Prepare Klean Steppers master budget for month and in total for the quarter by completing the following schedules and statements:

I. Sales budget (12 marks)

II. Schedule of cash collected from customers (8 marks)

III. Production budget (28 marks)

IV. Direct-material budget (42 marks)

V. Schedule of cash disbursement to suppliers for direct material (12 marks)

VI. Direct labour budget (16 marks)

Klean Steppers

A group of students at the University of Technology, Jamaica recently won an award in the annual UTech, Ja Business Model Competition for their invention, a white dirt-proof sneaker for children in kindergarten. This invention arose from complaints from parents about having to buy white sneakers for their child/children for physical education that soils easily. As a result of the invention, the students decided to start a business, 'Klean Steppers' to start production. The sneakers have an innovative design and are made of a robust leather and cushioning material, which heightens the resistance to dirt and dust. The following information was discussed at a meeting with the Klean Steppers team.

Sales and collections

The sneakers are designed for girls and boys. Details of selling prices and projected sales in pairs of sneakers for the four-month period are shown below:

type	selling price	months
		july	august	september	october
girl	$2500	250	290	320	190
boy	$2900	195	230	280	160

It is expected that all sales will be on credit to department stores in Jamaica. It is estimated that 30% of customers will pay within one month while the remaining customers will pay the month following sale.

Production

Production of sneakers will be based on sales demand. The company requires a closing inventory of 20% of the next month's budgeted sales in pairs of sneakers for girls and boys. There is no opening stock of inventory.

Direct Materials and Direct labour

(a) The sneakers are made with special leather and specially treated rubber for the sole. The materials and labour required to make each pair of sneakers are as follows:

type of sneaker	leather	cushion	labour
	$370 per meter	$220 per meter	$340 per hour
Girls	0.6 meter	0.15 meters	15 minutes
Boys	0.4 meter	0.10 meters	12 minutes

The company requires a closing inventory of 10% of raw material required for the following month's material needed. There was no opening stock of raw material. The company plans to have a closing inventory of leather of 6.2m and 13m of cushioning material as at the 30th September.

Materials are purchased from a company based in the Cayman Island. This supplier requires that 50% of the purchase total is paid for in cash with the order, and allows one month's credit for the remaining amount.

(b) In keeping with government requirements, biodegradable cardboard boxes will be used to package the sneakers. Each box will cost $28.50 per box. The company will buy the packaging materials from a Jamaican company for cash each month.

(c) To make girls' sneakers, each unit requires 15 minutes of direct labour hours and to make boys' sneakers each unit requires 12 minutes of direct labour hours. The company pays $340 per hour for each direct labour hour. Labour costs are paid in the month incurred.

Manufacturing Overheads

(d) The following manufacturing overheads are budgeted for the quarter.

	july	august	september
Indirect material	$10,200	$11,200	$12,200
Indirect labour	$4,800	$4,120	$4,280
Other overhead	$3,100	$2,400	$2,700
Depreciation	$1,800	$1,800	$1,800

In addition to the above overheads the following costs will be incurred:

(e) The company has signed a rental agreement for the production facility. The annual rental charge will be $360,000, which will be paid in equal monthly instalments. A security deposit amounting to $25,000 must also be paid in July.

(f) Other operating costs including power, insurance, and administration expenses, which must be paid monthly, are expected to be $93,600 for the year.

Selling and administrative costs

Marketing Campaign

The company will launch an advertising campaign using social media, television, radio, and newspaper. This will cost $33,600 for three-month period payable in equal instalments from July. Sales commission

A 2% commission on projected sales in dollars will be payable for cash in the month incurred.

Other selling and administrative expense

Other selling and administrative expenses use the following cost function per quarter:

y= $24 ,000 + 62x, where x represents budgeted sales in units

Other information

(g) The prize money of $500,000 will be introduced at the commencement of the company's operations and should be treated as a cash inflow (capital/investment by owners). Beginning cash balance is nil.

(h) The closing inventory as at 30th of September is $28,200 (i.e., raw material closing inventory is $5,154 and finished goods inventory is $23,046).

(i) Klean Steppers is seeking $1,000,000 loan from Development Bank of Jamaica to purchase a new equipment costing $216,000 and assist with the operating expenses for its first year of operation. Interest rate on the loan is 12%. The principal and interest will be repaid in 4 installments at the end of each quarter.