Master Budget_Case Study As part of the continued advancement of technology, a drone camera market has emerged in recent years. The drone camera market has been growing as more photography enthusiasts have begun adopted this high-tech approach to capturing still images and video using remotely controlled devices. Eager to capture a share of this growing market, Gauguing entered the market in early 2018. Cargope manufactures camera drones, selling primarily to retailers. campone is pleased with its financial performance over its first few years of operations, optimistic to achieve continued financial success. For planning and control purposes the company utilizes a monthly master budget, which is usually developed at least three months in advance of the budget year. The company has a fiscal year endingDecember 31 It is now Sept 15, 2019. You have been asked to prepare the Master Budget for the yearending December 31, 2020 Based on your discussions with the various departments throughout the company, youhave collected the following relevant information for preparing the budget: Sales 1. The marketing department is forecasting the following annual sales: For the year ended December 31, 2019: 9,000 units at $1,000 each For the year ended December 31, 2020: 10,000 units at $1,000 each For the year ended December 31, 2021: 15,000 units at $1,000 each *Expected sales for the year ended December 31, 2019 were based on actual salesto date and budgeted sales for the duration of the year. 2 Peak months for sales generally correspond with summer weather and gift-giving holidays. History t-elvin shows that January is the slowest month, with only 1% of annual sales, followed closely behind by Feb- April with 2 of annual sales for each month. Sales spike during summer months with May, June, July, and August contributing 12%, 15%, 1236, and 10% of annual sales respectively. With the back-to-scheol. focusin September, there is a significant dip in camera drone sales to 3% of annual sales. As Christmas shopping picks up momentum, winter sales increase to 8% in October, 13% in November and then peak at 20% in December. This pattern of sales is not expected to change in the next two years. Manufacturing Costs and Inventory 3. Each camera drones spends a total of 3.5 hours in production. 4. Due to the highly technical nature of Samprope's manufacturing process, Can Piagets direct labourate has averaged $30.00 per hour for 2019. This rare already includes the employer's portion of employee benefits. A new collective agreement is being negotiated, with a 3% pay increase anticipated effective Januari, 2020. 5. Each car Drape require: 1.25kg of direct materials During 2019, the average cost ofdirect materials was $57/kg. The supplier of the direct materials tends to be somewhat erratic, so canne finds it necessary to maintain a direct materials inventory balance equal to 40% of the following month's production needs as a precaution against stock-outs. 6. 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 allocatedbased on volume (ie the units produced). The variable manufacturing overhead rate for 2019 is $160/unit, consisting of: Plant & Equipment Maintenance $ 70 Utilities 40 Indirect Materials 30 Other ZO $ 160 7. The fixed manufacturing overhead costs for 2019 are as follows: Supervisor's salary 181,800 Amortization of plant & Equipment $ 132,000 Insurance 34,000 Training & Development 54,750 Property and Business Taxes 48,000 Other 30,000 $ 530.550 Amortization is calculated using the straight-line method, with no amortizationcalculated in the year capital assets are acquired. 8. Aside from amortization, all other manufacturing costs are expected to increase by3% in 2020 due to inflation. 9. From previous experience, management has determined that an ending finishedgoods inventory equal to 25% of the next month's sales is required to efficientlymeet customer demands. Collections Pattern 10. Sales are on a cash and credit basis, with 49% collected during the month of the sale,33% the following month, and 17% the month thereafter. There are no early payment discounts for customers. Bad debt expense amounts considered uncollectible) account for 1% of sales. 11. Based on the collection pattern described above, accounts payable as at end of business day on December 31, 2019 is projected to be $1,093,899 arising from thefollowing estimates: Sales (November 2019) $1,170,000 Sales (December 2019) $1 B00,000 Payments Pattern 12. Cam Drage pays for 20% of a month's purchases of direct materials in the month of purchase, 50% in the following month and the remaining 30% two months after themonth of purchase. There are no early payment discounts offered by suppliers. 13. Based on the payment pattern described above, accounts payable as at end of business day on December 31, 2019 is projected to be $78,641 arising from thefollowing estimates: Direct Material Purchases November 2019) $95 888 Direct Material Purchases December 20191 $62 344 14. All payrol costs are paid in the period in which they are incurred. 15. The property and business taxes, paid at the beginning of July each year, apply to the following 12-month period. Any increases for inflation on property and businesstaxes do not take effect until the beginning of July each year. 16. Annual insurance premiums, paid at the beginning of April each year, apply to thefollowing 12-month period. Any increases for inflation on insurance premiums donot take effect until the beginning of April each year. 17. Fixed manufacturing overhead costs are incurred evenly over the year and "cash-related amounts are paid as incurred. 18. selling and administrative expenses are paid in the month in which they occur. Other 19. Anticipating a significant increase in customer demand and market share over thenext few years, Cam Drone is planning a significant expansion involving acquiring additional manufacturing equipment for $3,000,000 cash. Half of this amount is to be paid to the equipment supplier in July 2020, with the remainder to be paid in October 2020. 20. Selling and administrative expenses are known to be a mixed cost; however, there isa lot of uncertainty about the portion that is fixed. Based on prior year experience: Lowest level of monthly sales:B0 units - Total Operating Expenses: $87 270* Highest level of monthly sales:1,600 units ... Total Operating Expenses: $360,780" exrliding bad debts and amounts described below These expenses are expected to increase by 3% in 2020 due to inflation. 21. To secure and grow its market share, CamOrope is planning to operate "pop-up* kiosks in various local retail centers during peak sales months (May-sug, Nov-Dec commencing Nov 2019. Gag Done is budgeting $10.900 per month (including all related fees and taxes, payable at the beginning of each month, to set-up and operate these kiosks. The cost to set up and operate "pop-up kiosks will be in addition to the normal selling and administrative expenses described above and snes expected to increase during 2020 22. Income tax expense is estimated to be 25% of net income. Camcane makes monthly income ta installment payments of $25,000 and pays all outstanding income taxes in excess of installment payments) in March of the following year. Assuch, any outstanding income tax balance for the year ended December 2, 2019 twill be paid in March zozo. 23. An arrangement has been made with the local bank that if Gau Beaune maintains a minimum balance of $50,000 in their bank account, they will be given a line of creditat a preferred rate of 3% per annum 10.25% per month. All borrowing is consideredto happen on the first day of the month, repayments are on the last day of the month. All borrowings and repayments from the bank shou d ba in multiples of $10,000 and interest must be paid at the end of each month. Interest is calculatedon the balance at the beginning of the month, which includes any amounts borrowed that month 24 Gameppe has a policy of paying dividends at the end of each quarter. The President tells you that the Board of Directors is planning on declaring dividends asfollows: March 2020 $50,000 June 2020 $100,000 September 2OZD $250,000 December 2020 S250,000 Dividends are paid in the month they are declared. 25. The company is forecasting the following balances as at the end of business day on December 31, 2019: Assets Cash Ancounts Receivable Inventory: Direct Materials Inventory: Finished Goods Prepaid Property and Business Taxes Prepaid Insurance Capital Assets (net) Total Assets $ 100,000 1,098,899 3,591 11,640 24,000 21,000 571 800 $1.220.930 Liabilities and Shareholders' Equity Accounts Payable $ 78,641 Income Taxes Payable 19,700 Capital Stock 500,000 Retained Earnings 1 232.589 Total Liabilities and Shareholders' Equity $1.230.930 for the year ending December 31, 2020, wew your Required: Prepare a mon ma budget for Cam answers for the following schedules only. 1 Sales Budget 2. Schedule of Expected Cash collections 3. Production Budget 4. Direct Materials Budget 5. Schedule of Expected Cash Disbursements