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 begun adopted this high-tech approach to capturing still images and video using remotely controlled devices. Eager to capture a share of this growing market, CamDrone entered the market in early 2018. CamDrone manufactures camera drones, selling primarily to retailers. CamDrone 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 Sept 15, 2019. You have been asked to prepare the Master Budget for the year ending December 31, 2020. Based on your discussions with the various departments throughout the company, you have collected the following relevant information for preparing the budget: Sales The marketing department is forecasting the following annual sales: For the year ended December 31, 2019: 9,000 units at $1,000 each* For the year ended December 31, 2020: 10,000 units at $1,000 each For the year ended December 31, 2021: 15,000 units at $1,000 each *Expected sales for the year ended December 31, 2019 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 2.5% of annual sales for each month. Sales spike during summer months with May, June, July, and August contributing 8%, 11%, 12%, and 10.5% 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 7% in October, 10% in November, and then peak at 30% 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 2.45 hours in production. 4.Due to the highly technical nature of CamDrone's manufacturing process, CamDrone's direct labour rate has averaged $30.00 per hour for 2019. This rate already includes the employer's portion ofemployee benefits. A new collective agreement is being negotiated, with a 4.65% pay increase anticipated effective January 1, 2020. 5.Each CamDrone requires 2.25kg of direct materials. During 2019, the average cost of direct materials was $57/kg. The supplier of the direct materials tends to be somewhat erratic, so CamDrone finds it necessary to maintain a direct materials inventory balance equal to 22% of thefollowing month's production needs as a precaution against stock-outs. 6.Due to the similarity of the equipment in each of the production stages and the company'sconcentration on a single product, manufacturing overhead is allocated based on volume (i.e. the units produced). The variable manufacturing overhead rate for 2019 is $160/unit, consisting of: Plant & Equipment Maintenance-$70 Utilities-40 Indirect Materials-30 Other-20 TOTAL $ 160 7.The fixed manufacturing overhead cost for 2019 are so follows: Supervisor's salary-$ 181,800 Amortization of Plant & Equipment-132,000 Insurance-84,000 Training & Development-54,750 Property and Business Taxes-48,000 Other-30,000 Total $ 530,550 Amortization is calculated using the straight-line method, with no amortization calculated in the year capital assets are acquired. 8.Aside from amortization, all other manufacturing costs are expected to increase by 3.85% in 2020 due to inflation. 9.From previous experience, management has determined that an ending finished goods inventory equal to 15% of the next month's sales is required to efficiently meet customer demands. Collections Pattern 10.Sales are on a cash and credit basis, with 24% collected during the month of the sale, 35% the following month, and 38% the month thereafter. There are no early payment discounts for customers. Bad debt expense (amounts considered uncollectible) account for 3% of sales. 11.Based on the collection pattern described above, accounts payable as at end of business day on December 31, 2019 is projected to be $1,098,899 arising from the following estimates: Sales (November 2019)- $1,170,000 Sales (December 2019) -$1,800,000 Payments Pattern 12.CamDrone pays for 48% of a month's purchases of direct materials in the month of purchase, 15% in the following month and the remaining 37% two months after the month of purchase. There are no early payment discounts offered by suppliers. 13.Based on the payment pattern described above, accounts payable as at end of business day on December 31, 2019 is projected to be $78,641 arising from the following estimates: Direct Material Purchases (November 2019) $95,888 Direct Material Purchases (December 2019) $62,344 14.All payroll costs are paid in the period in which they are incurred. 15.The property and business taxes, paid at the beginning of July each year, apply to the following 12- month period. Any increases for inflation on property and business taxes do not take effect until the beginning of July each year 16.Annual insurance premiums, paid at the beginning of April each year, apply to the following 12- month period. Any increases for inflation on insurance premiums do not take effect until the beginning of April each year. 17.Fixed manufacturing overhead costs are incurred evenly over the year and "cash related" amountsare paid as incurred. 18.Selling and administrative expenses are paid in the month in which they occur. Other 19.Anticipating a significant increase in customer demand and market share over the next few years, CamDrone is planning a significant expansion involving acquiring additional manufacturing equipment for $2,700,000 cash. Forty percent of this amount is to be paid to the equipment supplier in May 2020, 35% in July 2020, with the remainder to be paid in November 2020. 20.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... Total Operating Expenses: $87,270* Highest level of monthly sales:1,600 units... Total Operating Expenses: $360,780* * excluding bad debts and amounts described below These expenses are expected to increase by 3.85% in 2020 due to inflation. 21.To secure and grow its market share, CamDrone is planning to operate "pop-up" kiosks in various local retail centers during peak sales months (May-Aug, Nov-Dec) commencing Nov 2019. CamDrone is budgeting $10,900 per month (including all related fees and taxes), payable at the beginning of each month, to set-up and operate these kiosks. The cost to set-up and operate "pop-up" kiosks will be in addition to the normal selling and administrative expenses described aboveand is not expected to increase during 2020. 22.Income tax expense is estimated to be 22% of net income. CamDrone makes monthly income tax installment payments of $16,000 and pays all outstanding income taxes (in excess of installment payments) in March of the following year. As such, any outstanding income tax balance for the year ended December 31, 2019 it will be paid in May 2020. 23.An arrangement has been made with the local bank that if CamDrone maintains a minimum balance of $32,000 in their bank account, they will be given a line of credit at a preferred rate of 3.5% per annum. All borrowing is considered to happen on the first day of the month, repayments are on the last day of the month. All borrowings and repayments from the bank should be in multiples of $10,000 and interest must be paid at the end of each month. Interest is calculated on the balance at the beginning of the month, which includes any amounts borrowed that month. 24.CamDrone has a policy of paying dividends at the end of each quarter. The President tells you that the Board of Directors is planning on declaring dividends as follows: March 2020- $50,000 June 2020 -$100,000 September 2020- $250,000 December 2020-$250,000 Dividends are paid in the month they are declared. 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: Show monthly master budget for CamDrone for the year ending December 31, 2020, including the following schedules: Selling and Administrative Expense Budget Cash Budget