Master Budget for a Manufacturer ABC Manufacturing Ltd. produces and distributes a special type of chemical compound called CGX. The information below about ABC's operations has been assembled to assist budget preparation. The company is preparing its master budget for the first quarter of 2016. The budget will detail each months activity and the activity for the quarter in total. The master budget will be based on the following information:

a. Selling price is expected to be $75 per unit in 2016 and will not change for the first two quarters of 2016. Price in 2015 is $67.50 per unit.

Actual and estimated sales are as follows:

Actual 2015 November: 10,000 units

Estimated 2016 January: 11,000 units December: 10,000 units February: 10,000 units March: 13,000 units April: 11,000 units May: 10,000 units

b. The company produces enough units each month to meet that months sales plus a desired inventory level equal to 20% of next months estimated sales. Finished Goods inventory at the end of 2015 consisted of 2,200 units.

c. The company purchases enough raw materials each month for the current months production requirement and 25% of next month's production requirements. Each unit of product requires 5 kilograms of raw material at $0.60 per kilogram. There were 9,500 kilograms of raw materials in inventory at the end of 2015. ABC pays 40% of raw material purchases in the month of purchase and the remaining 60% in the following month.

d. Each unit of finished product requires 1.25 labour-hours. The average wage rate is $20 per hour.

e. Variable manufacturing overhead is 45% of the direct labour cost.

f. Credit sales are 50% of total sales. The company collects 50% of the credit sales during the first month following the month of sale and 50% during the second month.

g. Fixed overhead costs (per month) are as follows: Factory manager and supervisors salary 75,000 Factory insurance 2,800 Factory rent 7,000 Depreciation of factory equipment 1,200 Total fixed selling and administrative expenses (per quarter) are as follows: Advertising 3,000 Depreciation 7,000 Insurance 250 Salaries 12,000 Other 2,650

h. Variable selling and administrative expenses consist of $4 for shipping and 8% of sales for commissions.

i. The company will acquire assets for use in the sales office at a cost of $300,000, which will be paid at the end of January 2016. The monthly depreciation expense on the additional capital assets will be $6,000.

j. The balance sheet as of December 31, 2015, is as follows:

Assets Cash $80,000 Accounts receivable 675,000 Inventory: Raw materials $5,700 Finished goods 90,200 95,900 Plant and equipment 1,000,000 Less: accumulated depreciation -100,000 Total assets $1,750,900 Liabilities and Equity Accounts payable $21,600 6% long-term notes payable 900,000 Common shares 735,000 Retained earnings 94,300 Total liabilities and shareholders' equity $1,750,900

Additional information is as follows:

Cash for Accounts Receivables from Dec 31 Balance Sheet will be collected equally in January and February.

All cash payments except purchases of raw materials are made monthly as incurred. All borrowings occur at the beginning of each month, and all repayments occur at the end of the month. Borrowings and repayments may occur in any amount. All interest on borrowed funds is paid at the end of each month at a rate of 0.5% per month (including Notes Payable).

A minimum cash balance of $30,000 is required at the end of each month. Any excess cash over 30,000 is used to pay off short term loans to the bank. No Notes Payable will be paid off in the quarter. The company will not incur or pay any income tax during the quarter.

Required: 1. Prepare the following budgets for each of the first three months of 2016: a. Sales budget. b. Production budget. c. Raw materials purchases budget. d. Direct labour and manufacturing overhead budget. e. Selling and administrative budget. f. Cash budget. 2. Prepare a budgeted income statement for each of the first three months of 2016 and a budgeted balance sheet as at March 31, 2016.