Prepare a Master Budget including Supporting Schedules

DQ Inc. is a recreational outfitter that provides quality products for fun in the water. The Company now wants to expand its offerings by manufacturing and selling specialty kayaks. The concept of Kayak By Design grew out of its chief sportsman Dimash Qudaibergens experiences, who happens to be a master craftsman and the inspiration behind the concept. Long before the paddle enters the water, each Kayak design begins with a pen stroke. With the prototype in hand, the development team wants to open a Kayak By Design studio in Santa Monica, CA on October 1, 2023, in time for the holiday season. However, to make the final decision, Dimash requires a master budget for the studios first quarter of operation (i.e., October, November, and December of 2023).

Requirements: Based on the following estimates, you are asked to construct a three-month master budget for the months of October, November, and December

a. The Company owners will contribute $50,000 cash to get this center started.

b. Its capital expenditures projections require the Company to purchase $228,000 of equipment on September 30, 2023, for the new center. The equipment supplier allows a thirty-day trial period. The company expects to pay for the equipment on or before October 31. The equipment is expected to have a 10-year useful life and a $28,000 salvage value.

c. Market research and various meetings with sales staff have produced the following sales projections:

October 600 kayaks

November 650 kayaks

December 750 kayaks

January 700 kayaks

February 720 kayaks

Each Kayak is priced to sell at $850. 50% of the sales will be cash and 50% will be credit. Prepare a sales budget.

d. The company expects to collect 30% of accounts receivable in the month of sale and 70% of accounts receivable in the month following the sale. Prepare a schedule of expected cash receipts.

e. The company policy is to have a finished goods inventory of Kayaks at the end of a month equal to 20% of the next months anticipated sales. Prepare a production budget

f. Production of each kayak requires 50 pounds of polyethylene powder and a finishing kit (rope, seat, hardware, etc.). The company policy is that the ending inventory of polyethylene powder should be 20% of the amount needed for production in the next month. The finishing kits can be assembled as they are needed. The company maintains a small inventory of the finishing kits, 10% of the number needed for production in the next month. The polyethylene powder used in these kayaks costs $2.20 per pound, and the finishing kits cost $170 each. Prepare a direct materials budget.

g. Materials inventory purchases will all be on account. The company would pay 80% of accounts payable in the month of purchase. It will pay the remaining 20% in the following month. Prepare a schedule of expected cash payments for inventory purchases.

h. Production of a single kayak requires 2 hours of time by highly skilled employees and 3 hours of finishing time by lower-skilled employees. High-skilled employees are paid $24 per hour, and low-skilled employees are paid $12 per hour. Prepare a labor budget. 100% of direct labor is paid in the month incurred.

i. Manufacturing overhead is assigned at 80% of labor costs. Depreciation on equipment is included in the assigned overhead (i.e., covered by the 80% rate). Prepare a manufacturing overhead budget. Manufacturing overhead, except depreciation, is paid in the month incurred.

j. Use the information developed above to determine the Cost per Kayak.

k. Budgeted monthly selling and administrative (S&A) expenses are:

Variable Cost per unit sold* $ 25

Fixed Cost Salary Expense 18,000

Rent 3,000 Utilities

1,500 Miscellaneous

1,250 Insurance 600

* Variable cost of $25 includes sales commission of $10 per unit sold. Prepare the S&A expense budget.

l. Sales commission and utilities are paid in the month after the month in which they are incurred. All other expenses are paid in the month in which they are incurred. Prepare a schedule of cash payments for selling and administrative expenses.

m. The company is subject to 20% income tax.

n. Using a line of credit, the company borrows and repays principal in increments of $1,000 on the last day of the month as needed. It pays interest of 1% percent per month in cash on the last day of the month. Company policy is to maintain an ending cash balance of at least $10,000. Prepare the cash budget.

o. Prepare the budgeted income statement in good form.