Grant Shew is the product manager at Yummi-Lik. Yummi-Lik sells really big lollipops in two sizes, large and giant lollipops to convenience stores, at fairs, and to schools for fundraisers, as well as a bulk channel on the internet. The lollipops are handmade, mostly out of sugar, and attached to wooden sticks. Grant is preparing the sales budget for the summer, knowing a successful sales season will have a big impact on his performance review. Expected sales are based on past experience.

Other information for the month of June follows:

Yummi-Lik accounts for direct materials using a FIFO cost flow assumption.

Yummi-Lik uses a FIFO cost flow assumption for finished goods inventory.

All the lollipops are made in batches of 10. Yummi-Lik incurs manufacturing overhead costs, and marketing and general administration costs, but customers pay for shipping. Other than manufacturing labour costs, monthly processing costs are very low. Yummi-Lik uses ABC and has classified all overhead costs for the month of June as shown in the following chart:

Grant needs to prepare a full set of budgets for June:

1. 1. Revenue budget
   2. Production budget in units
   3. Direct material usage budget and direct material purchases budget
   4. Direct manufacturing labour cost budget
   5. Manufacturing overhead cost budgets for processing and setup activities
   6. Budgeted unit cost of ending finished goods inventory and ending inventories budget
   7. Cost of goods sold budget
   8. Marketing and general administration costs budget

Grant knows that 80% of sales are on account, of which half are collected in the month of the sale, 49% are collected the following month, and 1% are never collected and written off as bad debts, which has an impact on net revenues. In addition to this, all purchases of materials are on account. Yummi-Lik pays for 70% of purchases in the month of purchase and 30% in the following month. However, all other costs are paid in the month incurred. Knowing this, Grant has to create

a budgeted balance sheet for Yummi-Lik as of June 30.

The following information is necessary:

1. Yummi-Liks balance sheet for May 31 follows. Use it and the following information to prepare a cash budget for Yummi-Lik for June.
2. Yummi-Lik is making monthly interest payments of 1% (12% per year) on a $20,000 long-term loan.
3. Yummi-Lik plans to pay the $500 of taxes owed as of May 31 in the month of June. Income tax expense for June is zero.
4. 40% of processing and setup costs, and 30% of marketing and general administration costs, are depreciation.

Check Figure: 3. Budgeted net income, $999

\begin{tabular}{|c|c|c|} \hline Cost Type & Denominator Activity & Rate \\ \hline \multicolumn{3}{|l|}{ Manufacturing: } \\ \hline Setup & Setup-hours & $20 per setup-hour \\ \hline Processing & \begin{tabular}{l} Direct manufacturing \\ labour-hours (DMLH) \end{tabular} & $1.70 per DMLH \\ \hline \multicolumn{3}{|l|}{ Non-manufacturing: } \\ \hline Marketing and general administration & Sales revenue & 10% \\ \hline \end{tabular} Sales and Inventory Information, Finished Goods \begin{tabular}{|c|c|c|} \hline & Large & Giant \\ \hline Expected sales in units & 3,000 & 1,800 \\ \hline Selling price & $3 & $4 \\ \hline Target ending inventory in units & 300 & 180 \\ \hline Beginning inventory in units & 200 & 150 \\ \hline Beginning inventory in dollars & \$ 500 & \$ 474 \\ \hline \end{tabular} Input Prices Direct materials Sugar $0.50 per kilogram (lb) Sticks $0.30 each Direct manufacturing labour $8 per direct manufacturing labour-hour Input Quantities per Unit of Output \begin{tabular}{lcc} & Large & Giant \\ \hline Direct materials & & \\ Sugar & 0.25lb & 0.50lb \\ Sticks & 1 & 1 \\ Direct manufacturing labour-hours (DMLH) & 0.20 hours & 0.25 hours \\ Setup-hours per batch & 0.08 hours & 0.09 hours \end{tabular} Inventory Information, Direct Materials \begin{tabular}{lcr} & Sugar & Sticks \\ \hline Beginning inventory & 125lb & 350 \\ Target ending inventory & 240lb & 480 \\ Cost of beginning inventory & $64 & $105 \end{tabular} Yummi-Lik Balance Sheet May 31 Assets \begin{tabular}{lrrr} \hline Cash & & & 587 \\ Accounts receivable & $4,800 & & \\ Less: Allowance for bad debts & 96 & & 4,704 \\ Inventories: & & & 169 \\ Direct materials & & & \\ Finished goods & & & \\ Fixed assets & 190,000 & \\ Less: Accumulated depreciation & 55,759 & & 134,241 \\ Total assets & & & $140,675 \end{tabular} \begin{tabular}{lr} Liabilities and Equity & \\ \hline Accounts payable & $96 \\ Taxes payable & 500 \\ Interest payable & 200 \\ Long-term debt & 20,000 \\ Common shares & 10,000 \\ Retained earnings & 109,279 \\ Total liabilities and equity & $140,675 \end{tabular}