High Kite is one of the foremost performance kite makers in Australia. The company has always prepared a budget that is calculated using only one estimated volume of sales. You recently joined the company as a junior accountant. You are required to set up a spreadsheet for sensitivity analysis in the budgeting process. This year it appears that the company may not meet expectations, which could result in a loss. Top manager is concerned that the company will incur a loss again next year, and he wants to develop a budget that will easily reflect changes in the assumptions.

The senior accountant provided you with the following data about the year 2021s planned operations:

Direct labour requirement and rate:
	Assembly	Packaging
Hours per kite	0.6	0.2
Rate per hour	$36.00	$24.00
Use of direct materials in $ per kite:
Nylon	$12.00
Ribs	$4.00
String	$2.00

Direct materials inventory (in $):
	Expected inventories, 1 January	Desired inventories, 31 December
Nylon	$5,000	$5,200
Ribs	$4,200	$4,500
Strings	$1,000	$1,200

Finished goods inventory (in units):
	Expected inventories, 1 January	Desired inventories, 31 December
Units	4000	4300

Sales forecast:
Selling price	$115
Volume of sales (in units):	62000

Required:

a) Prepare a sales budget (in dollars) for 2021. (2 marks)

b) Prepare a production budget (in units) for 2021. (2 marks)

c). Prepare a direct material purchases budget for all the required materials (in dollars) for 2021. (6 marks)

d) Prepare a direct labour budget (in dollars) for 2021. (4 marks)

e). Prepare a budgeted income statement for the year ending December 31, 2021. You are provided the following budgets: (1) Manufacturing overhead budget shows expected costs to be 100% of direct labour cost, (2) selling and administrative expenses are expected to be 12% of the expected sales revenue, and (3) expected interest expense is $200,000. The companys income tax rate is expected to be 30% of its income before tax. (5 marks)

The top manager would like to prepare a budget for cash flows on a monthly basis so that they can plan short-term investments and borrowings.

The companys sales are highest during the spring and summer. Sales are fairly even within each quarter (sales are even within 3 months of each quarter), but sales vary across quarters as follows:

Distribution of sales
January - March		30%
April - June		20%
July - September		10%
October - December		40%

Payments from customers are usually received as follows:

Monthly payment from customers:
Pay during the month goods are received	60%
Pay the next month	38%
Bad debts	2%

f) Prepare monthly budgets for cash receipts for 2021. (Hint: you may have to present a table of monthly sales, receipts of the month and from the prior month, and the monthly total receipts.) (5 marks)