Garden Beauty Inc. is a company that manufactures and sells outdoor yard sculptures. The company president, Karlee Crosby, has expressed a desire to improve the company’s planning for cash needs. She has approached you, a management accounting student, for help in preparing the budget for the upcoming third quarter. She would like to see the sources and uses of cash by month, for the next quarter ending Sept. 30. Your investigations of the company’s records have revealed the following information:

Sales forecast:

      First Quarter ended March 31                 4,700 units

      Second Quarter ended June 30               4,500 units

      Third Quarter ended September 30      5,000 units

      Fourth Quarter ended December 31     3,000 units

1. History has shown the sales pattern is consistent in each quarter, where sales in the first month of the quarter are 35% of the total for the quarter, 30% in the second month, and 35% in the third month of the quarter.

3. Sales are on a cash and credit basis, with 70% collected during the month of the sale, and 30% the following month. The selling price is $110 per unit throughout the year.

4. From previous experience, management has determined that an ending finished goods inventory equal to 20% of the next month’s sales is required to meet customer demand. Opening finished goods inventory consists of 350 sculptures.

5. The primary raw material used is a concrete and resin mix that is purchased by the kg and mixed with water, then molded into the statue shape. Each statue requires 10 kg of mix, and the price of mix is $3.00 per kg. Garden Beauty finds it necessary to maintain an inventory balance equal to 15% of the following month’s production needs of mix as a precaution against stock-outs. Opening raw materials inventory consists of 2,550 kg of mix. Garden Beauty pays for 75% of a month’s purchases in the month of purchase and 25% in the following month. The cost of water is included in utilities cost, and the molding machines are considered long lived assets.

6. Beginning accounts payable will consist of $12,176 arising from the estimated direct material purchases for June.

7. While much of the molding process is automated, the finishing process is labor intensive. Employees are paid an average of $28 per hour, including the employer’s portion of employee benefits. All payroll costs are paid in the period in which they are incurred.

Each sculpture spends a total of 45 minutes in production.

8. Due to the company’s concentration on a single product, manufacturing overhead is allocated based on volume (i.e. the units produced). The variable overhead manufacturing rate is $10.25 per unit.

                                         

9. The fixed manufacturing overhead costs for the quarter are as follows:

Property and business taxes 6,000

Supervisor’s salary               24,000

Depreciation on equipment 36,000

                                           $ 66,000

• The property and business taxes are paid on July 1 of each year.

• Garden Beauty uses the straight line method of depreciation.

10. Selling and administrative expenses are known to be a mixed cost, consisting of $2.00 per unit variable cost and $2,000 per month fixed costs. These costs are paid as they are incurred.

11. During the fiscal year ended December 31, 2020, Garden Beauty will be required to make quarterly income tax installment payments of $6,500 on the last day of each quarter.

12. Garden Beauty is planning to acquire additional manufacturing equipment for $56,000 cash. 40% of this amount is to be paid in July, 2020, the rest in September, 2020. The manufacturing overhead costs shown above already include the depreciation on this equipment.

13. The president tells you that the board of directors of Garden Beauty is planning on continuing their policy of declaring dividends of $10,000 per quarter.

14. A listing of the relevant balances in the company’s ledger accounts as of June 30, 2020 follows:

	Cash				$     63,365
	Accounts receivable				51,975
	Inventory-raw materials (2,550 kg)				7,650
	Inventory-finished goods (350 units)				26,191
	Accounts payable				12,176

Required:

Prepare a monthly master budget for Garden Beauty for the quarter ended September 30, 2020, including the following schedules:

• Sales Budget & Schedule of Cash Receipts
• Production Budget
• Direct Materials Budget & Schedule of Cash Disbursements
• Direct Labour Budget
• Manufacturing Overhead Budget
• Ending Finished Goods Inventory Budget (including calculation of budgeted Cost of Goods Sold)
• Selling and Administrative Expense Budget
• Cash Budget