Master Budget $$Case Study$$As part of the continued advancement of technology, a drone camera market has emerged in recent years. The drone camera market has been growing as more photography enthusiasts have begun adopted this high$-$tech approach to capturing still images and video using remotely controlled devices. Eager to capture a share of this growing market,$$CamDrone$$entered the market in early $2018.$ CamDrone manufactures camera drones, selling primarily to retailers.$$CamDrone is pleased with its financial performance over its first few years of operations, optimistic to achieve continued financial success. For planning and control purposes the company utilizes a monthly master budget, which is usually developed at least three months in advance of the budget year. The company has a fiscal year ending December $31.$It is now Sept $15,2019.$ You have been asked to prepare the Master Budget for the year ending December $31,2020.$Based on your discussions with the various departments throughout the company, you have collected the following relevant information for preparing the budget:$$Sales$1.$ The marketing department is forecasting the following annual sales:$$ For the year ended December $31,2019$: $9,000$ units at $$1,000$ each$*$ For the year ended December $31,2020$: $10,000$ units at $$1,000$ each$$ For the year ended December $31,2021$: $15,000$ units at $$1,000$ each$*$Expected sales for the year ended December $31,2019$ were based on actual sales to date and budgeted sales for the duration of the year.$2.$ Peak months for sales generally correspond with summer weather and gift$-$giving holidays. History shows that January is the slowest month, with only $1\%$ of annual sales, followed closely behind by Feb$-$April with $2\%$ of annual sales for each month. Sales spike during summer months with May, June, July, and August contributing $12\%,15\%,12\%,$ and $10\%$ of annual sales respectively. With the back$-$to$-$school focus in September, there is a significant dip in camera drone sales to $3\%$ of annual sales. As Christmas shopping picks up momentum, winter sales increase to $8\%$ in October, $13\%$ in November, and then peak at $20\%$ in December. This pattern of sales is not expected to change in the next two years.$$Manufacturing Costs and Inventory$3.$ Each camera drones spends a total of $3\mathrm{.}5$ hours in production$\mathrm{.}4.$ Due to the highly technical nature of CamDrone$$s manufacturing process, CamDrone$$s direct labour rate has averaged $$30\mathrm{.}00$ per hour for $2019.$ This rate already includes the employer$$s portion of employee benefits. A new collective agreement is being negotiated, with a $3\%$ pay increase anticipated effective January $1,2020.5.$ Each CamDrone requires $1\mathrm{.}25$kg of direct materials. During $2019,$ the average cost of direct materials was $$57/$kg$.$ The supplier of the direct materials tends to be somewhat erratic, so CamDrone finds it necessary to maintain a direct materials inventory balance equal to $40\%$ of the following month$$s production needs as a precaution against stock$-$outs.$6.$ Due to the similarity of the equipment in each of the production stages and the company$$s concentration on a single product, manufacturing overhead is allocated based on volume $($i$.$e$.$ the units produced$).$ The variable manufacturing overhead rate for $2019$ is $$160/$unit$,$ consisting of:Plant & Equipment Maintenance$ $70$Utilities$40$Indirect Materials$30$Other$20$$ $1607.$ The fixed manufacturing overhead costs for $2019$ are as follows:Supervisor$$s salary$181,800$Amortization of Plant & Equipment$ $132,000$Insurance$84,000$Training & Development$54,750$Property and Business Taxes$48,000$Other$30,000$$ $530,550$Amortization is calculated using the straight$-$line method, with no amortization calculated in the year capital assets are acquired.$8.$ Aside from amortization, all other manufacturing costs are expected to increase by $3\%$ in $2020$ due to inflation.$9.$ From previous experience, management has determined that an ending finished goods inventory equal to $25\%$ of the next month$$s sales is required to efficiently meet customer demands.Collections Pattern$10.$ Sales are on a cash and credit basis, with $49\%$ collected during the month of the sale, $33\%$ the following month, and $17\%$ the month thereafter. There are no early payment discounts for customers. Bad debt expense $($amounts considered uncollectible$)$ account for $1\%$ of sales.$11.$ Based on the collection pattern described above, accounts payable as at end of business day on December $31,2019$ is projected to be $$1,098,899$ arising from the following estimates:Sales $($November $2019)$$$1,170,000$Sales $($December $2019)$$$1,800,000$Payments Pattern$12.$ CamDrone pays for $20\%$ of a month$$s purchases of direct materials in the month of purchase, $50\%$ in the following month and the remaining $30\%$ two months after the month of purchase. There are no early payment discounts offered by suppliers.$13.$ Based on the payment pattern described above, accounts payable as at end of business day on December $31,2019$ is projected to be $$78,641$ arising from the following estimates:Direct Material Purchases $($November $2019)$$$95,888$Direct Material Purchases $($December $2019)$$$62,34414.$ All payroll costs are paid in the period in which they are incurred.$15.$ The property and business taxes, paid at the beginning of July each year, apply to the following $12-$month period. Any increases for inflation on property and business taxes do not take effect until the beginning of July each year.$16.$ Annual insurance premiums, paid at the beginning of April each year, apply to the following $12-$month period. Any increases for inflation on insurance premiums do not take effect until the beginning of April each year.$17.$ Fixed manufacturing overhead costs are incurred evenly over the year and $$cash$-$ related$$ amounts are paid as incurred.$18.$ Selling and administrative expenses are paid in the month in which they occur.$$Other$19.$ Anticipating a significant increase in customer demand and market share over the next few years, CamDrone is planning a significant expansion involving acquiringadditional manufacturing equipment for $$3,000,000$ cash. Half of this amount is to be paid to the equipment supplier in July $2020,$ with the remainder to be paid in October $2020.20.$ Selling and administrative expenses are known to be a mixed cost; however, there is a lot of uncertainty about the portion that is fixed. Based on prior year experience:$$Lowest level of monthly sales:$80$ units... Total Operating Expenses: $$87,270*$Highest level of monthly sales:$1,600$ units... Total Operating Expenses: $$360,780**$ excluding bad debts and amounts described below$$These expenses are expected to increase by $3\%$ in $2020$ due to inflation.$21.$ To secure and grow its market share, CamDrone is planning to operate $$pop$-$up$$ kiosks in various local retail centers during peak sales months $($May$-$Aug, Nov$-$Dec$)$ commencing Nov$2019.$ CamDrone is budgeting $$10,900$ per month $($including all related fees and taxes$),$ payable at the beginning of each month, to set$-$up and operate these kiosks. The cost to set$-$up and operate $$pop$-$up$$ kiosks will be in addition to the normal selling and administrative expenses described above and is not expected to increase during $2020.22.$ Income tax expense is estimated to be $25\%$ of net income. CamDrone makes monthly income tax installment payments of $$25,000$ and pays all outstanding income taxes $($in excess of installment payments$)$ in March of the following year. As such, any outstanding income tax balance for the year ended December $31,2019$ it will be paid in March $2020.23.$ An arrangement has been made with the local bank that if CamDrone maintains a minimum balance of $$50,000$ in their bank account, they will be given a line of credit at a preferred rate of $3\%$ per annum $(0\mathrm{.}25\%$ per month$).$ 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$$10,000$ and interest must be paid at the end of each month. Interest is calculated on the balance at the beginning of the month, which includes any amounts borrowed that month.$24.$ CamDrone has a policy of paying dividends at the end of each quarter. The President tells you that the Board of Directors is planning on declaring dividends as follows:March $2020$$$50,000$June $2020$$$100,000$September $2020$$$250,000$December $2020$$$250,000$Dividends are paid in the month they are declared.$25.$ The company is forecasting the following balances as at the end of business day on December $31,2019$:$$AssetsCash$ $100,000$Accounts Receivable$1,098,899$Inventory: Direct Materials$3,591$Inventory: Finished Goods$11,640$Prepaid Property and Business Taxes$24,000$Prepaid Insurance$21,000$Capital Assets $($net$)571,800$Total Assets$$1,830,930$Liabilities and Shareholders$$ EquityAccounts Payable$ $78,641$Income Taxes Payable$19,700$Capital Stock$500,000$Retained Earnings$1,232,589$Total Liabilities and Shareholders$$ Equity$$1,830,930$Required:$$Prepare a monthly master budget for CamDrone for the year ending December $31,2020,$ whow your answers for the following schedules only.$1.$ direct materials budget