managerial acct-budgeting problem all help appreciated. have till 28th of this month.

McGraw-Hill Ryerson Master Budget Case (vD.0) 1 Master Budget Case: GardenDigs Ltd. GardenDigs Ltd. is a company that manufactures and sells a single product, which they call a Hydropot. For planning and control purposes they utilize a monthly 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 summer of 2015, Chris Leigh, the GardenDigs controller, spent considerable time with Pat Frazer, the Manager of Marketing, putting together a sales forecast for the next budget year (January to December, 2016). Unfortunately, their collaboration worked so well they eloped to Las Vegas, were married by an Elvis impersonator, and settled down somewhere in the desert. Prior to their departure they e-mailed letters of resignation and a cryptic sales forecast to the President of GardenDigs. Their sales forecast consisted of these few lines: For the year ended December 31, 2015: 47,500 units at $100.00 each* For the year ended December 31, 2016: 50,000 units at $100.00 each For the year ended December 31, 2017: 60,000 units at $100.00 each *Expected sales for the year ended December 31, 2015 are based on actual sales to date and budgeted sales for the duration of the year. GardenDigs's President felt certain that the marriage wouldn't last, and expected Chris would be back any day. But the end of the year is quickly approaching, and there is still no word from the desert. 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 company's records have revealed the following information: 1. Sales are seasonal, and sometimes correspond with general holidays. History shows that January and March are the slowest months with only 1% and 3% of total sales, respectively. Valentines Day, spring break and summer school holidays account for 5% of sales for each of February, April, July and August. May, June and September add 7% per month. As Christmas shopping picks up momentum, winter sales start at 10% in October, move to 15% in November and then peak at 30% in December. This pattern of sales is not expected to change in the next two years. Months Jan March February, April, July, August May, June September October November December Percentage of sales 1% 3% 5% 7% 10% 15% 30% McGraw-Hill Ryerson Master Budget Case (vD.0) 2 2. From previous experience, management has determined that an ending inventory equal to 15% of the next month's sales is required to fit the buyer's demands. 3. Because sales are seasonal, GardenDigs must rent an additional storage facility from September to December to house the additional inventory on hand. The only related cost is a flat $20,000 per month, payable at the beginning of the month. 4. There is only one type of raw material used in the production of Hydropots. New-age acrylic (NAA) is a very compact material that is purchased in powder form. Each Hydropot requires 50 kilograms of NAA, at a cost of $0.60 per kilogram. The supplier of NAA tends to be somewhat erratic so GardenDigs finds it necessary to maintain an inventory balance equal to 50% of the following month's production needs as a precaution against stock-outs. GardenDigs pays for 50% of a month's purchases in the month of purchase, 35% in the following month and the remaining 15% two months after the month of purchase. 5. GardenDigs expects their management team to realize purchase discounts. There is an expectation that any payments for DM made in the first month will be subject to the 1%, net 30 terms. The purchase discounts are included in the selling and administration budget, and are considered a non-cash item. 6. Beginning accounts payable will consist of $149,494 arising from the following estimated direct material purchases for November and December of 2015: NAA purchases in November 2015: NAA purchases in December 2015 $315,375 $204,375 7. GardenDigs's manufacturing process is highly automated, so their direct labour cost is low. Employees are paid on a per unit basis. Their total pay each month is, therefore, dependent on production volumes and averages $12.00 per hour. This rate already includes the employer's portion of employee benefits. All payroll costs are paid in the period in which they are incurred. Each unit spends a total of 102 minutes in production. 8. Due to the similarity of the equipment in each of the production stages and the company's concentration on a single product, manufacturing overhead is allocated based on volume (i.e. the units produced). The unit variable overhead manufacturing rate is $13.00, consisting of: Utilities--$6.00; Indirect Materials--$2.00; Plant maintenance--$3.00; environmental fee--$1.40; and Other--$0.60. 9. The fixed manufacturing overhead costs for the entire year are as follows: Training and development Property and business taxes $ 43,200 39,000 McGraw-Hill Ryerson Master Budget Case (vD.0) 3 Supervisor's salary Amortization on equipment Insurance Other 149,400 178,800 96,000 99,782 $ 606,182 The property and business taxes are paid on June 30 of each year. The expected payment for next year is $39,600. The annual insurance premium is paid at the beginning of September each year. There should be no change in the premium from last year. All other \"cash-related\" fixed manufacturing overhead costs are incurred evenly over the year and paid as incurred. GardenDigs uses the straight line method of amortization. 10. Selling and administrative expenses are known to be a mixed cost; however, there is a lot of uncertainty about the portion that is fixed. Previous year's experience has provided the following information: Lowest level of sales: Highest level of sales: 37,500 units 75,000 units Total Operating Expenses: $778,710 Total Operating Expenses: $1,022,460 These costs are paid in the month in which they occur. Not included in the above expenses are bad debt expense and the purchases discount. 11. Sales are on a cash and credit basis, with 55% collected during the month of the sale, 35% the following month, and 9.5% the month thereafter. of 1% of sales are considered uncollectible (bad debt expense). 12. Sales in November and December 2015 are expected to be $700,000 and $1,500,000 respectively. Based on the above collection pattern this will result in Accounts Receivable of $734,000 at December 31, 2015 which will be collected in January and February, 2016. 13. During the fiscal year ended December 31, 2016, GardenDigs will be required to make monthly income tax installment payments of $5,000. Outstanding income taxes from the year ended December 31, 2015 must be paid in April 2016. Income tax expense is estimated to be 25% of net income. Income taxes for the year ended December 31, 2016, in excess of installment payments, will be paid in April, 2017. 14. GardenDigs is planning to acquire additional manufacturing equipment for $204,300 cash. 40% of this amount is to be paid in September 2016, the rest, in October 2016. The manufacturing overhead costs shown above already include the amortization on this equipment. 15. An arrangement has been made with the local bank that if GardenDigs maintains a minimum balance of $20,000 in their bank account, they will be given a line of credit McGraw-Hill Ryerson Master Budget Case (vD.0) 4 at a preferred rate of 6% per annum. All borrowing is considered to happen on the first day of the month, repayments are on the last day of the month. All borrowings and repayments from the bank should be in multiples of $1,000 and interest must be paid at the end of each month. Interest is calculated on the balance at the beginning of the month, which includes any amounts borrowed that month. 15. GardenDigs Ltd. 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 $50,000 per quarter. McGraw-Hill Ryerson Master Budget Case (vD.0) 5 16. A listing of the estimated balances in the company's ledger accounts as of December 31, 2015 is given below: Cash Accounts receivable Inventory-raw materials Inventory-finished goods Prepaid insurance Prepaid tax Capital assets (net) $ 83,365 734,000 12,000 5,475 64,000 19,200 724,000 $ 1,642,040 Accounts payable Income tax payable Capital stock Retained earnings $ 149,494 21,500 1,200,000 271,046 $ 1,642,040 Required: 1. Prepare a monthly master budget for GardenDigs for the year ended December 31, 2016, including the following schedules: Sales Budget & Schedule of Cash Receipts Production Budget Direct Materials Budget & Schedule of Cash Disbursements Direct Labour Budget Manufacturing Overhead Budget Ending Finished Goods Inventory Budget Selling and Administrative Expense Budget Cash Budget 2. Prepare a budgeted income statement and a budgeted statement of retained earnings for the year ended December 31, 2016, using absorption costing. 3. Prepare a budgeted income statement for the year ended December 31, 2016, using variable costing. Assume per unit variable cost for 2015 was $60.88, and absorption per unit cost was $73.00