Mary Alice Kirkpatrick invented a process that converts liquid waste into a sweet$-$smelling candle that burns off the waste in an environmentally friendly way. MAK, as her friends call her, has turned that invention into a large$-$scale company and is now preparing the budget for the quarter ended March $31.$ She has gathered the following information.

$1.$ Brad Harmon, MAK$$s sales manager, reported that the company sold $60,000$ candles in December. He has developed the following sales forecast. The expected sales price is $$35$ per candle.

January

February

March

April

May

$55,00050,00045,00046,00048,000$

$2.$ All sales are made on account. Historically, the company has collected $75\%$ of its sales in the month of sale and $20\%$ in the month following the sale. The remaining $5\%$ of sales are uncollectible.

$3.$ Sales personnel receive a $3\%$ commission on every candle sold in addition to their monthly salaries. The following monthly fixed selling and administrative expenses are planned for the quarter. However, these amounts do not include the depreciation increase resulting from the budgeted equipment purchase in March $($see part $8).$

Monthly Fixed Selling and

Administrative Costs

Depreciation

$$5,000$

Salaries of sales personnel

$33,255$

Advertising

$12,000$

Management salaries

$24,000$

Total costs

$$74,255$

$4.$ The company requires ending finished goods inventory to equal $15\%$ of the following month$$s budgeted sales, in units. On December $31,8,200$ candles were on hand.

$5.$ Ten ounces of raw materials are required to create each finished candle. The company wants to have raw materials on hand at the end of each month equal to $20\%$ of the following month$$s production needs. On December $31,109,000$ ounces of materials were on hand.

$6.$ The raw materials used in production cost $$2\mathrm{.}00$ per ounce. Eighty percent of the month$$s purchases are paid for in the month of purchase; the rest is paid in the following month. No discount is available.

$7.$ The standard labor allowed for one candle is $18$ minutes. The current direct labor rate is $$16$ per hour.

$8.$ On March $1,$ the company plans to spend $$72,000$ to replace its office equipment that is fully depreciated. The new equipment is expected to have a ten$-$year life, with no residual value.

$9.$ The budgeted monthly variable and fixed overhead are as follows. Variable overhead is based on the number of units produced. The fixed overhead budget is based on an annual production of $600,000$ candles.

Monthly Fixed

Overhead

Variable Cost$/$Unit

Depreciation

$ $15,000$

Indirect materials

$33,000$ $$0\mathrm{.}20$

Indirect labor

$86,0000\mathrm{.}40$

Utilities

$27,0000\mathrm{.}20$

Property taxes

$16,000$

Maintenance

$35,5000\mathrm{.}40$

Total costs

$$212,500$ $$1\mathrm{.}20$

$10.$ MAK must maintain a minimum cash balance of $$100,000.$ An open line of credit at a local bank allows the company to borrow up to $$200,000$ per quarter in $$1,000$ increments.

$11.$ All borrowing is done at the beginning of the month, and all repayments are made at the end of a month in $$1,000$ increments. Accrued interest is paid only when the principal is repaid. The interest rate is $6\%$ per year.

$12.$ A quarterly dividend of $$60,000$ will be declared and paid in January.

$13.$ Income taxes payable for the first quarter will be paid on January $15.$ MAK$$s tax rate is $35\%.$

$14.$ The December $31$ balance sheet is as follows:

December $31$

Cash

$ $105,000$

Accounts receivable

$420,000$

Raw materials inventory

$218,000$

Finished goods inventory

$248,050$

Plant & equipment

$640,000$

Accumulated depreciation

$(160,000)$

Total assets

$ $1,471,050$

Accounts payable

$ $243,000$

Income taxes payable

$76,000$

Common stock

$245,000$

Retained earnings

$907,050$

Total liabilities and equities

$ $1,471,050$

$($a$)$

Prepare all components of MAK$$s master budget for the first quarter of the year. $($Enter negative amounts using either a negative sign preceding the number e$.$g$.-45.$ Do not leave any answer field blank. Enter $0$ for amounts.$)$

Selling and Administrative Expense Budget

Production Budget

Materials Purchases Budget

Direct Labor Budget

Manufacturing Overhead Budget

Ending Inventory and Cost of Goods Sold Budget

Cash Receipts Budget

Cash Payments for Inventory Budget

Cash Budget