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Love Life Incorporated (LLI) is a professional physical therapy and sports medicine center which has been in business for two years. The CEO wants to

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Love Life Incorporated (LLI) is a professional physical therapy and sports medicine center which has been in business for two years. The CEO wants to formalize the bookkeeping process and put together a committee to plan for the upcoming nancial year (2022). The committee was charged with preparing a master budget to show the credit ofcer from its local bank how they will repay a loan of $500,000. The loan will be used to purchase piece equipment in the rst quarter of the nancial year. 1. 3. Sales The company's revenue is realized through office visits and therapeutic services. Each visit costs $1500 and each therapy session costs $3,000. The following are budget activities for the upcoming year: Quarter 1 Quarter 2 Quarter 3 Quarter 4 Office visits ' 900 940 1000 920 Therapy sessions ' 200 190 180 150 LLI collects 80 96 of its billings during the quarter in which the services are provided and 15% in the following quarter. Five percent of the billings are uncollectible. Accounts receivable for December 31, 2021, will be $15,500. Production Even though therapy is service-oriented, setting up for a session is customized based on the c1ient's needs. As a result, careful planning is required to ensure that adequate material is on hand for each session. As such, the policy is to have 10% of the following quarter's sales in units in hand at the end of each quarter. The company expects to have 20 setup units on hand at the beginning and at the end of the nancial year. Direct Material Each therapy session required 120 grams of raw material. The company wants to maintain inventory of material to equal to 20% of the next quarter's total material needs. The company expects to have an ending and beginning inventory of raw material to be 3,600 grams, respectively. The company pays $30/gram for raw material. Love Life Inc. pays 80% of its purchases on account during the quarter in which the purchase was made. The remaining 20% is paid the quarter following purchase. The remaining balance for purchases on account on December 31, 2021 was 1524.000. Direct Labour The company budgets 2500 hours each quarter for work done directly and indirectly. The estimated time for consultation/visit is one hour while each therapy session lasts for 2.5 hours. Direct labour is paid at $240 per hour. 5. Manufacturing Overhead Manufacturing overheads consist of variable and fixed costs. The variable portion of overheads represents indirect labour paid to student interns at a rate of $80 per hour - This is the difference between the total budgeted hours and the portion paid to direct labour. The following are fixed manufacturing overheads for each quarter: $ small tools 2,800 Stationery and supplies 5,850 Fringe benefits for machinist 27,500 Training 13,000 Rent on general office building 10,000 Insurance 5,000 Utilities 25,000 Laundry service 9,000 Equipment depreciation 5,000 6. Selling and Admin The following relates to past sales and selling and administrative expenses. (Use regression analysis to derive a cost function and use this cost function to estimate selling and administrative cost for the upcoming financial year-2022). Year Quarters Therapy Selling and Admin cost sessions 2020 2 325 280000 3 300 275000 4 255 215500 2021 1 180 195000 2 175 1 17000 3 280 250000 4 170 180000 37. Other Expenses a. The equipment that will be purchased using a loan from the company's local bank Will result in an inow of cash to the company that they will use to purchase additional furniture for $180.00 in the third quarter of the year. b. The company will declare and pay dividends of $200,000 each quarter. 0. The company will engage an external auditor in the second quarter to audit the financial statements for the company. The cost of the audit is $150,000. (1. Additional yearly expenses include transportation of $60,000 and advertising of $80,000. Other information The company wants to maintain a minimum cash balance of $150,000 at the end of each quarter. The loan and interest will be repaid in the fourth quarter of the year. The interest rate on the loan is 6% per annum. The beginning cash balance for the rst quarter will be $180,000. Required: Prepare the following budgets: 1. 2 3 4 5. 6 7 8 9 Sales budget [7 marks] . Cash collection Schedule [10 marks] . Production budget [15 marks] . Direct material budget [17 marks] Cash disbursement schedule [10 marks] . Labour budget [14 marks] . Manufacturing overheads budget [13 marks] . Selling and admin budget [14 marks] . Cash budget [35 marks]

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