Master Budget, Cash Budget and Budgeted Income Statement

After two years study at UCW, you finally graduate and start a job as Junior accountant at Glow Inc. Your manager is responsible for the nationwide distribution of creator design sets. Because of the new social media influence among current generation, the company has grown rapidly, and the prompt growth forces the management team to improve their efficiency and manage their production effectively.

You have just been given responsibility for all planning and budgeting of the entire lighting set division. Today is your first day, you have just given an assignment to prepare master budget for the manager, who needs to present the budget and discuss the financial objectives with the shareholders tomorrow. During your job interview, you clearly stated that you gained managerial accounting knowledge and hand on experience during your MBA study.

Your first assignment is to prepare a master budget for the next fiscal year, starting January 1, 2022. Your co-work has left a pile of files on your desk including the past sale records, product information, manufacture schedule and supplier pricing list. Now, you realized that you should have pay more attention during the lecture. Now, you dont know where to start. Fortunately, you remember that you still kept a copy spreadsheet of the master budget template in your laptop from the accounting course.

Note: The company desires a minimum ending cash balance each quarter on $250,000. The Glow products are sold to retailers for $75 each and the sales have been in demand due to the Covid-19. However, the marketing department has been conservative toward the end of the year due market saturation. The marketing department has just sent you their forecasted quarter sales and marketing budget.

Quarter	2022 Q1	2022 Q2	2022 Q3	2022 Q4	2023 Q1	2023 Q2
Sales in Unit	25,000	26,000	25,000	26,000	29,000	30,000
Advertising Expenses	$25,000	$25,500	$26,000	$26,000	$30,000	$30,000

Ending finished goods inventories are supposed to be equal to 30% of the next quarters sales in units. Glow currently does its own assembly production in house. Each unit consists of 2 LED panels and the cost of each is $10. Each unit needs 1 labour hour from assemble to finish package. The hourly pay rate to the assembling workers is $15 per hour. The production manager also required desired direct material ending inventory to 30% of the next quarter production.

Purchases are paid for in the following manner: 50% in the quarter of the purchase and the remaining 50% paid in the quarter following the purchase. All sales to the distributors are made on credit terms with no discount (for now), and payable within 45 days. The Glow has determined that only 75% of sales are collected by the end of the quarter in which the sale occurred. The rest 25% is collected in the quarter following the sale. Bad debts have been negligible, supporting the credit terms as favorable.

Below is a display of the Glow division quarterly manufacture overhead and selling and administrative expenses: Manufacture Overhead Variable:

Indirect labour $5 per labour hour Indirect Materials $2 per labour hour Fixed:

Wages and Salaries $6,000

Utilities $4,000

Maintenance $2,000

Insurance $7,000

Depreciation $7,000

Rent $10,000

Selling and Administrative Variable:

Sales Commissions $5 per unit Fixed (quarterly):

Wages and Salaries $100,000

Utilities $18,000

Insurance $6,000

Depreciation $5,000

Miscellaneous $9,000

Labour, Manufacture Overhead, and Selling and Administrative expenses are all paid during the month, in cash, with the exception of depreciation (of course). Glow will make a purchase of a warehouse during the second quarter of 2022 for $950,000 cash. Glows balance sheet at the end of the fourth quarter last year is shown below:

Assets

Cash $250,000

Accounts receivable $250,000 (uncollected from Q4 last year) Liabilities

Accounts payable $200,000 (unpaid from Q4 last year)

An agreement with Bank of the West allows Glow to borrow up to a total loan amount of $500,000 (maximum amount). The interest rate on these loans is 12% annually.

Required:

Prepare a master budget for 2022. Include the following budget schedules and financial statements:

1. Master Budget
2. Cash Budget. Show the cash budget by quarter.
3. Budgeted Income statement by quarter and annual