After two years study, you finally graduate and start a job as Junior accountant at XYZ Inc. Your manager is responsible for the nationwide distribution of men grooming sets. Because of the new fashion style among current generation, the company has grown rapidly, and the prompt growth forces the management team to improve their efficiency and manage their production effectively. You have just been given responsibility for all planning and budgeting of the entire men grooming set division. Today is your first day, you have just given an assignment to prepare master budget for the manager, who needs to present the budget and discuss the financial objectives with the shareholders tomorrow. During your job interview, you clearly stated that you gained managerial accounting knowledge and hand on experience during your MBA study. Your first assignment is to prepare a master budget for the next fiscal year, starting April 1, 2019. Your co-work has left a pile of files on your desk including the past sale records, product information, manufacture schedule and supplier pricing list. Now, you realized that you should have pay more attention during the lecture. Now, you don’t know where to start. Fortunately, you remember that you still kept a copy spreadsheet of the master budget template in your computer from accounting course. Note: The company desires a minimum ending cash balance each month on $25,000. The XYZ’s are sold to retailers for $18 each and they are flying off the shelves. Recent forecasted sales in units are provided below:

April 2020 - 20,000

October 2020 - 60,000

May 2020 - 24,000

November 2020 - 68,000

June 2020 - 68,000

December 2020 - 80,000

July 2020 - 35,000

January 2021 - 32,000

August 2020 - 45,000

February 2021 - 35,000

September 2020 - 55,000

March 2021 - 36,000

*April 2021 sale unit is expected to be 20,000

The increased sales volume before and during June and December is due to Father’s Day and holidays with XYZ being a favorite. Ending finished goods inventories are supposed to be equal to 30% of the next month’s sales in units. XYZ currently does its own assembly production in house. Each unit consists of 2 shaves and the cost of each is $1.00. Each unit needs 0.20 labour hour from assemble to finish package. The hourly pay rate to the assembling workers is $15 per hour. The production manager also required desired direct material ending inventory to 40% of the next month production. Purchases are paid for in the following manner: 50% in the month of the purchase and the remaining 50% paid in the month following the purchase. All sales to the distributors are made on credit terms with no discount (for now), and payable within 15 days. The XYZ has determined that only 25% of a month’s sales are collected by the end of the month in which the sale occurred. An additional 50% is collected in the month following the sale, and the remaining 25% is collected in the second month following the sale. Bad debts have been negligible, supporting the credit terms as favorable.

Below is a display of the XYZ division monthly manufacture overhead and selling and administrative expenses:

Manufacture Overhead

Variable: Indirect labour $0.5 per labour hour

Indirect Materials $0.2 per labour hour

Fixed:

Wages and Salaries $2,000

Utilities $1,000

Insurance $1,000

Depreciation $1,500

Selling and Administrative Variable:

Sales Commissions $1 per unit

Fixed:

Wages and Salaries $22,000

Utilities $14,000

Insurance $1,200

Depreciation $1,500

Miscellaneous $3,000

Labour, Manufacture Overhead, and Selling and Administrative expenses are all paid during the month, in cash, with the exception of depreciation (of course). XYZ will make a purchase of a parcel of land during the month of July 2020 for $22,500 cash. XYZ contributes to the corporate dividend at a rate of $12,000 each quarter, payable in the first month of the following quarter. XYZ’s balance sheet at the end of the first quarter is shown below:

Assets Cash $14,000 Accounts receivable ($48,000 February sales; $168,000 March sales) 216,000

Liabilities and

Accounts payable $85,700

An agreement with Bank of the West allows XYZ to borrow in increments of $1,000 at the beginning of each month, up to a total loan amount of $550,000. The interest rate on these loans is 10% annually (pretty high considering market rates) but the interest is not compounded, meaning this is simple interest only.

Required: Prepare a master budget for twelve months from April 1, 2020 to March 31st, 2021. Include the following budget schedules and financial statements:

1) Master Budget

2) Cash Budget. Show the cash budget by month and in total.

3) Budgeted Income statement