Master Budget Case: Toys4U Corp. Toys4U Corp. is a company that manufactures and sells a single product, which they cal a Rooster Pull Toy. For planning and control purposes they ut a monthly master budget, which is usually developed at least six months in advance of the budget year Their fiscal year and is December 31 Their sales forecast consisted of these few lines: For the year ended December 31, 2019: 95,000 units at $45.00 each For the year ended December 31, 2020: 100,000 units at $50.00 each . For the year ended December 31, 2021: 110,000 units at $52.00 each Expected sales for the year ended December 31, 2019 are based on actual sales to date and budgeted sales for the duration of the year Raw data 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. This pattern of sales is not expected to change in the next three years Months Percentage of sales Jan, Feb, Mar 3% each 5% each Apr. Aug. Sept May, Jun, Jul 10% each Oct 11% Nov 15% Dec 20% 2. From previous experience, management has determined that an ending inventory equal to 25% of the next month's sales is required to fit the buyer's demands 3. Because sales are seasonal Toys U must rent an additional storage facility from October to December to house the additional inventory on hand. The related which cover the rent, additional security and extra insurance, is a fat $6.000 per month payable at the beginning of the month 4. There are three types of raw material used in the production of Rooster Pull Toys. Plastic 25 ( 25) is a very compact material that is purchased in powder fom. Each Rooster Pull Toy requires 0.4 klograms of P25, at a cost of $30.00 per kilogram. This is an increase of $6.00 from 2019. The supplier of P25 tends to be somewhat erratic so Toys4U finds it necessary to maintain an inventory balance equal to 50% of the following month's production needs as a precaution against stock-outs A wooden wheel assembly is purchased in kit fomm, and is attached during the assembly process. For a small premium, Toys4U has made a JIT agreement with the supplier which includes on-time and quality assurances. Each Rooster Pul Toy uses to kits, which cost $1.80 each. The final component for the toy is a length of salope which is used to put the toy along the ground or floor. The rope is supplied by a student entrepreneur, who must be paid in cash. On the first day of every month she delivers exactly the night amount to manufacture the budgeted number of units for that month it costs $1.00 per meter and Toys4U uses 0.6 meters for each Rooster Pull Toy 5. The beginning accounts payable (associated with #25 purchases only) will consist of $57810 arising from the following estimated material purchases for November and December of 2019 Material purchases in November 2019 $146, 100 Material purchases in December 2019 $86,400 Toyodu pays for 50% of a month's purchases in the month of purchase, 40% in the following month and the remaining 10% two months after the month of purchase There is no early payment discount 6. The manufacturing process for Rooster Pull Toys is divided into three spare activities. The first step is the forming process, during which the PW25 is liquefied and formed into several shapes that snap together to make the toy. During the next stage, the molded pieces are fused together using heat. This step is referred to as the assembly stage. The last stage is for finishing during which the wheel and the pull rope are attached and the toy is prepared for shipping 7. The first two steps of the m ufacturing process we highly automated, so the only direct labour required consists of four highly speciwiced technicians who are trained to operate the equipment and make repairs as required. These employees work shifts, allowing the plant to operate for longer hour during the busier months. On an annual basis, they are each paid an average of $60,000 induding employee benefits 8. The last step, finishing, employs wage eamers. Most of the staff work on a part-time basis, so their hours can be set based on production requirements. This eliminates the need for overtime These employees are paid based on the number of units produced. They receive an average of $1200 per hour including employee benefits Each Rooster Pul Toy spends 18 minutes in the finishing department 9. Because of the large difference in the manufacturing stages, Toys4U uses to separ ate muturing overhead The forming ambly departments use simiar equipment and with the company's concentration on single product, the manufacturing overhead is located based on volume (ie the units produced). The combined una variable overhead manufacturing rate for forming and assembly is $6.20, consisting of Utilities $2.50; Indirect Materials $1.00 Plant maintenance $1.50; environmental fee $0.70 and Other $0.50 The best cost driver for the finishing department is considered to be direct labour hours. Here the predetermined variable manufacturing overhead is expected to be $4.00 per hour 10. Fixed manufacturing overhead costs are not separated between departments. The total costs for the entire year are as follows: Training and development Supervisor's salaries & benefits Amortization on equipment Insurance Other $ 43,620 169,224 178,800 72.600 120.900 SA6.144 The annual insurance premium, which will be paid on July 1, will be $73,200. All other cash-related fixed manufacturing overhead costs are incurred evenly over the year and pakl as incurred. Toys4U uses the straight line method of amortization 11. Selling and administrative expenses are known to be a moved cost, however, there is a lot of uncertainty about the portion that is fixed. Previous year's experience has provided the following information rounded Lowest level of sales: 75,000 units Highest level of sales: 115,000 units Total Operating Expenses: $863,700 Total Operating Expenses: $1,123,700 The annual amount of amortization on office furniture and equipment is only $9,000 and this amount is already included in the fixed portion of the selling and administration expenses. Not induced in the above expenses is bad debt expense Payments for selling and administrative expenses occur in the month in which they are incurred 12. Sales are on a cash and credit basis, with 75% collected during the month of the sale, 15% the following month, and 9.5% the month thereafter of 1% of sales are considered uncollectible (bad debt expense). 13. Sales in November and December 2019 are expected to be $641,250 and $855,000 respectively. Barvad on the above collection pattem this will result in Accounts Receivable of $270,394 December 31, 2019 which will be collected in January and February, 2020, 14. During the fiscal year ended December 31, 2020, Toys4u will be required to make monthly income tax installment payments of $5,000. Outstanding income taxes from 35 the year ended December 31, 2019 must be paid in April 2020. Income tax expense is estimated to be 35% of net income. Income taxes for the year ended December 31, 2020, in excess of instaliment payments, will be paid in Apr, 2021 15. Toys4U is planning to acquire additional manufacturing equipment on July 1, 2020 for $306,000 cash (including installation). The equipment is expected to last for 10 years, and will be replacing an older model with a netbook value of zero. They have a special agreement to pay the supplier in three equal installments starting in August 2020. The manufacturing overhead costs shown above do not include the amortization on this equipment Because of recent innovations, the new equipment is expected to operate more efficiently than the old one. It is expected that the per unit cost for utilities will decrease by $0.93 when the new machine comes on-line 16. An arrangement has been made with the local bank that if Toyu maintains a minimum balance of $30,000 in their bank account, they will be given a line of credit 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. Toys Corp, 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. 16. A listing of the estimated balances in the company's ledger accounts as of December 31, 2019 is given below: Assets Cash Accounts receivable Inventory-raw materials (P#25) Inventory finished goods Prepaid Insurance Capital assets (net) Total assets S 97 888 270.394 18.000 22.875 36.000 724.000 S1604167 Liabilities and Shareholders' Equity Accounts payable $ 57,810 Income taxes payable 34.500 Capital stock 850.000 Retained Eamings 216,894 Total liabilities and shareholders' equity S1169157 Required: 1. Prepare a monthly master budget for Toys4U for the year ended December 31, 2020, 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 (using absorption costing) for the year ended December 31, 2020. Master Budget Case: Toys4U Corp. Toys4U Corp. is a company that manufactures and sells a single product, which they cal a Rooster Pull Toy. For planning and control purposes they ut a monthly master budget, which is usually developed at least six months in advance of the budget year Their fiscal year and is December 31 Their sales forecast consisted of these few lines: For the year ended December 31, 2019: 95,000 units at $45.00 each For the year ended December 31, 2020: 100,000 units at $50.00 each . For the year ended December 31, 2021: 110,000 units at $52.00 each Expected sales for the year ended December 31, 2019 are based on actual sales to date and budgeted sales for the duration of the year Raw data 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. This pattern of sales is not expected to change in the next three years Months Percentage of sales Jan, Feb, Mar 3% each 5% each Apr. Aug. Sept May, Jun, Jul 10% each Oct 11% Nov 15% Dec 20% 2. From previous experience, management has determined that an ending inventory equal to 25% of the next month's sales is required to fit the buyer's demands 3. Because sales are seasonal Toys U must rent an additional storage facility from October to December to house the additional inventory on hand. The related which cover the rent, additional security and extra insurance, is a fat $6.000 per month payable at the beginning of the month 4. There are three types of raw material used in the production of Rooster Pull Toys. Plastic 25 ( 25) is a very compact material that is purchased in powder fom. Each Rooster Pull Toy requires 0.4 klograms of P25, at a cost of $30.00 per kilogram. This is an increase of $6.00 from 2019. The supplier of P25 tends to be somewhat erratic so Toys4U finds it necessary to maintain an inventory balance equal to 50% of the following month's production needs as a precaution against stock-outs A wooden wheel assembly is purchased in kit fomm, and is attached during the assembly process. For a small premium, Toys4U has made a JIT agreement with the supplier which includes on-time and quality assurances. Each Rooster Pul Toy uses to kits, which cost $1.80 each. The final component for the toy is a length of salope which is used to put the toy along the ground or floor. The rope is supplied by a student entrepreneur, who must be paid in cash. On the first day of every month she delivers exactly the night amount to manufacture the budgeted number of units for that month it costs $1.00 per meter and Toys4U uses 0.6 meters for each Rooster Pull Toy 5. The beginning accounts payable (associated with #25 purchases only) will consist of $57810 arising from the following estimated material purchases for November and December of 2019 Material purchases in November 2019 $146, 100 Material purchases in December 2019 $86,400 Toyodu pays for 50% of a month's purchases in the month of purchase, 40% in the following month and the remaining 10% two months after the month of purchase There is no early payment discount 6. The manufacturing process for Rooster Pull Toys is divided into three spare activities. The first step is the forming process, during which the PW25 is liquefied and formed into several shapes that snap together to make the toy. During the next stage, the molded pieces are fused together using heat. This step is referred to as the assembly stage. The last stage is for finishing during which the wheel and the pull rope are attached and the toy is prepared for shipping 7. The first two steps of the m ufacturing process we highly automated, so the only direct labour required consists of four highly speciwiced technicians who are trained to operate the equipment and make repairs as required. These employees work shifts, allowing the plant to operate for longer hour during the busier months. On an annual basis, they are each paid an average of $60,000 induding employee benefits 8. The last step, finishing, employs wage eamers. Most of the staff work on a part-time basis, so their hours can be set based on production requirements. This eliminates the need for overtime These employees are paid based on the number of units produced. They receive an average of $1200 per hour including employee benefits Each Rooster Pul Toy spends 18 minutes in the finishing department 9. Because of the large difference in the manufacturing stages, Toys4U uses to separ ate muturing overhead The forming ambly departments use simiar equipment and with the company's concentration on single product, the manufacturing overhead is located based on volume (ie the units produced). The combined una variable overhead manufacturing rate for forming and assembly is $6.20, consisting of Utilities $2.50; Indirect Materials $1.00 Plant maintenance $1.50; environmental fee $0.70 and Other $0.50 The best cost driver for the finishing department is considered to be direct labour hours. Here the predetermined variable manufacturing overhead is expected to be $4.00 per hour 10. Fixed manufacturing overhead costs are not separated between departments. The total costs for the entire year are as follows: Training and development Supervisor's salaries & benefits Amortization on equipment Insurance Other $ 43,620 169,224 178,800 72.600 120.900 SA6.144 The annual insurance premium, which will be paid on July 1, will be $73,200. All other cash-related fixed manufacturing overhead costs are incurred evenly over the year and pakl as incurred. Toys4U uses the straight line method of amortization 11. Selling and administrative expenses are known to be a moved cost, however, there is a lot of uncertainty about the portion that is fixed. Previous year's experience has provided the following information rounded Lowest level of sales: 75,000 units Highest level of sales: 115,000 units Total Operating Expenses: $863,700 Total Operating Expenses: $1,123,700 The annual amount of amortization on office furniture and equipment is only $9,000 and this amount is already included in the fixed portion of the selling and administration expenses. Not induced in the above expenses is bad debt expense Payments for selling and administrative expenses occur in the month in which they are incurred 12. Sales are on a cash and credit basis, with 75% collected during the month of the sale, 15% the following month, and 9.5% the month thereafter of 1% of sales are considered uncollectible (bad debt expense). 13. Sales in November and December 2019 are expected to be $641,250 and $855,000 respectively. Barvad on the above collection pattem this will result in Accounts Receivable of $270,394 December 31, 2019 which will be collected in January and February, 2020, 14. During the fiscal year ended December 31, 2020, Toys4u will be required to make monthly income tax installment payments of $5,000. Outstanding income taxes from 35 the year ended December 31, 2019 must be paid in April 2020. Income tax expense is estimated to be 35% of net income. Income taxes for the year ended December 31, 2020, in excess of instaliment payments, will be paid in Apr, 2021 15. Toys4U is planning to acquire additional manufacturing equipment on July 1, 2020 for $306,000 cash (including installation). The equipment is expected to last for 10 years, and will be replacing an older model with a netbook value of zero. They have a special agreement to pay the supplier in three equal installments starting in August 2020. The manufacturing overhead costs shown above do not include the amortization on this equipment Because of recent innovations, the new equipment is expected to operate more efficiently than the old one. It is expected that the per unit cost for utilities will decrease by $0.93 when the new machine comes on-line 16. An arrangement has been made with the local bank that if Toyu maintains a minimum balance of $30,000 in their bank account, they will be given a line of credit 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. Toys Corp, 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. 16. A listing of the estimated balances in the company's ledger accounts as of December 31, 2019 is given below: Assets Cash Accounts receivable Inventory-raw materials (P#25) Inventory finished goods Prepaid Insurance Capital assets (net) Total assets S 97 888 270.394 18.000 22.875 36.000 724.000 S1604167 Liabilities and Shareholders' Equity Accounts payable $ 57,810 Income taxes payable 34.500 Capital stock 850.000 Retained Eamings 216,894 Total liabilities and shareholders' equity S1169157 Required: 1. Prepare a monthly master budget for Toys4U for the year ended December 31, 2020, 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 (using absorption costing) for the year ended December 31, 2020