Master Budget Problem Scenario:

You are the manager of Charley Inc. that produces luxury dog collars. Charley, Inc. sells the dog collars for $50 each. The following are the estimated sales for the first 6 months of 2022:

• January: 3,000 dog collars
• February: 4,000 dog collars
• March: 5,000 dog collars
• April: 4,000 dog collars
• May: 4,500 dog collars
• June: 6,000 dog collars

The company has a policy of maintaining an ending inventory of dog collars equal to 20% of the following month's estimated sales.

Sales Budget

Using the estimated sales figures, prepare a sales budget for January-March 2022.

Production Budget

Based on the sales budget and the company's policy of maintaining an ending inventory-of dog collars equal to 20% of the following month's estimated sales, prepare a production budget for January-March 2022.

Direct Materials Budget

Charley Inc. requires two spools of direct materials to produce one dog collar. The direct materials cost $4 per spool. The company's policy is to maintain an ending inventory of direct materials equal to 10% of the following month's production needs. The desired ending inventory of direct materials amount for March is 960 spools. Prepare a direct materials budget for January-March 2022.

Step 4: Direct Labor Budget

Charley Inc. requires two hours of direct labor to produce one dog collar. The direct labor cost is $15 per hour. Prepare a direct labor budget for January-March 2022.

Step 5: Manufacturing Overhead Budget

Charley Inc. estimates that its manufacturing overhead costs will consist of fixed costs ($5,000 supervisory salaries, $3,000 depreciation, $4,000 in maintenance costs) and variable costs. The variable costs are based on direct labor hours per the following: indirect materials $0.30, indirect labor $0.40, utilities $0.20, and maintenance @ $0.10. Prepare a manufacturing overhead budget for January -March 2022.

Step 6: Selling and Administrative Budget

Charley lnc.'s monthly selling and administrative costs are estimated to have variable expense rates per unit of sales as $2.00 for sales commissions and $1.00 for freight-out. The variable costs are based on sales. The fixed expenses per month are expected to be $4,000 in advertising, $3,000 in sales salaries and $1,500 in office salaries. Prepare a selling and administrative budget for January-March 2022.

Step 7: Budgeted Income Statement

Using the budgets already prepared, and the MOH rate of $5.00 per unit, prepare a budgeted income statement for the first quarter ending March 31, 2022.

Step 8: Schedule of Cash Collections

Charley lnc.'s sales are on credit, with 70% collected in the month of sales and 30% collected in the following month. The accounts receivable of $52,500 at 12/31/2021 are expected to be collected in the first month of 2022. Prepare a schedule of cash collections for January- March 2022.

Step 9: Schedule of Expected Payments

Charley lnc.'s direct materials purchases are on credit, with 60% paid in the month of purchase and 40% paid in the following month. The accounts payable of $13,240 at 12/31/2021 are expected to be paid in full in the first month of 2022. Prepare a schedule of expected payments for Direct Materials for January - March 2022.

Step 10: Cash Budget

Prepare a cash budget based off the following assumptions: January 1, 2022, cash balance is $10,000. The company wishes to maintain a balance of at least $15,000. Direct labor and Manufacturing Overhead are paid 100% in the month incurred (refer to previous budgets prepared). All selling and administrative expenses, except depreciation, are paid in the month incurred.

Step 11: Budgeted Balance Sheet

Using the budgets prepared in steps 3, 4, 5, and 6, as well as the cash budget prepared in step 10, prepare a budgeted balance sheet for the end of the third month.

Relevant information for the Budgeted Balance Sheet includes balances at 12/31/2021 for the following: Buildings & Equipment = $252,000;

Accumulated Depreciation = $108,000;

Common Stock = $225,000;

Retained Earnings = $3,620