Asahi Glass Inc. produces and distributes different kinds of glasses. The information below about Asahis operations has been assembled to assist budget preparation. The company is preparing its master budget for the first quarter of 2021. The budget will detail each months activity and the activity for the quarter in total. The master budget will be based on the following information:

a. Selling price was $40 per unit in 2019 and will not change during 2020. Actual and Estimated Sales are as follows

Estimated 2020

January: 30,000 units February: 32,000 units March: 27,000 units April: 25,000 units May: 20,000 units

b. The company produces enough units each month to meet that months sales plus a desired inventory level equal to 20% of next months estimated sales. Finished goods inventory at the end of 2019 consisted of 2,000 units.

c. The company purchases enough raw materials each month for the current months production requirement and 20% of next months production requirement. Each unit of product requires 4 kilograms of raw material at $0.50 per kilogram. There were 25,000 kilograms of raw materials in inventory at the end of 2019. Asahi pays 40% of the raw material purchases in the month of purchase and the remaining 60% in the following month.

d. Each unit of finished product requires 1.6 labor-hours. The average wage rate is $20 per hour.

e. Variable manufacturing overhead is 40% of the direct labor cost.

f. Sales are 30% in cash and 70% in credit. Credit sales are collected in the month following sale.

g. Fixed manufacturing overhead costs (per month) are as follows

Factory Managers Salary $ 6,500 Factory Insurance $ 3,400 Factory Rent $45,000 Depreciation of factory equipment $ 2,000

h. Total fixed S & A expenses are as follows

Advertising Depreciation Insurance Salaries Other

$ 3,000 $ 8,000 $ 750 $ 5,000 $ 2,950

i. Variable selling and administrative expenses consist of $3.5/unit for shipping and 12% of sales for commissions.

j. The balance sheet as of December 31, 2019 is as follows

Assets

Liabilities and Equity

Accounts Payable

Long-Term Notes payable

Common Shares

Retained Earnings

Total Liabilities and Shareholders Equity

Additional information is as follows

Cash

Accounts Receivable

Inventory: Raw Materials Inventory: Finished Goods

Plant and Equipment

Less: Accumulated Depreciation Total Assets

$ 12,500 82,000 $1,100,000 (180,000)

$ 70,000 512,000

94,500

920,000 $1,596,500

$ 27,500 819,000 635,000 115,000

$1,596,500

All cash payments except purchases of raw materials are made monthly as incurred

All borrowings occur at the beginning of each month, and all repayments occur at the end of the

month.

Ignore interest rates and income tax.

A minimum cash balance of $60,000 is required at the end of each month.

Required:

1. Prepare the following budgets for each of the first three months of 2020. [21 marks] a. Sales budget.

b. Production budget.

c. Raw materials purchases budget.

d. Direct labour and manufacturing overhead budget. e. Ending finished goods inventory budget

f. Selling and administrative budget.

g. Cash budget.