MatsWest Inc. $($MW Inc.$)$ is a producer and wholesaler of yoga mats. The company uses

recycled rubber for the mats, which it sources from a local supplier. MW Inc.$$s management is

proud of the company$$s commitment to eco$-$friendly materials. It believes that demand for its

mats will increase as more consumers demand ethically sourced products.

MW Inc. sells its yoga mats to leading sporting goods retailers across Canada.

MW Inc.$$s master budget will detail each quarter$$s activity and the activity for the year in total.

The company will base its $2024$ budget on the following information:

$1.$ Expected sales, in units $($i$.$e$.,$ mats$),$ for the four quarters of $2024$ and the first two

quarters of $2025$ are as follows:

$2024$ Q$17,900$

$2024$ Q$218,500$

$2024$ Q$319,100$

$2024$ Q$425,500$

$2025$ Q$132,100$

$2025$ Q$228,300$

The unit selling price for $2024$ has been set at $$45\mathrm{.}00$ per mat. MW Inc.$$s fiscal year ends

on December $31.$ All sales are on account. $80\%$ of sales on account are collected in the

quarter of sale; $20\%$ of sales on account are collected in the following quarter. Assume

that the entire balance in accounts receivable $($as of December $31,2023)$ will be collected

in the first quarter of $2024.$ Assume no bad debts are incurred.

$2.$ Each component requires the following direct inputs:

$3$ kilograms $($kg$)$ of direct material available at a price of $$2\mathrm{.}00$ per kg$.$

$0\mathrm{.}3$ hours of direct labour at a rate of $$35\mathrm{.}00$ per hour.

MW Inc. has a policy of maintaining direct material ending inventory equal to $35\%$ of

direct materials needed for the next quarter$$s production requirements. All raw

materials are purchased on account. $70\%$ of a quarter$$s purchases are paid for in the

quarter of purchase; the remaining in the following quarter. MW Inc. has a policy of

keeping ending finished goods inventory equal to $25\%$ of next quarter$$s forecasted

sales. There is no beginning or ending work$-$in$-$process inventory. Direct labourers are

paid at the end of each month.

$3$

$3.$ Total budgeted variable overhead costs for the $2024$ year $($at a level of sales estimated in

Item $1$ above$)$ follow:

Indirect materials $$34,400$

Indirect labour $61,800$

Employee benefits $92,100$

Testing $23,500$

Utilities $44,200$

Total $$256,000$

Variable overhead is applied to components using a predetermined overhead rate based

on annual direct labour hours. All variable overhead items are paid for in the quarter

incurred.

$4.$ The annual budget for fixed manufacturing overhead items follows:

Supervisory salaries $$182,400$

Property taxes $31,300$

Insurance $22,100$

Maintenance $43,300$

Utilities $31,400$

Engineering $42,500$

Depreciation $83,000$

Total $$436,000$

All fixed overheads are paid evenly each quarter. Fixed overhead is applied to production

using a predetermined overhead rate based on the estimated annual number of units

produced.

$5.$ Variable selling and administration expenses include commissions and other

administrative expenses. Commissions are budgeted at $3\%$ of sales dollars for the quarter.

$80\%$ of these commissions are paid in the quarter they incurred, while $20\%$ are paid in

the following quarter. Other variable administration costs are $$1\mathrm{.}50$ per unit. These costs

are paid for in the quarter they incurred.

Annual fixed selling and administration expenses are as follows:

Sales salaries $$183,000$

Administration salaries $117,000$

Telecommunications $20,300$

Insurance $4,900$

Utilities $2,900$

Depreciation $16,200$

Other $2,900$

Total $$347,200$

$4$

Fixed selling and administration expenses are paid evenly over the four quarters of the

year.

$6.$ MW Inc. makes quarterly income tax installments based on the projected taxable income

for the year. The company is subject to a $30\%$ tax rate. For the master budget, MW Inc.

assumes tax expenses incurring for the year $2024$ are paid in cash evenly over the four

quarters of the year $2024.$

$7.$ MW Inc. plans the following financing and investing activities for the coming year:

$$ The company is planning to buy land, costing $$90,000,$ in the last quarter of $2024.$

This land will be held until such time that the company is ready to develop it for

future business purposes. The company will pay cash for the land and will finance

any resulting cash shortfall by drawing on its operating line of credit.

$$ The company has an operating line of credit established with its bank. This allows

the company to borrow to cover any cash shortfalls. All borrowing is assumed to

occur at the beginning of the quarter in which the funds are required and all

repayment is assumed to be made at the end of the quarter in which funds are

available for repayment. Simple interest at the rate of $12\%$ per annum is paid on a

quarterly basis on all outstanding short$-$term loans.

$$ The company currently has $$300,000$ in an outstanding long$-$term loan with an

annual interest rate of $8\%$ and makes quarterly interest only payments at the end

of each quarter. The loan is due in $2035.$

$8.$ The company$$s simplified balance sheet as of December $31,20$