PREPARATION OF OPERATING AND FINANCIAL BUDGETS Rosy Hearts produces cupcakes for resale at large grocery stores throughout Australia. The company is currently in the process of establishing a master budget on a quarterly basis for the next financial year, which ends June 30. Last year quarterly sales were as follows (1 unit = 1 batch): First quarter 60,AAA units Second quarter 75,BBB units Third quarter 96,CCC units Fourth quarter 80,DDD units See further instructions about last year quarterly sales figures in the table below: Group Member No. ID Number First Name Last Name 1. NXX2037 Mickey Mouse 2. APS2094 Donald Duck 3. EMV30216 Yogi Bear 4. AEES2104 Scooby Doo First quarter 60,AAA units becomes 60,037 units. AAA is the last three digits of Member 1's ID. Second quarter 75,BBB units becomes 75,094 units. BBB is the last three digits of Member 2's ID. Third quarter 96,CCC units becomes 96,216 units. CCC is the last three digits of Member 3's ID. Fourth quarter 80,DDD units become 80,104 units. DDD is the last three digits of Member 4's ID. NOTE that if your group has three members only, then use the value of 80,000 units for the fourth quarter. For solo group, if approved, do contact the Unit Coordinator via email (..i@holmes.edu.au) who will provide you with the last year quarterly sales figures to use. Page 5 of 12 HA2011 MANAGEMENT ACCOUNTING ASSIGNMENT - T1 2021 PREPARATION OF OPERATING AND FINANCIAL BUDGETS (Continued) Unit sales are expected to increase 25 percent, and each unit is expected to sell for $8. The management prefers to maintain ending finished goods inventory equal to 10 percent of next quarter's sales. Assume finished goods inventory at the end of the fourth quarter budget period is estimated to be 9,000 units. Direct Materials Purchases Budget Information Each unit of product requires 1.5 pounds of direct materials per unit, and the cost of direct materials is $2 per pound. Management prefers to maintain ending raw materials inventory equal to 30 percent of next quarter's materials needed in production. Assume raw materials inventory at the end of the fourth quarter budget period is estimated to be 41,000 pounds. Direct Labor Budget Information Each unit of product requires 0.20 direct labor hours at a cost of $12 per hour. Manufacturing Overhead Budget Information Variable overhead costs are: Indirect materials $0.20 per unit Indirect labor $0.15 per unit Other $0.35 per unit Fixed overhead costs each quarter are: Salaries $28,000 Rent $22,000 Depreciation $16,165 Rosy Hearts estimates that all selling and administrative costs are fixed. Quarterly selling and administrative cost estimates for the coming year are: Salaries $60,000 Rent $ 7,000 Advertising $10,000 Depreciation $ 8,000 Other $ 1,000 Rosy Hearts has the following information pertaining to the capital expenditures and cash budgets. Capital Expenditures The company plans to purchase selling and administrative equipment totalling $20,000 and production equipment totalling $28,000. Both will be purchased at the end of the fourth quarter and will not affect depreciation expense for the coming year. Cash Budget All sales are on credit. The company expects to collect 70 percent of sales in the quarter of sale, 25 percent of sales in the quarter following the sale, and 5 percent will not be collected (bad debt). Accounts receivable at the end of last year totalled $200,000, all of which will be collected in the first quarter of this coming year. Page 6 of 12 HA2011 MANAGEMENT ACCOUNTING ASSIGNMENT - T1 2021 All direct materials purchases are on credit. The company expects to pay 80 percent of purchases in the quarter of purchase and 20 percent the following quarter. Accounts payable at the end of last year totalled $50,000, all of which will be paid in the first quarter of this coming year. The cash balance at the end of last year totalled $20,000. The company does not have an overdraft facility with their bank. Assume Rosy Hearts will collect 25 percent of fourth quarter budgeted sales in full next year (this represents accounts receivable at the end of the fourth quarter). The following account balances are expected at the end of the fourth quarter: Property, plant, and equipment (net): $320,000 Ordinary Shares: $450,000 Retained earnings at the end of last year totalled $56,180, and no cash dividends are anticipated for the budget period ending June 30. Required: With the information provided, assist Rosy Hearts in setting up their 'Master Budget'. To do this, you will need to prepare the following budgets for coming year: 1. Sales Budget 2. Production Budget 3. Direct Materials Purchases Budget 4. Direct Labour Budget 5. Manufacturing Overhead Budget 6. Ending Finished Goods Inventory Budget 7. Selling & Administration Expenses Budget 8. Expected Cash Collections 9. Expected Cash Disbursements for Materials 10. Cash Budget 11. Budgeted Income Statement 12. Budgeted Balance Sheet* 13. Review the cash budget for Rosy Hearts. Comment on the company's cash position in the coming year, and provide one recommendation to resolve one issue you have raised.