Creative Shirts, Inc. CreativeShirts Inc. produces T-shirts. The company's fiscal year ends on December 31. Information to be used for the operating budget this coming year follows. Sales and Production-Related Budget Information Average sales price for each T-shirt is estimated to be $15. Un it sales for this coming year, ending December 31, are expected to be as follows: First quarter: 20,000 Second quarter: 24,000 Third quarter: 28,000 Fourth quarter: 18,000 Finished goods inventory is maintained at a level equal to 10 percent of the next quarter 's sales. Finished goods inventory at the end of the fourth quarter budget period is estimated to be 2,000 unit Each unit of product requires 3 yards of direct materials, at a cost of 2 per yard. Management prefers to maintain ending raw materials inventory equal to 20 percent of next quarter's materials needed in production. Raw materials inventory at the end of the fourth quarter budget period is estimated to be 12,200 yards. Each unit of product requires 0.1 direct labor h ours at a cost of $14 per hour. Variable manufacturing overhead costs are: Indirect materials: $0.70 per unit Indirect labor: $0.90 per unit Other: $0.50 per unit Fixed manufacturing overhead costs per quarter are: Salaries: $18,000 Other: $20,000 Depreciation: $11,950 Selling and Administrative Budget Information Management estimates all selling and administrative costs are fixed. Quarterly selling and administrative cost estimates for the coming year are: Salaries: $15,000 Rent: $5,000 Advertising: $4,000 Depreciation: $9,000 Other: $10,000 Capital Expenditures and Cash Budget Information The company plans to pay cash for selling and administrative equipment totaling $15,000 and production equipment totaling $9,000. Both will be purchased at the end of the fourth quarter, and will not affect depreciation expense for the coming year. All sales are made on credit. The company expects to collect 70 percent of sales in the quarter of sale and 30 percent the quarter following the sale. Accounts receivable at the end of last year totaled $80,000, all of which will be collected during the first quarter of this coming year. All direct materials purchases are on credit. The company expects to pay 80 percent of purchases in the quarter of purchase and 20 percent the following quart e r. Accounts payable at the end of last year totaled $25,000, all of which will be paid during the first quarter of this coming year. The cash balance at the beginning of this coming year is expected to be $30,000. Budgeted Balance Sheet Information Assume 30 percent of fourth quarter budgeted sales will be collected in full the following year (this represents accounts receivable at the end of the fourth quarter). Expected account balances at the end of the fourth quarter are: Property, plant, and equipment (net): $100,000 Common stock: $250,000 Actual retained earnings at the end of last year totaled $42,720, and no cash dividends will be paid during the current budget period ending December 31. Required: a. Prepare the quarterly sales and production-related budgets using the exhibit formats referenced below. Sales budget Production budget Direct materials purchases budget Direct labor budget Manufacturing overhead budget b. Prepare a quarterly selling and administrative budget. c. Prepare a quarterly budgeted income statement. d. Prepare a quarterly capital expenditures budget. e. Prepare a quarterly cash budget. f. Prepare a budgeted balance sheet at December 31. g. Why does management at Creative Shirts Inc. prepare a master budget?