Master Budget Case

Cordon Ltd$.$ is a company that manufactures and sells a single product, which they call a Bleu. 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 $31.$

Their sales forecast consisted of these few lines:

$$ For the year ended December $31,2022$: $100,000$ units at $$60\mathrm{.}00$ each$*$

$$ For the year ended December $31,2023$: $110,000$ units at $$60\mathrm{.}00$ each

$$ For the year ended December $31,2024$: $115,000$ units at $$60\mathrm{.}00$ each

$*$Expected sales for the year ended December $31,2022$ are based on actual sales to date and budgeted sales for the duration of the year.

You are provided with the following information:

$1.$ Sales are seasonal with the peak months being summer and winter holidays. The following table shows expected distribution of sales for each month based on percentage of the total budgeted sales. Months Percentage of sales Jan, Feb, Mar $3\%$ each May, Aug, Sept $5\%$ each Apr, Jun, Jul $10\%$ each Oct $11\%$ Nov $15\%$ Dec $20\%22/6$

$2.$ From previous experience, management has determined that an ending inventory equal to $20\%$ of the next month$$s sales is required to fit the buyer$$s demands.

$3.$ There are $2$ types of raw material used in the production of Bleu:

$-$ Notsoi is the first component, and is purchased in powder form. Each Bleu requires $0\mathrm{.}5$ kilograms of Notsoi, at a cost of $$30\mathrm{.}00$ per kilogram. Because the supply of Notsoi is unpredictable, Cordon finds it necessary to maintain an inventory balance equal to $40\%$ of the following month$$s production needs as a precaution against stockouts.

$-$ Kanraku is the second component, of which $2$ are used in the assembly process per Bleu. In order to ensure this material is always available, Cordon has made a JIT agreement with the supplier which includes on$-$time and quality assurances. Each Bleu uses $2$ Kanraku, which cost $$1\mathrm{.}00$ each.

$4.$ The beginning accounts payable $($associated with Notsoi purchases only$)$ will consist of $$95,700$ arising from the following estimated material purchases for November and December of $2022$:

Material purchases in November $2022$: $$193,150$

Material purchases in December $2022$: $$134,475$

Cordon 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. There is no early payment discount.

$5.$ The manufacturing process for Bleu is divided into two activities. The first step is the forming process, during which the Notsoi is heated and moulded into various shapes. During the next stage, Kanraku is fitted into the moulded Notsoi. This step is referred to as the assembly stage.

$6.$ The first two steps of the manufacturing process are highly automated, so the only employees are three supervisors, who are trained to operate the equipment and make repairs as required. The supervisors work shifts, allowing the plant to operate for longer hours during the busier months. They are also responsible for managing the employees who work in the finishing department. There is no labour component to the manufacturing process

$7.$ The combined unit variable overhead manufacturing rate for forming and assembly is $$6\mathrm{.}50,$ consisting of: Utilities$--$$$3\mathrm{.}00$; Indirect Materials$--$$$1\mathrm{.}00$; Plant maintenance$--$$$1\mathrm{.}50$; environmental fee$--$$$0\mathrm{.}70$; and Other$--$$$0\mathrm{.}30.$

$8.$ Fixed Manufacturing Overhead costs for the entire year are as follows: Training and development $ $43,620$

Supervisor$$s salary $269,400$

Depreciation on equipment $178,800$

Insurance $69,000$

Other $117,600$

$ $678,420$ Total

$$ 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.

$$ Cordon uses the straight$-$line method of depreciation.

$9.$ Selling and administrative expenses have historically been a mixed cost; Previous year$$s experience has provided the following information: $.$

Lowest level of sales: $80,000$ units

Total Operating Expenses: $$876,000$

Highest level of sales:$120,000$ units

Total Operating Expenses: $$1,116,000$

The annual amount of depreciation on office furniture and equipment is only $$21,000$and this amount is already included in the fixed portion of the selling and administration expenses. Not included in the above expenses is bad debt expense. Payments for selling and administrative expenses occur in the month in which they are incurred.

$10.$ Sales are on a cash and credit basis, with $70\%$ collected during the month of the sale, $20\%$ the following month, and $9\mathrm{.}5\%$ the month thereafter. $(1)/(2)$ of $1\%$ of sales are considered uncollectible $($bad debt expense$).$

$11.$ Sales in November and December $2022$ are expected to be $$712,500$ and $$950,000$ respectively. Based on the above collection pattern this will result in Accounts Receivable o