Lombardi Manufacturing Ltd. makes medical grade face shields that are sold to hospitals and clinics across Canada. The facemasks are unique because they are a unibody design that use only one raw material. Each face shield is super light, sturdy, and sells for $12.50 per unit. Molly Brock has just been hired as an accounting consultant by the company and has been requested to prepare a master budget for the upcoming quarter. The date in the case is January 1, 2022 and Molly needs to prepare the budget for January to March (.e. the first quarter of the year), inclusive. The company is fairly new and has not had to create a master budget before. Luckily, the owner of the company, Teresa Lombardi, knows the importance of keeping accurate financial information after taking management accounting courses at the University of Windsor. Molly should be able to find all of the information she needs stored in the company's cloud servers. The following data regarding financial information and company policy is what Molly was able to find to help her complete the master budget: . . . In December 2021, actual sales were $90,000 and the marketing manager predicts that sales for the next few months will be 8,000 units in January, 9,200 units in February, 9,900 units in March, 9,700 units in April, and 8,500 units in May. Sales are 25% cash and 75% on credit and all credit sales are collected in the month following the sale. Lombardi's manufacturing policy states that each month's ending inventory of finished goods should be 20% of the following month's sales (in units). Raw materials for the face shields are purchased from a local supplier, which Lombardi buys partially on account. Molly couldn't find a specific policy, but it looks like the Lombardi pays 25% of the Accounts Payable during the month of the purchase and the remainder of the expense in the following month. Molly was able to find a bill of materials and found that each face shield requires two ounces or direct material, which costs $2.25 per ounce. The policy for Lombardi is to have 15% of the following month's production needs in ending raw materials inventory. Records show the following manufacturing conversion costs: Factory rent of $4,000, other fixed manufacturing overhead of $2,500, and variable manufacturing overhead of $1.30 per unit. No depreciation figures were included in those figures and all conversion cost expenses are paid in the month that they are incurred. Molly was also informed that the company plans to upgrade its office equipment and computers. The owner's office will be upgraded in January and will cost $8,000. The manufacturing offices will be upgraded in February and will cost $10,000. Finally, support offices will be upgraded in March at a cost of $15,000. All the upgrades will be paid in cash during the month they arQer@mec D Selling and administrative expenses total $1,200 per month for fixed and $1.20 per unit sold for variable. These expenses are all paid in the month in which they occur. . . . Molly could not find any depreciation information explicitly but was able to find out information about the value of the company's owned buildings and equipment. She estimates that depreciation would total $4,200 for existing buildings plus an additional $1,200 for new office equipment purchases for the upcoming quarter overall. According to the owner, she would like the company to have at least $5,000 in ending cash balance every month. They have a $100,000 line of credit at Royal Bank to ensure that they have that amount even if disbursements exceed receipts. The company can borrow in increments of $1,000 at the beginning of each month and the interest rate on th line of credit is 12% per annum but is not compounded. Ms. Lombardi would like to evaluate and pay back as much of the line of credit and accumulated interest as possible, but not until the end of the quarter. Molly was able to find last year's tax return for the company and noted that the tax rate was about 30% of operating income less interest expenses. The owner tells Molly that last year they had a huge tax bill at the end of the year, so she would like to budget an interim tax payment to Canada Revenue of $8,000 at the end of February. A pared down version of the balance sheet for December 31st, 2021 was as follows: Teresal Manufacturing Ltd. Balance Sheet As at December 31, 2021 Cash Accounts receivable, net Inventory Property, plant, and equipment, net Accounts payable Capital stock Retained earnings $5,000 $50,000 $15,000 $125,000 $40,000 $125,000 $25,000 Given the above information, Teresa Lombardi would like Molly to create the following budgets to be included in the company's master budget: 1. A cash collections budget. 2. A production budget. 3. A direct materials budget. 4. A cash payments schedule from direct materials budget. 5. A cash payments schedule from conversion costs budget. 6. A cash payments schedule for operating expenses budget. 7. A combined cash budget. 8. A schedule that shows the budgeted manufacturing cost per unit (assume fixed manufacturing overhead is $0.75 per unit for the year). 9. A budgeted income statement for the quarter. 10. A budgeted balance sheet for the end of the quarter. The owner, Teresa, would like you to include some notes along with each of the budgets so that she can learn a bit more about how you came up with your calculations and what each of the budgets means. She wants to ensure that anyone can recreate the master budget for future quarters in case you are not available. Please answer the following questions for her in your own words as part of a conclusion section of the report. 1. How does the Master Budget relate to strategy and long-term objectives? 2. Explain how the performance of what-if analyses, sensitivity analyses, and scenario analyses can improve uncertainty in the budgeting process. 3. Describe and provide suggestions for dealing with the behavioural issues of budgeting slack and lack of motivation among employees that might negatively affect a successful budgeting process. a Lombardi Manufacturing Ltd. Cash Collections Budget January February March Quarter Cash Sales Credit Sales Total Cash Collections Lombardi Manufacturing Ltd. Production Budget January February March Quarter Unit Sales Plus: Desired Ending Inventory Total Production Needs Less: Beginning Inventory Units to Produce Direct Materials Budget January February March Quarter Units to be produced Ounces of DM Needed Per Unit Quantity Needed in Production (Ounces) Plus: Desired Ending Inventory of DM Total Quantity Needed (Ounces) Less: Beginning Inventory of DM Cost per ounce of DM Total Cost of DM Purchases Lombardi Manufacturing Ltd. Cash Payments for DM Purchased January February March Quarter December Purchase (from AP) January Purchases February Purchases March Purchases Total Cash Payments for DM Lombardi Manufacturing Ltd. Cash Payments for Conversion Costs January February March Quarter Variable Conversion Costs Rent (fixed) Other fixed MOH Total Cash Payments for CC Lombardi Manufacturing Ltd. Cash Payments for Operating Expenses January February March Quarte Variable Operating Expenses Fixed Operating Expenses Total Cash Payments for Operating Expenses Combined Cash Budget January February March Quarter Beginning Cash Balance Add Cash Collections Total Cash Available Less Cash Disbursements: Direct Material Purchases Conversion Costs Operating Expenses Equipment Purchases Tax Payment Total Cash Disbursements Excess (Deficiency) of Cash Financing: Borrowings Repayments Interest Payments Total Financing Ending Cash Balance Lombardi Manufacturing Ltd. Budgeted Manufacturing Cost per Unit Direct Materials Cost per Unit Conversion Cost per Unit Fixed Manufacturing Cost per Unit Budgeted Manufacturing Cost per Unit Lombardi Manufacturing Ltd. Budgeted Income Statement For the Quarter Ending March 31, 2022 Sales Cost of Goods Sold Gross Profit Operating Expenses Depreciation Expense Operating Income Less: Interest Expense Less: Provision for Income Taxes Net Income Lombardi Manufacturing Ltd. Partial Budgeted Balance Sheet As at March 31, 2022 Cash Accounts Receivable (Net) Inventory Property, Plant, and Equipment (Net) Accounts Payable Income Taxes Payable Financing Payable Captital Stock Retained Earnings