As part of the continued advancement of technology, a drone camera market has emerged in recent years. The 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, Soaring Drones entered the market in early 2023. Soaring Drones manufactures camera, selling primarily to retailers.

Drones 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. The company has a fiscal year ending December 31. It is now December 2023. You have been asked to prepare the Master Budget for the quarter ending March 31, 2024. 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 monthly sales for the quarter ending March 31, 2024 January 2024: 100 units at $2,000 each February 2024: 110 units at $2,000 each March 2024 : 120 units at $2,000 each Sales will increase by about 10% per month after March

Manufacturing Costs and Inventory 2. Each camera drone spends a total of 2.5 hours in production. Page 2 of 6 3. Due to the highly technical nature of Soaring Drones's manufacturing process, Soaring Drones's direct labour rate averages $35.00 per hour. This rate already includes the employer's portion of employee benefits. 4. Each camera drone requires 1.50 kg of direct materials. The average cost of direct materials is $57/kg. The supplier of the direct materials tends to be somewhat erratic, so Soaring Drones finds it necessary to maintain a direct materials inventory balance equal to 40% of the following month's production needs as a precaution against stock-outs. 5. Due to the similarity of the equipment in each of the production stages and the company's concentration on a single product, manufacturing overhead is allocated based on volume (i.e. the units produced). The variable manufacturing overhead rate is $150/unit, consisting of: Plant & Equipment Maintenance $50 Utilities 40 Indirect Materials 30 Other 30 $ 150 6. The ANNUAL fixed manufacturing overhead costs are as 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 $ 530,550 Amortization is calculated using the straight-line method, with no amortization calculated in the year capital assets are acquired. Note that some of the costs above are considered non-cash if they are being paid only once per year and amortized throughout 7. From previous experience, management has determined that an ending finished goods inventory equal to 25% of the next month's sales is required to efficiently meet customer demands. Page 3 of 6 Collections Pattern 8. Sales are all on credit basis, with 59% collected during the month of the sale and 41% the following month. There are no early payment discounts for customers. 9. Accounts receivable as at end of business day on December 31, 2023 is projected to be $56,000 Payments Pattern 10. Soaring Drones pays for 70% of a month's purchases of direct materials in the month of purchase, 30% in the following month. There are no early payment discounts offered by suppliers. 11. Accounts payable as at end of business day on December 31, 2023 is projected to be $3,200 12. All payroll costs are paid in the period in which they are incurred. 13. The property and business taxes, paid at the beginning of July each year, apply to the following 12-month period. 14. Annual insurance premiums, paid at the beginning of April each year, apply to the following 12-month period. 15. Fixed manufacturing overhead costs are incurred evenly over the year and "cashrelated" amounts are paid as incurred. 16. Selling and administrative expenses are paid in the month in which they occur. Other 17. Anticipating a significant increase in customer demand and market share over the next few years, Soaring Drones is planning a significant expansion involving acquiring Page 4 of 6 additional manufacturing equipment for $350,000 cash. This amount will be paid in March 18. 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:60 units ... Total Operating Expenses: $87,270* Highest level of monthly sales:120 units ... Total Operating Expenses: $120,780* * excluding amounts described below 19. Income tax expense is estimated to be 25% of net income. Soaring Drones makes monthly income tax installment payments of $2,500 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, 2023 will be paid in March 2024. 20. An arrangement has been made with the local bank that if Soaring Drones maintains a minimum balance of $50,000 in their bank account, they will be given a line of credit at a preferred rate of 3% per annum (0.25% per month). All borrowing/repayment is considered to happen at beginning of month. All borrowings and repayments from the bank should be in multiples of $10,000 and interest must be paid the following month. Interest is accrued on the balance at the end of month in which borrowing/repayment happened. 21. Soaring Drones has a policy of paying dividends at the end of each quarter. The President tells you that the Board of Directors is planning on paying a $100,000 dividend on March 31, 2024. Page 5 of 6 22. The company is forecasting the following balances as at the end of business day on December 31, 2023: Assets Cash $ 80,000 Accounts Receivable $56,000 Inventory: Direct Materials 2,337 Inventory: Finished Goods 16,285 Prepaid Property and Business Taxes 24,000 Prepaid Insurance 21,000 Capital Assets (net) 571,800 Total Assets $771,422 Liabilities and Shareholders' Equity Accounts Payable $ 3,200 Income Taxes Payable 19,700 Capital Stock 500,000 Retained Earnings 248,522 Total Liabilities and Shareholders' Equity $771,422 Required: Prepare a monthly master budget for Drones for the quarter ended March 31, 2024, including the following schedules: Sales Budget & Schedule of Expected Cash Collections Production Budget Direct Materials Budget & Schedule of Expected Cash Disbursements Direct Labour Budget Manufacturing Overhead Budget Ending Finished Goods Inventory Budget Selling and Administrative Expense Budget Prepare the monthly Cash Budget for Soaring Drones for the year ending March 31,2024 Prepare the budgeted Income Statement and Statement of Retained Earnings for the quarter ending March 31, 2024. Prepare the budgeted Balance Sheet at March 31, 2024.