THE CASE 9. Total fixed selling and administrative expenses are as follows: Bella Manufacturing Ltd. (BML) produces and distributes Rose 20-20, a specialised fertilizer for roses. The information below about BML's operations has been assembled to assist budget preparation. The Advertising $300 company is preparing its master budget for the first quarter of 2020. The budget will detail each month's Depreciation 9,000 activity and the activity for the quarter in total. The master budget will be based on the following Insurance 250 information: Salaries 4,000 Other 14,550 1. Selling price is $60 per unit in 2020 and will not change for the first two quarters of 2020. Actual and estimated sales are as follows: 10. The company will purchase assets for use in the sales office at a cost of $300,000, which will be Actual 2020 Estimated 2021 paid cash at the end of January 2021. The monthly depreciation expense on the additional capital November: 10,000 units January: 11,000 units assets will be $6,000, starting January. December: 12,000 units February: 10,000 units March: 13,000 units 11. The balance sheet as of December 31, 2020, is as follows: April: 11,000 units May 11,000 units Assets Cash $80,000 2. The company produces enough units each month to meet that month's sales plus a desired inventory Accounts receivable 612,000 level equal to 20% of next month's estimated sales. Finished Goods inventory at the end of December Inventory: Raw materials $8, 100 2020 consisted of 2,200 units at a variable cost of $33 each. Finished goods 72,600 80,700 Plant and equipment 1,000,000 Less: accumulated depreciation -100,000 900,000 3. The company purchases enough raw materials each month for the current month's production Total assets $1,672,700 requirement and 25% of next month's production requirements. Each unit of product requires 5 kilograms of raw material at $0.60 per kilogram. There were 13,500 kilograms of raw materials in Liabilities and inventory at the end of December 2020. BML pays 40% of raw material purchases in the month of purchase and the remaining 60% in the following month. Accounts payable $24,000 6% long-term notes payable 900,000 4. Each unit of finished product requires 1.25 labour-hours. The average wage rate is $16 per hour. Common shares 735,000 Retained earnings 13,700 5. Variable manufacturing overhead is 50% of the direct labour cost. Total liabilities and shareholders' equity $1,672,700 6. Fixed overhead costs (per month) are as follows: Additional information: Factory supervisor's salary $75,000 Factory insurance 1,400 All cash payments except purchases of raw materials are made monthly as incurred. Factory rent 8,000 Depreciation of factory equipment 1,200 All borrowings occur at the beginning of each month, and all repayments occur at the end of the 7. Credit sales for the month are 60% of the total sales. The company collects 50% of the credit sales month. Borrowings and repayments may occur in any amount. during the first month following the month of sale and 50% during the second month. . All interest on borrowed funds is paid at the end of each month at a rate of 0.5% per month. 8. Variable selling and administrative expenses consist of $4 for shipping and 10% of sales for commissions. A minimum cash balance of $30,000 is required at the end of each month. Page 2 of 4 Page 3 of 4Direct labour and Overhead budget: Units of production required Direct labour hours - -uired 1.25 --r unit Direct labour dost ($16/hr) B Manufacturing overhead: Pl' E a? i Variable (50% of DL) if} Q Fixed: Factory supervisor's salary Factory insurance Factoru rent Depreciation of factory equipment Total Fixed overhead Total manufacturing overhead EDDDOD Total cost of direct labour and manufacturing overhead lg E BIB D Cash paid for direct labour Cash paid for manufacturing overhead Total manufacturing overhead Less non-cash items DOC DOD 33 IOIOQ Total cash paid for manufacturing overhead 1 a. Sales budget: January February March Quarter April Budgeted sales in units 11,000 10,000 13,000 34,000 11,000 Selling price per unit X $60 X $60 X $60 X $60 Total sales $660,000 $600,000 $780,000 $2,040,000 b. Schedule of expected cash collections: January February March Quarter April Cash current month (40%) $264,000 $240,000 $312,000 $816,000 November sales (50%) 180,000 180,000 December sales (50%) 216,000 216,000 432,000 January sales (50%) 198,000 198,000 396,000 February sales (50%) 180,000 180,000 Total cash collections $660,000 $654,000 $690,000 $2,004,0002 a. Production Budget: January February March Quarter April May Sales in units (storage systems) 11,000 10,000 13,000 34,000 11,000 11,000 Add: Desired ending finished goods inventory 2.000 2.600 2.200 2.200 2.200 Finished goods requirements 13,000 12,600 15,200 36,200 13,200 Less: Beginning finished goods inventory 2.200 2.000 2.600 2.200 2.200 Production requirements 10,800 10,600 12,600 34,000 11,000 b. Raw materials purchases budget: January February March Quarter Units of production required 10,800 10,600 12,600 34,000 11,000 Units of raw materials required (5 kg per unit) 54,000 53,000 63.000 170.000 55,000 Add Desired ending inventory 13,250 15,750 13,750 13,750 Total requirements 67.250 68.750 76.750 183,750 55.000 Less Beginning inventory 13,500 13,250 15,750 13,500 Raw materials to purchase: In Units (kilograms) 53,750 55,500 61.000 170.250 In Dollars ($.60 per kilogram) $32.250 $33.300 $36.000 $102.150 Required dollar purchases $32,250 $33,300 $36,000 $101 550 d. Budgeted cash disbursements for raw materials purchases: January February March Quarter April December purchases (Accounts payable) $24,000 $24,000 January purchases 12,900 19,350 32,250 February purchases 13,320 19,980 33,300 March purchases 14.640 14.640 Total cash disbursements $36,900 $32,670 $34,620 $104,190