PREPARE THESE BUDGETS ONLY

a. Overhead budget (be sure to show disbursements for variable and fixed overheads, in addition to applied variable and fixed overhead expenses).

	Quarter 1	Quarter 2	Quarter 3	Quarter 4	Year
Budgeted Direct Labour Hours	8.6	32.2	53.8	71	165.6

b. Selling and administrative budget (be sure to show disbursements for selling and administrative expenses).

c. Cash budget

Prepare the following for the year, 2021, in total.

d. Cost of goods manufactured budget

e. Cost of goods sold budget

f. Pro forma income statement (using absorption costing)

g. Pro forma classified balance sheet

Cash budget and pro forma income statement are completed at the same time when you build a formula to account for tax expenses, and a set of formulas to account for cash outflow in the cash budget. Pro forma classified balance sheet are completed last.

Project:

CMRNA is a small-scale contract producer and seller of drugs and vaccines for clinical trials. The master budget will detail each quarters activity and the activity for the year in total. CMRNA will base the 2021 budget on the following information:

1. Expected sales, in units, for the four quarters of 2021 and the first two quarters of 2022 are as follows:

2021 Q1	2,800
2021 Q2	15,000
2021 Q3	26,000
2021 Q4	35,000
2022 Q1	40,000
2022 Q2	43,000

The selling price for 2021 has been set at $40.00 per unit. CMRNAs fiscal year ends on December 31. All sales are on account. 80% of sales on account are collected in the quarter of sale; 20% of sales on account are collected in the following quarter. Assume that all the balance in accounts receivable (as of 31^st December, 2020) will be collected in the first quarter of 2021. Assume no bad debts are incurred.

2. Each component requires the following direct inputs:

• 4 micrograms (mcg) of direct material available at a price of $1.00 per mcg.
• 0.002 hours of direct labour at a rate of $40.00 per hour.

CMRNA has a policy of maintaining direct material ending inventory equal to 10% of direct materials needed for the next quarters production requirements. All raw materials are purchased on account. 50% of a quarters purchases are paid for in the quarter of purchase; the remaining in the following quarter. CMRNA has a policy of keeping ending finished goods inventory equal to 10% of next quarters forecasted sales. There is no beginning or ending work-in-process inventory. Direct labourers are paid at the end of each month.

3. Total budgeted variable overhead costs for the 2021 year (at a level of sales estimated in Item 1 above) follow:

Indirect materials	$26,986
Indirect labour	55,520
Employee benefits	83,280
Inspections	31,500
Utilities	41,640
Total	$238,926

Variable overhead is applied to components using a predetermined overhead rate based on annual direct labour hours. All variable overhead items are paid for in the quarter incurred.

4. The annual budget for fixed manufacturing overhead items follows:

Supervisory salaries	$186,200
Property taxes	26,000
Insurance	28,800
Maintenance	46,000
Utilities	33,400
Engineering Time	41,850
Depreciation	96,000
Total	$458,250

All fixed overheads are paid evenly each quarter except for property taxes which are paid for in the third quarter of the year. Fixed overhead is applied to production using a predetermined overhead rate based on the estimated annual number of units produced.

5. Variable selling and administration expenses include commissions and other administrative expenses. Commissions are budgeted at 5% of sales dollars for the quarter. 80% of these commissions are paid in the quarter they incurred, while 20% are paid in the following quarter. Other variable administration costs are $2.00 per unit. These costs are paid for in the quarter they incurred.

Annual fixed selling and administration expenses are as follows:

Sales salaries	$152,000
Administration salaries	100,000
Travel	24,000
Insurance	3,400
Utilities	2,800
Depreciation	12,000
Other	2800
Total	$297,000

Fixed selling and administration expenses are paid evenly over the four quarters of the year.

6. CMRNA makes quarterly income tax installments based on the projected taxable income for the year. The company is subject to a 30% tax rate. For the master budget, CMRNA assumes tax expenses incurring for the year 2021 are paid in cash evenly over the four quarters of the year 2021.

7. CMRNA plans the following financing and investing activities for the coming year:

• The company is planning to buy a piece of land, costing $70,000, in the last quarter of 2021. This piece of land will be held for future plant expansion. The company will pay cash for the land and will finance any resulting cash shortfall by drawing on its operating line of credit.
• The company has an operating line of credit established with its bank. This allows the company to borrow in multiples of $5,000 to cover any cash shortfalls. All borrowing is assumed to occur at the beginning of the quarter in which the funds are required and all repayment is assumed to be made at the end of the quarter in which funds are available for repayment. Simple interest at the rate of 10% per annum is paid on a quarterly basis on all outstanding short-term loans. All repayments are in multiples of $1,000.
• The company currently has $240,000 in an outstanding long-term loan with an annual interest rate of 9% and makes quarterly interest only payments at the end of each quarter. The loan is due in 2033.
• The company outsources some of the manufacturing for $500,000. The company pays the outsourcing fee in cash at the end of the first quarter of year 2021.

8. The companys simplified balance sheet as of December 31, 2020 is as follows:

Cash	$31,000	Accounts Payable (1)	$30
Accounts Receivable	800	Commissions Payable	500
Raw Material Inventory	0	Long-term Debt	240,000
Finished Goods Inventory	0	Capital Stock	1,849,270
Buildings and Equipment	2,020,000	Retained Earnings	(350,000)
Accumulated Depreciation	(312,000)
Total Assets	$1,739,800	Total Liabilities and Shareholder's Equity	$1,739,800

These balance sheet figures must be taken as given. Negative balances are in the parentheses.

(1) Only used for direct materials