CMRNA is a small-scale contract producer and seller of drugs and vaccines for clinical trials. The master budget will detail each quarters activity and the activity for the year in total. CMRNA will base the 2021 budget on the following information:

1. Expected sales, in units, for the four quarters of 2021 and the first two quarters of 2022 are as follows:

2021 Q1	2,800
2021 Q2	15,000
2021 Q3	26,000
2021 Q4	35,000
2022 Q1	40,000
2022 Q2	43,000

The selling price for 2021 has been set at $40.00 per unit. CMRNAs fiscal year ends on December 31. All sales are on account. 80% of sales on account are collected in the quarter of sale; 20% of sales on account are collected in the following quarter. Assume that all the balance in accounts receivable (as of 31^st December, 2020) will be collected in the first quarter of 2021. Assume no bad debts are incurred.

2. Each component requires the following direct inputs:

• 4 micrograms (mcg) of direct material available at a price of $1.00 per mcg.
• 0.002 hours of direct labour at a rate of $40.00 per hour.

CMRNA has a policy of maintaining direct material ending inventory equal to 10% of direct materials needed for the next quarters production requirements. All raw materials are purchased on account. 50% of a quarters purchases are paid for in the quarter of purchase; the remaining in the following quarter. CMRNA has a policy of keeping ending finished goods inventory equal to 10% of next quarters forecasted sales. There is no beginning or ending work-in-process inventory. Direct labourers are paid at the end of each month.

3. Total budgeted variable overhead costs for the 2021 year (at a level of sales estimated in Item 1 above) follow:

Indirect materials	$26,986
Indirect labour	55,520
Employee benefits	83,280
Inspections	31,500
Utilities	41,640
Total	$238,926

Variable overhead is applied to components using a predetermined overhead rate based on annual direct labour hours. All variable overhead items are paid for in the quarter incurred.

4. The annual budget for fixed manufacturing overhead items follows:

Supervisory salaries	$186,200
Property taxes	26,000
Insurance	28,800
Maintenance	46,000
Utilities	33,400
Engineering Time	41,850
Depreciation	96,000
Total	$458,250

All fixed overheads are paid evenly each quarter except for property taxes which are paid for in the third quarter of the year. Fixed overhead is applied to production using a predetermined overhead rate based on the estimated annual number of units produced.

5. Variable selling and administration expenses include commissions and other administrative expenses. Commissions are budgeted at 5% of sales dollars for the quarter. 80% of these commissions are paid in the quarter they incurred, while 20% are paid in the following quarter. Other variable administration costs are $2.00 per unit. These costs are paid for in the quarter they incurred.

Annual fixed selling and administration expenses are as follows:

Sales salaries	$152,000
Administration salaries	100,000
Travel	24,000
Insurance	3,400
Utilities	2,800
Depreciation	12,000
Other	2800
Total	$297,000

Fixed selling and administration expenses are paid evenly over the four quarters of the year.

6. CMRNA makes quarterly income tax installments based on the projected taxable income for the year. The company is subject to a 30% tax rate. For the master budget, CMRNA assumes tax expenses incurring for the year 2021 are paid in cash evenly over the four quarters of the year 2021.

7. CMRNA plans the following financing and investing activities for the coming year:

• The company is planning to buy a piece of land, costing $70,000, in the last quarter of 2021. This piece of land will be held for future plant expansion. The company will pay cash for the land and will finance any resulting cash shortfall by drawing on its operating line of credit.
• The company has an operating line of credit established with its bank. This allows the company to borrow in multiples of $5,000 to cover any cash shortfalls. All borrowing is assumed to occur at the beginning of the quarter in which the funds are required and all repayment is assumed to be made at the end of the quarter in which funds are available for repayment. Simple interest at the rate of 10% per annum is paid on a quarterly basis on all outstanding short-term loans. All repayments are in multiples of $1,000.
• The company currently has $240,000 in an outstanding long-term loan with an annual interest rate of 9% and makes quarterly interest only payments at the end of each quarter. The loan is due in 2033.
• The company outsources some of the manufacturing for $500,000. The company pays the outsourcing fee in cash at the end of the first quarter of year 2021.

8. The companys simplified balance sheet as of December 31, 2020 is as follows:

Cash	$31,000	Accounts Payable (1)	$30
Accounts Receivable	800	Commissions Payable	500
Raw Material Inventory	0	Long-term Debt	240,000
Finished Goods Inventory	0	Capital Stock	1,849,270
Buildings and Equipment	2,020,000	Retained Earnings	(350,000)
Accumulated Depreciation	(312,000)
Total Assets	$1,739,800	Total Liabilities and Shareholder's Equity	$1,739,800

These balance sheet figures must be taken as given. Negative balances are in the parentheses.

1. Only used for direct materials

Required:

1. Prepare a master budget for CMRNA for each quarter of 2021 and for the year in total. The following component budgets must be included:

1. Beginning balance sheet (classified as in Item 8, Project)
2. Overhead budget (be sure to show disbursements for variable and fixed overheads, in addition to applied variable and fixed overhead expenses).
3. Selling and administrative budget (be sure to show disbursements for selling and administrative expenses).
4. Cash budget

Prepare the following for the year, 2021, in total.

6.Cost of goods manufactured budget

7.Cost of goods sold budget

8.Pro forma income statement (using absorption costing)

9.Pro forma classified balance sheet

Cash budget and pro forma income statement are completed at the same time when you build a formula to account for tax expenses, and a set of formulas to account for cash outflow in the cash budget. Pro forma classified balance sheet are completed last.

2. The current price of $40.00 per unit is set during the last years pre-trial stage production. CMRNA plans to scale up the production to meet the growing demand. The resulting economies of scale allow the company to consider strategic pricing and compensation. The strategic price should satisfy the following criteria:
   • The price should be less than $40.00 per unit to beat other small-scale producers in price competition.
   • The company must achieve profit margins (= Operating income/Sales) between 5% and 10%

The company also needs to increase employee benefits and compensation by $90,000 to retain skilled manufacturing workers and production engineers.

Please solve 1 through 9 for the master budget.

CMRNA Sales Budget for the year ended December 31, 2021 Quarter 1 Quarter 2 Quarter 3 2,800 15,000 26,000 $40.00 $40.00 $40.00 Budgeted Sales (in Units) (*)Selling Price Quarter 4 35,000 $40.00 Year 78,800 $40.00 Total Expected Sales (in $) $1,12,000 $6,00,000 $10,40,000 $14,00,000 $31,52,000 CMRNA Schedule of Receipts for the year ended December 31, 2021 Quarter 1 Quarter 2 Quarter 3 Quarter 4 Total $89,600 Cash Collection From Customers: In the Qtr of Sales (80%) In the next Qtr of Sales (20%) Accounts Receivable for Dec, 2020 Expected Cash Collection $4,80,000 $22,400 $8,32,000 $1,20,000 $11,20,000 $25,21,600 $2,08,000 $3,50,400 $800 $13,28,000 $28,72,800 $800 $90,400 $5,02,400 $9,52,000 Budgeted Sales Add: Desired Ending inventory of FG CMRNA Production Budget fin Units) for the year ended December 31, 2021 Quarter 1 Quarter 2 Quarter 3 Quarter 4 2,800 15,000 26,000 35,000 1,500 2,600 3.500 4,000 17,600 29.500 39,000 1,500 2,600 3,500 4,300 16.100 26,900 35,500 Year 78.800 4,000 82,800 Otr 1 (2022) Qtr 2 (2022) 40,000 43,000 4,300 44,300 4,000 40,300 4.300 Less: Beginning inventory of FG Budgeted Production (in Units) 82,800 Qtr 1 (2022) 40,300 4 Production (Units (xDirect Mat needed per unit (mcg) Direct Mat. Needed (in mce) Add: Ending Inv. of RM (in mcg) CMRNA Direct Material Purchase Budget for the year ended December 31, 2021 Quarter 1 Quarter 2 Quarter 3 4,300 16,100 26,900 4 4 4 17,200 64,400 1.07,600 6,440 10,750 14,200 23,640 75,160 1,21,800 6,440 10,760 23,640 68,720 1,11,040 $1.00 $1.00 $1.00 $23,640 $68,720 $1,11,040 Quarter 4 35,500 4 1,42,000 16,120 1,58,120 14,200 1,43,920 $1.00 $1,43,920 Year 82,800 4 3,31,200 16,120 3,47,320 1,61,200 3,47,320 Less: Beg. Inv. of RM (in lbs) Raw Material Purchased (in lbs) (x) Rate per meg Direct Material Purchased $3,47,320 CMRNA Schedule of Disbursement for Materials for the year ended December 31, 2021 Quarter 1 Quarter 2 Quarter 3 $23,640 $68,720 $1,11,040 Direct Material Purchase Quarter 4 $1,43,920 Year $3,47,320 $11,820 Paid to Supplier: In the Qtr of Purchase (50%) In the Qtr Following Purch. (50%) Accounts Payable for Dec, 2020 Total Cash Payment for Purchase $34,360 $11,820 $55,520 $34,360 $71,960 $55,520 $1,73,660 $1,01,700 $30 $2,75,390 $30 $11,850 $46,180 $89,880 $1.27,480 CMRNA Direct Labour Cost Budget for the year ended December 31, 2021 Quarter 1 Quarter 2 Quarter 3 4,300 16,100 26,900 $0.002 $0.002 $0.002 9 32 54 $40.00 $40.00 $40.00 $344 $1,288 $2,152 Year 82,800 Production (Units) (*) Lobor hrs required per unit Total Direct lobor hrs worked (x)Lobor rate per hr Total Direct Labor Cost Quarter 4 35,500 $0.002 71 $40.00 $2,840 166 $6,624 CMRNA Sales Budget for the year ended December 31, 2021 Quarter 1 Quarter 2 Quarter 3 2,800 15,000 26,000 $40.00 $40.00 $40.00 Budgeted Sales (in Units) (*)Selling Price Quarter 4 35,000 $40.00 Year 78,800 $40.00 Total Expected Sales (in $) $1,12,000 $6,00,000 $10,40,000 $14,00,000 $31,52,000 CMRNA Schedule of Receipts for the year ended December 31, 2021 Quarter 1 Quarter 2 Quarter 3 Quarter 4 Total $89,600 Cash Collection From Customers: In the Qtr of Sales (80%) In the next Qtr of Sales (20%) Accounts Receivable for Dec, 2020 Expected Cash Collection $4,80,000 $22,400 $8,32,000 $1,20,000 $11,20,000 $25,21,600 $2,08,000 $3,50,400 $800 $13,28,000 $28,72,800 $800 $90,400 $5,02,400 $9,52,000 Budgeted Sales Add: Desired Ending inventory of FG CMRNA Production Budget fin Units) for the year ended December 31, 2021 Quarter 1 Quarter 2 Quarter 3 Quarter 4 2,800 15,000 26,000 35,000 1,500 2,600 3.500 4,000 17,600 29.500 39,000 1,500 2,600 3,500 4,300 16.100 26,900 35,500 Year 78.800 4,000 82,800 Otr 1 (2022) Qtr 2 (2022) 40,000 43,000 4,300 44,300 4,000 40,300 4.300 Less: Beginning inventory of FG Budgeted Production (in Units) 82,800 Qtr 1 (2022) 40,300 4 Production (Units (xDirect Mat needed per unit (mcg) Direct Mat. Needed (in mce) Add: Ending Inv. of RM (in mcg) CMRNA Direct Material Purchase Budget for the year ended December 31, 2021 Quarter 1 Quarter 2 Quarter 3 4,300 16,100 26,900 4 4 4 17,200 64,400 1.07,600 6,440 10,750 14,200 23,640 75,160 1,21,800 6,440 10,760 23,640 68,720 1,11,040 $1.00 $1.00 $1.00 $23,640 $68,720 $1,11,040 Quarter 4 35,500 4 1,42,000 16,120 1,58,120 14,200 1,43,920 $1.00 $1,43,920 Year 82,800 4 3,31,200 16,120 3,47,320 1,61,200 3,47,320 Less: Beg. Inv. of RM (in lbs) Raw Material Purchased (in lbs) (x) Rate per meg Direct Material Purchased $3,47,320 CMRNA Schedule of Disbursement for Materials for the year ended December 31, 2021 Quarter 1 Quarter 2 Quarter 3 $23,640 $68,720 $1,11,040 Direct Material Purchase Quarter 4 $1,43,920 Year $3,47,320 $11,820 Paid to Supplier: In the Qtr of Purchase (50%) In the Qtr Following Purch. (50%) Accounts Payable for Dec, 2020 Total Cash Payment for Purchase $34,360 $11,820 $55,520 $34,360 $71,960 $55,520 $1,73,660 $1,01,700 $30 $2,75,390 $30 $11,850 $46,180 $89,880 $1.27,480 CMRNA Direct Labour Cost Budget for the year ended December 31, 2021 Quarter 1 Quarter 2 Quarter 3 4,300 16,100 26,900 $0.002 $0.002 $0.002 9 32 54 $40.00 $40.00 $40.00 $344 $1,288 $2,152 Year 82,800 Production (Units) (*) Lobor hrs required per unit Total Direct lobor hrs worked (x)Lobor rate per hr Total Direct Labor Cost Quarter 4 35,500 $0.002 71 $40.00 $2,840 166 $6,624