Question $4-$ Master budgeting

$(25$ marks$)$

Healthy Ltd$.$ is a surgical mask producer in Hung Hom. It produces surgical masks for government and other non$-$for$-$profit organizations. To provide advance notice of financial position for the first quarter, i$.$e$.,$ January, February, and March, in $2023,$ the following information is obtained:

$($i$)$

Selected account balances as of $31$ December $2022$ were extracted:

$2022$ Cash.......

Trade receivables.

$($ii$)$ Actual sales data:

$2022$

December

$....$

$$42,500$ $$48,000$

$40,000$ units

The growth rate of sales is projected to be $5\%$ per month in $2023.$ The selling price of surgical masks is $$2$ per mask.

$($iii$)$ All the sales are made on credit. $40\%$ of a month's credit sales are collected in the month of sales and the remaining is collected in the month following sales. All of the $31$ December $2022$ trade receivables will be collected in January $2023.$

$($iv$)$ The company desires an ending finished goods inventory at the end of each month equal to $20\%$ of the budgeted unit sales for the next month.

$($v$)$

$5$ grams of raw materials are required to complete one unit of surgical mask. The company requires ending raw materials inventory at the end of each month equal to $20\%$ of the following month's production needs. The raw materials costs $$0\mathrm{.}20$ per gram.

$($vi$)$ All the materials purchases are made in cash.

$($vii$)$ The production is fully automated and no direct labor costs are expected to be incurred.

$($viii$)$ The predetermined overhead rate is $$6$ per machine hour. The machine hours incurred for the next quarter are budgeted as follow:

Machine hours

January $4,269$ hours

February $4,454$ hours

March $4,677$ hours

The only non$-$cash element of overhead cost is depreciation, which is $$2,500$ per month.

$($ix$)$

No selling and administrative expenses are incurred for the first quarter in $2023.$

$($x$)$

New equipment costing $$60,000$ will be purchased for cash during January $2023.$ Depreciation expense for this equipment has been included in $($viii$).$

$($xi$)$ Management of Healthy Ltd$.$ wants to maintain a minimum cash balance of $$20,000.$ The company has an agreement with the bank that allows the company to borrow in increments of $$1,000$ on the first day of a month and repaid the loan and interest on the last day of the quarter. The interest rate on this revolving line of credit is $1\%$ per month and interest is not compounded.

Question $4($Con$\text{'}$t$)$

Required:

$($Round all the calculation to the nearest integer$)$

$($a$)$ Prepare the following for the first quarter in $2023$:

$(1)$ a sales budget and a schedule of expected cash collections, by month and in quarter total $(2)$ a production budget, by month and in quarter total

$(3)$ a direct materials budget and the expected cash disbursements, by month and in quarter total

$(4)$ a manufacturing overhead budget, by month and in quarter total

$($b$)$ Prepare a cash budget for the first quarter in $2023.$

$(16$ marks$)$

$(9$ marks$)$