M 13 rate H Question 5: 22 marks 2 3 Patrick and Bob started My My Baby two years ago to produce baby furniture, such as: cribs, closets, changing tables et Bob, as 4 the CFO, would like to start creating a budget for My My Baby for performance management purposes and cash flow 5 assessments. This is the first time that My My Baby is going through a budget process, hence, Bob engaged you as their 6 accountant to build the budget package for the year 2020. After your interview with Bob, you have collected the following 7 information 8 9 10 Sales has been steadily increasing over the last two years. My My Baby has two key product lines: My Little Sunshine, the simple 11 and classic line of baby cribs and My Boss Baby, a high-end and premium ine of baby cribs 12 - Historical sales units for the last two years are list below. Bob expects 2020's sale to continue to increase steadily at the same In Units 2018 2019 15 My Little Sunshine 10,000 12,000 16 My Boss Baby 4,000 5,000 17 18 - My My Baby has a gross margin of 25% on gross sales for both lines. 19 . The selling price per unit for My Little Sunshine and My Boss Baby are $250 and $450 respectively 20 -20% of sales are for cash. The remaining sales are credit sales. Collection are expected to be 50% within the year and 2% is 21 uncollectible. No AR is expected to be outstanding at the end of 2019. 22 - Bob would like to always keep inventory equals to 20% of prior period sales on hand for each product line. The ending inventory of 23 2019 is expected to be 1.400 units for My Little Sunshine and 800 units for My Boos Baby 24 25 - Other Danses hunted by My My Rahy are listed hew 26 27 Production Supervisor 100,000 28 Depreciation - Office 350,000 29 Rent - Warehouse 500,000 30 Rent - Factory 700,000 31 Marketing 100,000 32 Factory Insurance 98,000 33 Patrick and Bob's Salaries 250,000 34 QA labour hours 78,000 35 Factory Utilities 100,000 36 Manufacturing supplies 5,000 37 38 - All purchases and expenses are initially paid by credit. 90% of the annual expenses are expected to paid within the year. 39 - The tax rate for My My Baby is 27%. 40 41 Required: 42 1) Prepare Budgeted Operating Income Statement in good form with the following supporting schedules 43 A Sales budget B. Production budget 45 C. Factory overhead budget 46 D. Selling & Administrative Expense Budget 47 48 2) Patrick would like to develop a new line of changing tables of My My Baby. The expected up front investment is $2 milion Should 01 Ans 02 (ReadOnly) Q2 Ans 03 (ReadOnly) Q3 Ans 04 (ReadOnly Q4 Ans Other AXNANSAs huidaated hv Mv Mv Rahv are listed helow 26 27 Production Supervisor 100,000 28 Depreciation - Office 350,000 29 Rent - Warehouse 500,000 30 Rent - Factory 700,000 31 Marketing 100,000 32 Factory Insurance 98,000 33 Patrick and Bob's Salaries 250,000 34 QA labour hours 78,000 35 Factory Utilities 100,000 36 Manufacturing supplies 5,000 37 38. All purchases and expenses are initially paid by credit. 90% of the annual expenses are expected to paid within the year. 39. The tax rate for My My Baby is 27% 40 41 Required: 42 1) Prepare Budgeted Operating Income Statement in good form with the following supporting schedules 43 A. Sales budget 44 B. Production budget 45 C. Factory overhead budget 46 D. Seling & Administrative Expense Budget 47 48 2) Patrick would like to develop a new line of changing tables of My My Baby. The expected up front investment is $2 million. Should 49 My My Baby invest based on the current financial situation? (hint: cash flow) What is the risk of relying on this budget? What do you 50 suggest for My My Baby to do to mitigate this? 51 52 Reminders: 53 a) Prepare required budgets and supporting schedules in the Student Answer tab. 54 55 b) Clearly label all your schedules and numbers with proper headings, labels, dates and units. Please show your work 56 57 58 59 60 61 62 63 64 65 66 67