already includes the employers portion of employee benefits. A new collective agreement is being negotiated, with a 3% pay increase anticipated effective January 1, 2021. 5. Each DroneZone requires 1.25kg of direct materials. During 2020, the average cost of direct materials was $57/kg. The supplier of the direct materials tends to be somewhat erratic, so DroneZone finds it necessary to maintain a direct materials inventory balance equal to 40% of the following months production needs as a precaution against stockouts. 6. Due to the similarity of the equipment in each of the production stages and the companys concentration on a single product, manufacturing overhead is allocated based on volume (i.e. the units produced). The variable manufacturing overhead rate for 2020 is $160/unit, consisting of: Plant and equipment maintenance $ 70 Utilities $ 40 Indirect Materials $ 30 Other $ 20 Total $ 160 7. The fixed manufacturing overhead costs for 2020 are as follows: Supervisors salary $ 181,800 Depreciation of Plant & Equipment $ 132,000 Insurance $ 84,000 Training & Development $ 54,750 Property and Business Taxes $ 48,000 Other $ 30,000 Total $ 530,550 8. Aside from depreciation, all other manufacturing costs are expected to increase by 5% in 2021. 9. From previous experience, management has determined that an ending finished goods inventory equal to 25% of the next months sales is required to efficiently meet customer demands. Collections Pattern 10. Sales are on a cash and credit basis, with 50% collected during the month of the sale, 35% the following month, and 15% the month thereafter. There are no early payment discounts for customers. Payments Pattern 11. DroneZone pays for 20% of a months purchases of direct materials in the month of purchase, 50% in the following month and the remaining 30% two months after the month of purchase. There are no early payment discounts offered by suppliers. Other 12. Anticipating a significant increase in customer demand and market share over the next few years, DroneZone is acquiring additional manufacturing equipment for $3,000,000 cash. Half this amount will be paid in May 2021, with the remainder to be pain in October 2021. 13. Selling and administrative expenses are known to be a mixed cost; however, there is a lot of uncertainty about the portion that is fixed. Based on prior year experience: Lowest level of monthly sales (80 units) $87,270 Highest level of monthly sales (1600 units) $360,780 *Hint: Separate the variable cost portion of selling and administrative costs from the fixed cost portion 14. The company is forecasting the following balances as at the end of business day on December 31, 2020: Assets Cash $ 100,000 Accounts Receivable $ 1,098,899 Inventory: Direct Materials $ 3,591 Inventory: Finished Goods $ 11,640 Prepaid Property and Business Taxes $ 24,000 Prepaid Insurance $ 21,000 Capital Assets (net) $ 571,800 Total Assets $ 1,830,930 Liabilities and Shareholders Equity Accounts Payable $ 78,641 Income Taxes Payable $ 19,700 Capital Stock $ 500,000 Retained Earnings $ 1,232,589 Total Liabilities and Shareholders Equity $ 1,830,930 Required: 1. Prepare the following parts of the master budget for the second quarter (April, May, and June 2021): a. Sales budget b. Expected cash collections c. Production budget d. Direct materials budget e. Expected cash disbursements f. Direct labour budget g. Manufacturing overhead budget h. Ending finished goods budget i. Selling and administrative expense budget. 2. Explain the importance of budgeting to business managers and decision-makers (minimum 500 words). Your answer should cite at least two sources, use the textbook and other academic resources to support your analysis. Please include a references section. *Instructor notes This is an individual assignment. Plagiarized assignments will receive an automatic grade of zero This assignment must be completed using Microsoft Word, Microsoft Excel (or another word/spreadsheet software) Remember to correctly format your budgets In this assignment, you act as a professional advisor and submit a report to the company owner. The quality of your submission should be reflective of this. Assignment Weighting: Calculations and analysis /36 Budget format /9 Spelling and grammar /3 Submission Quality (easy to follow, clear solutions etc.) /2 Total /50