Portraits Unlimited Company Budgeting Project Ian Jennings, president of Portraits Unlimited Company, was just concluding a budget meeting with his senior staff. It was November of 2022, and the group was discussing preparation of the firms master budget for 2023. Ive decided to go ahead and purchase the industrial robot weve been talking about. Well make the acquisition on January 3 of next year, and I expect it will take most of the year to train the personnel and reorganize the production process to take full advantage of the new equipment. In response to a question about financing the acquisition, Jennings replied as follows: The robot will cost $250,000. There will also be an additional $50,000 in ancillary equipment to be purchased. Well finance these purchases with a one-year $300,000 loan from Shark Bank and Trust Company on January 2. Ive negotiated a repayment schedule of four equal installments on the last day of each quarter. The interest rate will be 10 percent per annum on the reducing balance basis, and interest payments will be quarterly as well. With that the meeting broke up, and the budget process was on. Portraits Unlimited Company is a manufacturer of metal picture Portraits. The firms two product lines are designated as S (small Portraits; 5 x 7 inches) and L (large Portraits; 8 x 10 inches). The primary raw materials are flexible metal strips and 9-inch by 24-inch glass sheets. Each S Portrait requires a 2-foot metal strip; and an L Portrait requires a 3-foot strip. Allowing for normal breakage and scrap glass, the company can get either four S Portraits or two L Portraits out of a glass sheet. Other raw materials, such as cardboard backing, are insignificant in cost and are treated as indirect materials. Jane Williams, Portraits Unlimiteds controller is in charge of preparing the master budget for 2023. She has gathered the following information: 1. Sales in the fourth quarter of 2022 are expected to be 50,000 S Portraits and 40,000 L Portraits. The sales manager predicts that over the next two years, sales in each product line will grow by 5,000 units each quarter over the previous quarter. For example, S Portraits sales in first quarter of 2023 are expected to be 55,000 units. 2. Portraits Unlimited Company sales history indicates that 60 percent of all sales are on credit, with the remainder of the sales in cash. The companys collection experience shows that 80 percent of the credit sales are collected during the quarter in which the sale is made, while the remaining 20 percent is collected in the following quarter. 3. The S Portrait sells for $10, and the L Portrait sells for $15. These prices are expected to hold constant throughout 2023. 4. The production manager attempts to end each quarter with enough finished goods inventory in each product line to cover 20 percent of the following quarters sales. Moreover, an attempt is made to end each quarter with 20 percent of the glass sheets needed for the following quarters production. Assume an ending inventory of glass sheets of 10,400 for the fourth quarter of 2023. Metal strips are purchased locally, the company buys them on a just-in-time basis; inventory is negligible. The opening inventory for quarter 4, 2022 for both finished goods and raw materials can be found by determining the desired ending inventory for quarter 3, 2022 based on the inventory principle provided. 5. All direct-material purchases are made on account, and 80 percent of each quarters purchases are paid in cash during the same quarter as the purchase. The other 20 percent is paid in the next quarter. 6. Indirect materials are purchased with cash as needed. Work-in-process is negligible. 3 7. The following manufacturing overhead costs are budgeted for 2023: 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Indirect materials 10,200.00 11,200.00 12,200.00 13,200.00 Indirect labour 40,800.00 44,800.00 48,800.00 52,800.00 Other overhead 31,000.00 36,000.00 41,000.00 46,000.00 Depreciation 20,000.00 20,000.00 20,000.00 20,000.00 Total overhead costs $102,000.00 $112,000.00 $122,000.00 $132,000.00 8. Projected manufacturing costs in 2023 are as follows: S Portrait L Portrait Direct material Metal strips: S: 2 ft. @ $1 per foot $2 L: 3 ft. @ $1 per foot $3 Glass sheets: S: sheet @ $8 per sheet 2 L: sheet @ $8 per sheet 4 Direct labour: 0.1 hour @ $20 per hour 2 2 Manufacture overhead 0.1 direct-labour hour x $10 per hour 1____ __ 1___ Total manufacturing cost per unit $7 $10___ 9. The following relates to past selling and administrative expenses. (Use regression analysis to derive a cost function and use this cost function to estimate the selling and administrative cost). Year Quarters S & L Sales Units Selling and Admin cost 2021 1 80,000 $200,000.00 2 70,000 180,000.00 3 60,000 150,000.00 4 100,000 250,000.00 2022 1 88,000 210,000.00 2 74,000 180,000.00 3 98,000 235,000.00 10. Jackson anticipates that dividend of $50,000 will be declared and paid in cash each quarter. 11. Portraits Unlimited Company projected balance sheet as of December 31, 2022, follows: $ Plant and equipment (net of accumulated depreciation) 8,000,000 Cash 95,000 Accounts receivable 132,000 Inventory: Raw material 59,200 Finished goods 167,000 Total assets 8,453,200 =========== Accounts payable 99,400 Common stock 5,000,000 Retained earnings 3,353,800 Total liabilities and stockholders equity 8,453,200 =========== 4 Required: Prepare Portraits Unlimited Company master budget for each quarter of 2023 and in total for the year by completing the following budgets and schedules: (e) Schedule of cash disbursement to suppliers for direct material. (8 marks) (f) Direct labour budget. (3 marks) (g) Manufacture overhead budget. (