Fibre Optics Ltd is a high-tech company that produces versatile fibre optics that telecommunication and airline production companies use. Currently, the fibre optic is a very high quality product in the market and it is patented to Fibre Optics Ltd as it

Represent a breakthrough in the industry. Fibre Optics Ltd is contemplating its fifth year of operations and is preparing to build its master budget for the 2022. The budget will detail each quarters activity and the activity for the year in total. The master budget will be based on the following information:

1. Fourth-quarter sales for 2021 are 55,000 units.
2. Unit sales by quarter (for 2022) are projected as follows:

First quarter 70,000

Second quarter 75,000

Third quarter 80,000

Fourth quarter 95,000

The selling price remains constant at $400 per unit. All sales are credit sales. Fibre Optics Ltd collects 85 percent of all sales within the quarter in which they are realized; and the balance is collected in the following quarter. There are no bad debts.

3. There is no beginning inventory of finished goods. Fibre Optics Ltd is planning the following ending finished goods inventories for each quarter:

First quarter 18,000 units

Second quarter 20,000

Third quarter 25,000

Fourth quarter 15,000

4. Each fibre optic unit uses six hours of direct labor and three units of direct materials. Laborers are paid $12 per hour, and one unit for direct materials costs $80.
5. There are 65,700 units of direct materials in beginning inventory as of January 1, 2022. At the end of each quarter, Fibre Optics Ltd plans to have 40 percent of the direct materials needed for next quarters unit sales. Fibre Optics Ltd will end the year with the same level of direct materials found in this years beginning inventory.
6. Fibre Optics buys direct materials on account. Fifty percent of the purchases are paid for in the quarter of acquisition, and the remaining are paid for in the following quarter. Wages and salaries are paid on the 15^th and 30^th of each month.
7. Fixed overhead totals $1,500,000 each quarter. Of this total, $350,000 represent depreciation. All other fixed expenses are paid for in cash in the quarter incurred. The fixed overhead rate is computed by dividing the years total fixed overhead by the years expected actual units produced.
8. Variable overhead is budgeted at $8 per direct labor hour. All variable overhead expenses are paid for in the quarter incurred.
9. Fixed selling and administrative expenses total $260,000 per quarter, including $50,000 depreciation.
10. Variable selling and administrative expenses are budgeted at $12 per unit sold. All selling and administrative expenses are paid for in the quarter incurred.
11. The balance sheet as of December 31, 2021, is as follows:

Assets
Cash	$250,000
Direct materials inventory	5,256,000
Accounts receivable	3,300,000
Plant and equipment	33,500,000
Total Assets	$42,306,000

Liabilities and Stockholders Equity
Accounts payable	$7,248,000*
Capital stock	27,000,000
Retained earnings	8,058,000
Total liabilities and stockholders equity	$42,306,000

*For purchase of direct materials only.

12. Fibre Optics Ltd will pay quarterly dividends of $400,000. At the end of the third quarter, $3 million of equipment will be purchased.

Note: ignore income taxes

Required

1. Your group is part of Fibre Optics Company budget team and in preparation for the management meeting, you are tasked to prepare a master budget for each quarter of 2022 and for the year in total, ending 31 December. The following budgets must be included:

Operating Budgets:

1. Sales budget
2. Production budget
3. Direct materials purchase budget
4. Direct labor budget
5. Overhead budget
6. Selling and administrative expenses budget
7. Ending finished goods inventory budget (the cost per unit must be rounded off to the nearest dollar)
8. Cost of goods sold budget

Financial Budgets:

9. Cash budget

• Prepare Schedule of credit sales collection
• Prepare Schedule of direct materials payment

Note: These two schedules must be presented in the same worksheet for easy reference.

10. Pro forma income statement

• Use the absorption income statement format. See exhibit 9.2 on Page 271 of the prescribed textbook.

11. Pro forma balance sheet

• Use the same format as at 31 December, 2021 shown above.

2. Write a memo to the management of Fibre Optics Ltd whether $3 million worth of equipment will be purchased at the end of the third quarter. Suggest any plausible recommendations.