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:

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 $20\%\frac{22}{6}$

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.

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 $$1\mathrm{.}00$ each.The beginning accounts payable $($associated with Notsoi purchases only$)$ will consist of $$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.

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, Kanraky is fitted into the moulded Notsoi. This step is referred to as the assembly stage.

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

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$ Fixed Manufacturing Overhead costs for the entire year are asThe 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$ 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$-$re