Master Budget Case:ToyWorks Ltd. (A)

ToyWorks Ltd. is a company that manufactures and sells a single product, WaterTalkies, which are walkie talkies that can be used in the water.For planning and control purposes they utilize aquarterlymaster budget, which is usually developed at least six months in advance of the budget year. Their fiscal year end is December 31.

During the summer of 2019, Buzz Lightyear,theToyWorkscontroller, spent considerable time with Andy Woody, the Manager of Marketing, putting together a sales forecast for the next budget year (January to December, 2020).

Sales Budget: Their sales forecast is expected to consist of:

• For the year ended December 31, 2020: 500,000 units at $10.00 each
• 10% of the sales in Q1
• 20% in Q2
• 25% in Q3
• 45% in Q4

Buzz left the company and the President, desperately needing the budget completed, has approached you, a management accounting student, for help in preparing the budget for the coming fiscal year.Your conversations with the president and your investigations of the company's records have revealed the following information:

1.Production Budget: From previous experience, management has determined that an ending inventory equal to 25% of the next quarter's sales is required to fit the buyer's demands.Sales for Q1 2021 are expected to be 75,000 units.(Hint beg inventory for Q1 is prior quarter ending inventory which should equal 25% of Q1 Budgeted units)

2.Direct Materials Budget: There is only one type of raw material used in the production of WaterTalkies.Each toy requires 5 oz material at a cost of $0.45 per ounce. The supplier tends to be somewhat erratic soToyWorksfinds it necessary to maintain an inventory balance equal to 40% of the following quarter's production needs as a precaution against stock-outs.Q4 ending inventory anticipated to be 152,500.

3.Direct Labor Budget;ToyWorks's manufacturing process is highly automated, so their direct labor cost is low.Employees are paid on a per unit basis. Their total pay each quarter is, therefore, dependent on production volumes and averages $9.00 per hour.This rate already includes the employer's portion of employee benefits.All payroll costs are paid in the period in which they are incurred.

Each unit spends a total of 18 minutes in production.

4.Overhead Budget Variable;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 unit variable overhead manufacturing rate is $1.30, consisting of:Utilities--$0.60; Indirect Materials--$0.20; Plant maintenance--$0.30; environmental fee--$0.14; and Other--$0.06.

5.Overhead Budget Fixed; The fixed manufacturing overhead costsfor the entire yearare as follows and incurred evenly throughout the year as follows:

Training and development$43,200

Property and business taxes39,000

Ren120,000

Supervisor's salary149,400

Amortization on equipment178,800

Insurance96,000

Other117,600

$ 744,000

ToyWorks uses the straight line method of amortization.

6.Cash Payment: Beginning accounts payable will consist of $208,406.50 arising from the following estimated direct material purchases for Q4 2019. 50% of purchases are paid for in the current quarter and 50% are paid for in the next quarter. (Hint: A/P balance is 50% of prior quarter purchase)

7.S&A Budget:Selling and administrative are budgeted at 5% of sales revenue for variable expenses, fixed administrative expenses are $10,000 per quarter.

8.Cash Receipts: Sales are on a cash and credit basis, with 55% collected during the quarter of the sale, and 45% the following quarter.(Hint: A/R balanceis 45% of prior quarter sales)

9.Cash Receipts:Sales in Q4 2019 are expected to be $1,468,000 of which the 50% expected to be collected in Q1 2020 is reflected in the 12/31/19 Account Receivable balance

10.Cash Payment;ToyWorks is planning to acquire additional manufacturing equipment for $204,300 cash which is to be paid for in Q4 2020.

11.Beginning Cash balance is $83,365.

12.A listing of the estimated balances in the company's ledger accounts as ofDecember 31, 2019is given below:

Assets

Cash$83,365

Accounts receivable734,000

Inventory-raw materials9,000

Inventory-finished goods9,125

Prepaid Insurance64,000

Prepaid property and business taxes19,200

Capital assets (net)724,000

Total assets$1,642,690

Liabilities and Shareholders' Equity

Accounts payable$208,407

Income taxes payable21,500

Capital stock1,000,000

Retained Earnings412,783

Total liabilities and shareholders' equity$1,642,690

Required:

1.Prep a monthly master budget for ToyWorks for the year endedDecember 31, 2020, including the following schedules:

Sales Budget

Production Budget

Direct Materials Budget

Direct Labor Budget

Manufacturing Overhead Budget

Cash Budget Including Cash Receipts and Disbursements

2.Extra Credit 4 points, the company is considering purchasing a new production facility that will cost $500,000. The cost of capital is 10% and estimated useful life is 10 years.The new facility will generate net income of $70,000 per year.

a.Calculate the accounting rate of return

b.Payback Period

c.NPV

d.Profitability Index

I have completed everything except for cash budget including cash receipts and disbursements. Thank you