Budgeting: Management of Shiraz Company is interested in a number of budgets. The preferred formats for budgets are displayed in Exhibit I. As shown in Exhibit I, Saras Excel file has two sections. Section One contains the required data for the preparation of budgets. Section Two contains the budgets. Since management of Shiraz wants to simulate the budgets for various possible conditions, the content of budgets will be stated all in formulas.Sara has prepared the following data for the preparation of budgets: 1. Sales Selling price per unit of Alpha is expected to be $12 in January through February. Five percent increase in selling price is expected in March. Aril and May are expected to have the same selling price as in March. Seventy-five (75) percent of each months sales are collected in the month of sale. The remaining is collected in the following month. 2. Manufacturing Expenses Production of each Alpha requires: Direct materials: 5 pounds of direct material @ $0.80 per pound (expected to increase by 1% each month) Direct Labor: hour of direct labor @ $10 per hour Variable manufacturing overhead (each unit): $0.50 per unit Fixed manufacturing overhead: Total of $25,000 per month of which $3,000 is depreciation expense 3. Operating (Selling & Administrative) Expenses Sales Commission: $0.80 per unit Shipping and Handling: $0.50 per unit Fixed Operating Expenses: Total $12,000 per month of which $1,500 is depreciation expense. 4. Payment of Expenses Other than purchase of materials, all expenses are expected to be paid in the month incurred. Sixty (60) percent of purchases are paid in the month of purchase and the remaining is paid in the following month 5. Capital Expenditures Shiraz is in the process of expansion of its operations by adding new equipment. The expansion requires $200,000 cash outflow in the month of January and another $100,000 in the month of February. 6. Loan Repayments & Interest Expense The Company can borrow from its bank as needed to bolster the Cash account. Borrowings and repayments of principle must be in multiples of $1,000, unless you are paying off the entire balance. All borrowings and repayments take place at the end of a month. The annual interest rate is 12%. Interest is compounded every month and added to the principle. Compute interest on whole month (1/12, 2/12, and so on). 7. Inventory Policy It is the company's policy to maintain an inventory of Alpha at the end of each month equal to 20% of next month's anticipated sales. Company also maintains an inventory of raw materials equal to 25% of next months production needs. 8. Other Information Sales on December of previous year were $4,350,000. Direct material purchases for December of the previous year were $1,800,000. The balance of cash on December 31 of the previous year was $21,000. The Company desires to maintain a minimum balance of $20,000 cash on hand at all times. Applicable income tax rate is 30%.