Munzad Clock Company (B) Munzad Clock recently ventured into inexpensive drone manufacturing as a potential diversification strategy. However, the accountant of the company has prepared a budget that is calculated using only one estimated volume of sales. He has asked you to help him set up a spreadsheet that can be used for sensitivity analysis in the budgeting process. This year, it appears that the company may not meet the expectations, which could result in a loss. The accountant is concerned that the company will incur a loss again next year and wants to develop a budget that will easily reflect changes in the assumptions. After gathering information about next years operations, he will provide information using a what-if sensitivity analysis. Following are the assumptions regarding revenues, direct materials and labor costs, and inventory levels: Direct materials per clock Motor $10 Sensors $5 Body materials $2 Direct labor Hours Assembly 0.5 Packing 0.1 Cost per hour Assembly $30 Packing $15 Cost per drone Assembly $15 Packing $1.50 Inventory Information Beginning Target Ending Direct materials: Motor $5,000 $7,000 Sensors $3,000 $3,200 Body materials $1,000 $1,200 Finished goods (units) 2,000 drones 2,200 drones Finished goods (cost) $97,850 Revenue assumptions: Selling price $75 Volume of drone sales 80,000 Following are estimated manufacturing overhead costs. Both fixed and variable overhead will be allocated based on the number of drones produced. Estimated variable manufacturing overhead costs: Supplies $160,250 Indirect labor 200,650 7

Please Do NOT Distribute Outside the Class. Maintenance 80,200 Miscellaneous 40,100 Total variable overhead costs $481,200 Estimated fixed manufacturing overhead costs Amortization $211,728 Property taxes 28,872 Insurance 67,368 Plant management 240,600 Fringe benefits 336,840 Miscellaneous 76,998 Total fixed overhead costs $962,400 Following is the information that the accountant collected about support department costs: Support department: Fixed costs Administration $1,034, 580 Marketing 620,748 Distribution 310,374 Customer service 103,458 $2,069,160 The companys managers budget cash flows on a quarterly basis so that they can plan short-term investments and borrowings. Drone sales are highest during the spring and summer. Sales are fairly even within each quarter, but sales vary across quarters as follows: January-March 10% April-June 50% July-September 30% October-December 10% Accounts receivable at the end of the prior year, consisting of sales made during December, totaled $90,000. Payments from customers are usually received as follows: Pay during the month goods are received 10% Pay the next month 47% Bad debts 3% The managers plan to maintain beginning inventory quantities during January and February but to increase inventories to the targeted levels by the end of March and maintain those levels throughout the rest of the year. The company pays its vendors 10 days after raw materials are received, so approximately two-thirds of all purchases are paid in the month of production and one-third are paid the following month. Accounts payable at the end of the prior year totaled 8

Please Do NOT Distribute Outside the Class. $13,000. Employee wages and other production costs are paid during the month incurred. Property taxes are paid in two equal installments on March 31 and September 30, and insurance is paid annually on June 30. Support costs are paid evenly throughout the year. Estimated income tax payments are made at the end of each quarter, based on 25% of total estimated taxes for the year. In addition to customer receipts, the company expects to receive $10,000 in proceeds from the sale of equipment during January. The company also plans to purchase and pay for new equipment costing $50,000 during January. The company finances its short-term operations with a line of credit from the bank, which had a balance of $150,000 at the end of the prior year. The line of credit agreement requires the company to maintain a minimum cash balance of $100,000 (non-interest bearing). The companys line of credit requires quarterly interest payments at an annual rate of 5.5%. (For simplicity, assume that all borrowings and repayments occur on the last of day of each quarter.) Additional information: Assume an income tax rate of 25%. The budget indicates that the company is likely to incur a loss during the next period. The accountant asks you to assist him in developing sensitivity analyses that will help the manager identify possible ways to avoid a loss. To perform sensitivity analysis, you will change volume of production, volume of sales, selling prices, direct material prices, wage rates, and overhead and support department costs. Question- Can you do the complete cash budget please?