Happy Place Inc. is a company that manufactures and sells outdoor benches. For planning and control purposes they utilize a quarterly master budget, which is usually developed at least six months in advance of the budget year. Their fiscal year end is December 31.

During the spring of 2019, Linda Dempster, the Happy Place controller, spent some time putting together a sales forecast for the next budget year (January to December, 2020). In June, Lindas numbers really came in as she won the jackpot in the lottery. Shortly thereafter, the President of Happy Place received Lindas letter of resignation, which she sent from Bermuda.

The President, desperately needing the budget completed, has approached you, a management accounting student, for help in preparing the budget for the coming fiscal year. Your conversations with the president and your investigations of the companys records have revealed the following information:

1. Lindas sales forecast consisted of these few lines:

For the year ended December 31, 2019: 26,000 units at $310.00 each*

For the year ended December 31, 2020: 30,000 units at $310.00 each

For the year ended December 31, 2021: 32,000 units at $310.00 each

*Expected sales for the year ended December 31, 2019 are based on actual sales to date and budgeted sales for the duration of the year.

2. History has shown that sales are seasonal, with 58% of sales occurring in the second quarter, 32% in the third quarter, 4% in the first quarter, and the remaining 6% in the last quarter.

3. Because sales are seasonal, Happy Place must rent an additional storage facility from March to June to house the additional finished benches on hand. The only related cost is a flat $2,200 per month, payable at the beginning of the month.

4. Sales are on a cash and credit basis, with 88% collected during the quarter of the sale, and 12% the following quarter.

5. Happy Place has negotiated a line of credit with the bank such that they can borrow up to $700,000, in increments of $5,000 at an interest rate of 4% Assume all borrowing takes place at the beginning of the quarter (interest is paid for the full quarter when borrowing takes place) and repayment takes place at the end of the quarter (interest is paid for the full quarter that repayment is made.)

6. From previous experience, management has determined that an ending finished goods inventory equal to 10% of the next quarters sales is required to meet customer demand. Opening finished goods inventory consists of 120 benches.

7. The primary raw material used is 4x6 cedar boards. Each bench averages 60

linear feet of wood (including a wastage allowance), which the company purchases for $1.50 per linear foot. Happy Place finds it necessary to maintain an inventory balance equal to 12% of the following quarters production needs of cedar as a precaution against stock-outs. Opening raw materials inventory consists of 20,304 linear feet of cedar. Happy Place pays for 85% of a quarters purchases in the quarter of purchase and 15% in the following quarter.

Each bench also requires a cast iron frame, which the company purchases pre-made from Cheatle Forge. The frames are readily available at a cost of $100, are purchased as needed and paid for at the time of purchase.

8. Beginning accounts payable will consist of $22,673 arising from the estimated direct material purchases for Q4, 2019 of $151,157.

9. While much of the wood cutting process is automated, the assembly process is labour intensive. Employees are paid an average of $25 per hour, including the employers portion of employee benefits. All payroll costs are paid in the period in which they are incurred.

Each bench spends a total of 90 minutes in production.

10. Due to the companys concentration on a single product, manufacturing overhead is allocated based on volume (i.e. the units produced). The variable overhead manufacturing rate is $12.00 per unit, consisting of: Utilities--$2.75; Indirect Materials--$5.25; Plant maintenance--$2.00; and Other--$2.00

11. The fixed manufacturing overhead costs for the entire year are as follows:

Training and development $ 9,000

Property and business taxes 36,000

Supervisors salary 120,000

Depreciation on equipment 117,000

Insurance 60,000

Other 34,200

$ 376,200

• The property and business taxes are paid on June 30 of each year.

• The annual insurance premium is paid at the beginning of October each year.

• All other cash-related fixed manufacturing overhead costs are incurred evenly over the year and paid as incurred.

• Happy Place uses the straight-line method of depreciation.

12. Selling and administrative expenses are $22 per unit sold and $18,000 per month. These costs are paid in the quarter in which they occur.

13. During the fiscal year ended December 31, 2020, Happy Place will be required to make quarterly income tax installment payments of $35,000. Outstanding income taxes from the year ended December 31, 2019 must be paid in April 2020. Income tax expense is estimated to be 20% of net income. Income taxes for the year ended December 31, 2020, in excess of installment payments, will be paid in April, 2021.

14. Happy Place is planning to acquire additional manufacturing equipment for $152,000 cash. 40% of this amount is to be paid in January 2020, the rest, in February 2020. The manufacturing overhead costs in 11. already include the extra depreciation.

15. Happy Place Inc. has a policy of paying dividends at the end of each quarter. The president tells you that the board of directors is planning on continuing their policy of declaring dividends of $25,000 per quarter.

16. A listing of the estimated balances in the companys ledger accounts as of December 31, 2019 is given below:

	Cash				$ 61,870
	Accounts receivable				58,032
	Inventory-raw materials				30,456
	Inventory-finished goods (120 units)				30,244
	Prepaid insurance				45,000
	Prepaid property tax				18,000
	Property, Plant & Equip (net)				928,000
					$ 1,171,602
	Accounts payable				$ 22,673
	Income tax payable				10,500
	Common shares				850,000
	Retained earnings				288,430
					$ 1,171,602

I have created all the necessary budgets,

REQUIRED:

1. Prepare a budgeted balance sheet at December 31, 2020.

Qtr 1 Qtr 2 Qtr 3 Sales Budget Sale units Unit Price Total Sales 1.200 310 372,000 17,400 310 5,394,000 Qtr 4 9,600 310 2,976,000 1.800 310 558,000 Total 30,000 310 9,300,000 Schedule of Cash Receipts Receipts in Quarter of Sale Receipts in Quarter after Sale Total Cash Receipts 327.360 58,032 385,392 4.746,720 44,640 4,791,360 2,618,880 647,280 3,266,160 491,040 357,120 848,160 8,184,000 1,107,072 9,291,072 4 70 Qtr. 2 Qir. 4 Production Budget Budgeted Sales (Units) Add Desired End Inventory Total Needs Less Beg. FG Inventory Production Requirements Qir. 1 1,200 5,394,000 5,395,200 10% of next quarter's 17,400 2,976,000 2,993,400 5,394,000 2,400,600 tr. 3 9,600 558,000 567,600 2,976,000 -2,409,400 Total 30,000 8,928,128 8,958,128 8,928,120 30,008 1,800 128 1,928 558,000 -556,072 587 120 5,395,080 Qtr. 1 Otr. 3 Qtr. 4 Total 2,820 1,748 30,008 Qtr. 2 16.620 60 9 97.200 8,820 60 529,200 60 169,200 Raw Materials Purchases Budget Production (units) Materials Needed per unit (Linear Foot) Production Needs Add: Desired End Inventory Total Needs Less: Beg FG Inventory Raw Materials to be purchased Cost per Linear Foot 12% of next quarter's 997,200 169,200 20,304 148,896 1.50 104,880 21,658 126,538 0 126,538 1.50 529,200 0 29,200 1.50 I 1,800,480 21,658 1,822,138 20,304 1,801,834 1.50 5 997.200 1.50 S $ $ S $ 2.820 8,820 30,008 60 16.620 60 997.200 60 169,200 529,200 1,748 60 104,880 21,658 126,538 12% of next quarter's 997,200 529,200 Production (units) Materials Needed per unit (Linear Foot) Production Needs Add: Desired End Inventory Total Needs Less: Beg FG Inventory Raw Materials to be purchased Cost per Linear Foot Cast Iron Frame Raw Materials Total Cost 1,800,480 21,658 1,822,138 20,304 1,801,834 1.50 169,200 20,304 148,896 1.50 0 5 29,200 1.50 126,538 1.50 $ $ $ 997,200 1.50 $0 $1,495.800 $100.00 Per Unit 50 $223,344 $793,800 $189,807 $2,702,751 Schedule of Expected Cash Disbursements for Raw Materials Purchases Qtr. 1 Qtr. 4 AP Balance Qtr. 3 $1,599,422 S345,729 Total cost of purchases of Cedar and Iron Frame Current month's purchases Prior month's purchases Total cash disbursements for purchases of raw material SO Atr. 2 S684,840 $3,073.560 SO $22,673 $22,673 85% 15% $22,673 $22,673 Qtr. 3 Qtr. 4 Schedule of Expected Cash Disbursements for Raw Materials Purchases Qtr. 1 Otr. 2 AP from Qtr. 4 2019 $22.673 Qtr. 1 2020 $0 Qtr. 2 2020 Qtr. 3 2020 $0 $0 SO Otra 2020 SO Qtr. 3 2020 Qtr. 4 2020 Total Cash Disbursements $22,673 SO Direct Labour Budget Labour Hour per unit (Hours) Hourly Wage 1.5 $25.00 Qtr. 1 Qtr. 2 Qtr. 3 Otr. 4 16.620 8.820 1,620 $15,211,080,000 $89,648.280,000 $47,575,080.000 $8,738,280,000 Units to be produced Total Direct Labour Cost 2,820 Total 29,880 $161,172,720,00 Manufacturing Overhead Budget Qtr. 1 Qtr. 2 Qtr. 3 Qtr. 4 Total 2,820 16.620 8.820 1,748 12 12 33,840 199,440 105,840 20,976 360,096 Production Variable Rate Budgeted Variable MO Fixed MO Training & Development Property & Business Taxes Supervisor's Salary Depreciation on Equipment Insurance Other Budgeted Fixed MO Total Manufacturing Overhead 2,250 9,000 30,000 29,250 15,000 8,550 94,050 127,890 2,250 9,000 30,000 29,250 15,000 8,550 94050 293,490 2.250 9.000 30,000 29,250 15,000 8.550 94.050 199,890 2.250 9,000 30,000 29,250 15.000 8.550 94.050 115,026 376,200 736,296 Ending Finished Goods Inventory Budget Quantity Cost/unit Total 60 linear feet 1.5 hours $1.50/linear foot $25/hour Production Cost per unit: Direct materials Direct labour Manufacturing overhead-variable Manufacturing overhead-fixed Unit Product Cost $90/unit $37.5/unit $12/unit $12.54/unit $152.04 Budgeted finished goods inventory: Ending finished goods inventory in units Unit product cost Ending finished goods inventory in dollars Qtr. 1 1740 units $152.04 $264,549.60 Qtr. 2 960 units $152.04 $145,958.40 Qtr. 3 180 units $152.04 $27,367.20 Qtr.4 128 units $152.04 $19,461.12 Qtr 2 Qtr 4 Selling and Administrative Expense Budget Qtr 1 Sales units Sales price Total Sales Variable exoenses ($22/unit) Fixed selling and administrative expenses ($18,000/month) Total Budgeted Selling and Admin Expenses 1200 310 372,000 26,400 54,000 80,400 Qtr 3 17,400 310 5,394,000 382,800 54,000 436,800 9,600 310 2,976,000 211,200 54,000 265,200 1,800 310 558,000 39,600 54,000 93,600 Beginning cash balance Add : Collections from customers Total Cash available Less : Cash disbursements Quarter 1 Quarter 2 $61,870 $185 $385,392 $4,791,360 $447,262 $4,791,545 Quarter 3 $2,403 $3,266,160 $3,268,563 Quarter 4 Year $525,080 $61,870 $848,160 $9,291,072 $1,373,240 $9,352,942 Arno7 mannen no con zon $365,087 $282,000 $105,750 $33,840 $2,250 $821,543 $882,000 $330,750 $105,840 $2,250 $252,901 $174,800 $65,550 $20,976 $2,250 $ - $- $30,000 $ - $30,000 $ - $8,550 $265,200 $1,260.252 $1,662,000 $623,250 $199,440 $2,250 $36,000 $30,000 $ - $8,550 $436,800 $6,600 $35,000 $10,500 $- $25,000 $4,335,642 $455,903 $30,000 $60,000 $8,550 $93,600 Less : Cash disbursements Raw Material Purchases Frame for bench Labour Cost Manufacturing OH Training and development Property and business taxes Supervisors Salary Plant Insurance Other Selling and administrative exp Rent for additonal storage facility Income Tax Installment Income Tax 2019 Purchase of equipment Dividend Total Cash disbursements Excess (deficiency) of cash available over disburse Financing Borrowings Repayments Interest Total financing Ending cash balance $8,550 $80,400 $2,200 $35,000 $2,699,783 $3,000,800 $1,125,300 $360,096 $9,000 $36,000 $120,000 $60,000 $34,200 $876,000 $8,800 $140,000 $10,500 $152,000 $100,000 $8,732,479 $620,463 $ - $35,000 $ - $152,000 $25,000 $1,122,077 $674,815 $35,000 $- $- $25,000 $768,627 $604,613 $25,000 $2,506,133 $762,430 04 $700,000 $- S- -$440,000 -$13,500 -$453,500 $27,403 -$235,000 -$2,350 -$237,350 $550,080 $675,000 -$675,000 -$15.850 -$ 15,850 $629,613 $700,000 $25,185 $629,613 Budgeted Income Statement For The Year Ended 2020 $37,200 $4,562,416 $4,599,616 $4,599,616 $4,700,383 Sales: Cost of Goods Sold: Beginning Inventory Add: Cost of Goods Manufactured Cost of Goods Available Less: End Inventory Total Cost of Goods Sold: Gross Profit Less: Selling & Admin Expense Variable Selling & Admin Fixed Selling & Admin Total Selling and Administration Cost Operating Income Interest Expense Net Income Before Taxes Income Taxes (20%) Net Income $360,096 $376,200 $3,964,087 $3,948,237 $3,158,590 Statement of Retained Earnings Retained Earnings at the beginning of 2020 Net Income/Loss $288.430 3,158.590 $3,447,020 $ 100.000 $3,347,020 Dividends($25,000/quarter) Retained Earnings at the end of the period Qtr 1 Qtr 2 Qtr 3 Sales Budget Sale units Unit Price Total Sales 1.200 310 372,000 17,400 310 5,394,000 Qtr 4 9,600 310 2,976,000 1.800 310 558,000 Total 30,000 310 9,300,000 Schedule of Cash Receipts Receipts in Quarter of Sale Receipts in Quarter after Sale Total Cash Receipts 327.360 58,032 385,392 4.746,720 44,640 4,791,360 2,618,880 647,280 3,266,160 491,040 357,120 848,160 8,184,000 1,107,072 9,291,072 4 70 Qtr. 2 Qir. 4 Production Budget Budgeted Sales (Units) Add Desired End Inventory Total Needs Less Beg. FG Inventory Production Requirements Qir. 1 1,200 5,394,000 5,395,200 10% of next quarter's 17,400 2,976,000 2,993,400 5,394,000 2,400,600 tr. 3 9,600 558,000 567,600 2,976,000 -2,409,400 Total 30,000 8,928,128 8,958,128 8,928,120 30,008 1,800 128 1,928 558,000 -556,072 587 120 5,395,080 Qtr. 1 Otr. 3 Qtr. 4 Total 2,820 1,748 30,008 Qtr. 2 16.620 60 9 97.200 8,820 60 529,200 60 169,200 Raw Materials Purchases Budget Production (units) Materials Needed per unit (Linear Foot) Production Needs Add: Desired End Inventory Total Needs Less: Beg FG Inventory Raw Materials to be purchased Cost per Linear Foot 12% of next quarter's 997,200 169,200 20,304 148,896 1.50 104,880 21,658 126,538 0 126,538 1.50 529,200 0 29,200 1.50 I 1,800,480 21,658 1,822,138 20,304 1,801,834 1.50 5 997.200 1.50 S $ $ S $ 2.820 8,820 30,008 60 16.620 60 997.200 60 169,200 529,200 1,748 60 104,880 21,658 126,538 12% of next quarter's 997,200 529,200 Production (units) Materials Needed per unit (Linear Foot) Production Needs Add: Desired End Inventory Total Needs Less: Beg FG Inventory Raw Materials to be purchased Cost per Linear Foot Cast Iron Frame Raw Materials Total Cost 1,800,480 21,658 1,822,138 20,304 1,801,834 1.50 169,200 20,304 148,896 1.50 0 5 29,200 1.50 126,538 1.50 $ $ $ 997,200 1.50 $0 $1,495.800 $100.00 Per Unit 50 $223,344 $793,800 $189,807 $2,702,751 Schedule of Expected Cash Disbursements for Raw Materials Purchases Qtr. 1 Qtr. 4 AP Balance Qtr. 3 $1,599,422 S345,729 Total cost of purchases of Cedar and Iron Frame Current month's purchases Prior month's purchases Total cash disbursements for purchases of raw material SO Atr. 2 S684,840 $3,073.560 SO $22,673 $22,673 85% 15% $22,673 $22,673 Qtr. 3 Qtr. 4 Schedule of Expected Cash Disbursements for Raw Materials Purchases Qtr. 1 Otr. 2 AP from Qtr. 4 2019 $22.673 Qtr. 1 2020 $0 Qtr. 2 2020 Qtr. 3 2020 $0 $0 SO Otra 2020 SO Qtr. 3 2020 Qtr. 4 2020 Total Cash Disbursements $22,673 SO Direct Labour Budget Labour Hour per unit (Hours) Hourly Wage 1.5 $25.00 Qtr. 1 Qtr. 2 Qtr. 3 Otr. 4 16.620 8.820 1,620 $15,211,080,000 $89,648.280,000 $47,575,080.000 $8,738,280,000 Units to be produced Total Direct Labour Cost 2,820 Total 29,880 $161,172,720,00 Manufacturing Overhead Budget Qtr. 1 Qtr. 2 Qtr. 3 Qtr. 4 Total 2,820 16.620 8.820 1,748 12 12 33,840 199,440 105,840 20,976 360,096 Production Variable Rate Budgeted Variable MO Fixed MO Training & Development Property & Business Taxes Supervisor's Salary Depreciation on Equipment Insurance Other Budgeted Fixed MO Total Manufacturing Overhead 2,250 9,000 30,000 29,250 15,000 8,550 94,050 127,890 2,250 9,000 30,000 29,250 15,000 8,550 94050 293,490 2.250 9.000 30,000 29,250 15,000 8.550 94.050 199,890 2.250 9,000 30,000 29,250 15.000 8.550 94.050 115,026 376,200 736,296 Ending Finished Goods Inventory Budget Quantity Cost/unit Total 60 linear feet 1.5 hours $1.50/linear foot $25/hour Production Cost per unit: Direct materials Direct labour Manufacturing overhead-variable Manufacturing overhead-fixed Unit Product Cost $90/unit $37.5/unit $12/unit $12.54/unit $152.04 Budgeted finished goods inventory: Ending finished goods inventory in units Unit product cost Ending finished goods inventory in dollars Qtr. 1 1740 units $152.04 $264,549.60 Qtr. 2 960 units $152.04 $145,958.40 Qtr. 3 180 units $152.04 $27,367.20 Qtr.4 128 units $152.04 $19,461.12 Qtr 2 Qtr 4 Selling and Administrative Expense Budget Qtr 1 Sales units Sales price Total Sales Variable exoenses ($22/unit) Fixed selling and administrative expenses ($18,000/month) Total Budgeted Selling and Admin Expenses 1200 310 372,000 26,400 54,000 80,400 Qtr 3 17,400 310 5,394,000 382,800 54,000 436,800 9,600 310 2,976,000 211,200 54,000 265,200 1,800 310 558,000 39,600 54,000 93,600 Beginning cash balance Add : Collections from customers Total Cash available Less : Cash disbursements Quarter 1 Quarter 2 $61,870 $185 $385,392 $4,791,360 $447,262 $4,791,545 Quarter 3 $2,403 $3,266,160 $3,268,563 Quarter 4 Year $525,080 $61,870 $848,160 $9,291,072 $1,373,240 $9,352,942 Arno7 mannen no con zon $365,087 $282,000 $105,750 $33,840 $2,250 $821,543 $882,000 $330,750 $105,840 $2,250 $252,901 $174,800 $65,550 $20,976 $2,250 $ - $- $30,000 $ - $30,000 $ - $8,550 $265,200 $1,260.252 $1,662,000 $623,250 $199,440 $2,250 $36,000 $30,000 $ - $8,550 $436,800 $6,600 $35,000 $10,500 $- $25,000 $4,335,642 $455,903 $30,000 $60,000 $8,550 $93,600 Less : Cash disbursements Raw Material Purchases Frame for bench Labour Cost Manufacturing OH Training and development Property and business taxes Supervisors Salary Plant Insurance Other Selling and administrative exp Rent for additonal storage facility Income Tax Installment Income Tax 2019 Purchase of equipment Dividend Total Cash disbursements Excess (deficiency) of cash available over disburse Financing Borrowings Repayments Interest Total financing Ending cash balance $8,550 $80,400 $2,200 $35,000 $2,699,783 $3,000,800 $1,125,300 $360,096 $9,000 $36,000 $120,000 $60,000 $34,200 $876,000 $8,800 $140,000 $10,500 $152,000 $100,000 $8,732,479 $620,463 $ - $35,000 $ - $152,000 $25,000 $1,122,077 $674,815 $35,000 $- $- $25,000 $768,627 $604,613 $25,000 $2,506,133 $762,430 04 $700,000 $- S- -$440,000 -$13,500 -$453,500 $27,403 -$235,000 -$2,350 -$237,350 $550,080 $675,000 -$675,000 -$15.850 -$ 15,850 $629,613 $700,000 $25,185 $629,613 Budgeted Income Statement For The Year Ended 2020 $37,200 $4,562,416 $4,599,616 $4,599,616 $4,700,383 Sales: Cost of Goods Sold: Beginning Inventory Add: Cost of Goods Manufactured Cost of Goods Available Less: End Inventory Total Cost of Goods Sold: Gross Profit Less: Selling & Admin Expense Variable Selling & Admin Fixed Selling & Admin Total Selling and Administration Cost Operating Income Interest Expense Net Income Before Taxes Income Taxes (20%) Net Income $360,096 $376,200 $3,964,087 $3,948,237 $3,158,590 Statement of Retained Earnings Retained Earnings at the beginning of 2020 Net Income/Loss $288.430 3,158.590 $3,447,020 $ 100.000 $3,347,020 Dividends($25,000/quarter) Retained Earnings at the end of the period