THE CASE 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 company is preparing its master budget for the rst quarter of 2020. The budget will detail each month 's activity and the activity for the quarter in total. The master budget will be based on the following information: 1. Selling price is $60 per unit in 2020 and will not change for the rst two quarters of 2020. Actual and estimated sales are as follows: Actual 2020 Estimated 2021 November: 10,000 units January: 11,000 units December: 12,000 units February:10,000 units March: 13,000 units April: 11,000 units May: 11,000 units 2. The company produces enough units each month to meet that month's sales plus a desired inventory level equal to 20% of next month's estimated sales. Finished Goods inventory at the end of December 2020 consisted of 2,200 units at a variable cost of $33 each. 3. The company purchases enough raw materials each month for the current month's production 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 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. 4. Each unit of nished product requires 1.25 labour-hours. The average wage rate is $16 per hour. 5. Variable manufacturing overhead is 50% of the direct labour cost. 6. Fixed overhead costs (per month) are as follows: Factory supervisor's salary $75,000 Factory insurance 1,400 Factory rent 8,000 Depreciation of factory equipment 1,200 7. Credit sales for the month are 60% of the total sales. The company collects 50% of the credit sales during the rst month following the month of sale and 50% during the second month. 8. Variable selling and administrative expenses consist of $4 for shipping and 10% of sales for commissions, Page 2 of 4 9. Total xed selling and administrative expenses are as follows: Advertising 3300 Depreciation 9,000 Insurance 250 Salaries 4,000 Other 14,550 10. The company will purchase assets for use in the sales ofce at a cost of $300,000. which will be paid cash at the end of January 2021. The monthly depreciation expense on the additional capital assets will be $6,000, starting January. 11. The balance sheet as of December 31 , 2020. is as follows: Assets Cash $80,000 Accounts receivable 612,000 Inventory: Raw materials $8,100 Finished goods 72,600 80,700 Plant and equipment 1,000,000 Less: accumulated depreciation m $0,010 Total assets mm Liabilities and Equity Accounts payable $24,000 6% Iong-tenn notes payable 900,000 Common shares 735,000 Retained earnings 13 700 Total liabilities and shareholders' equity m Additional information: a All cash payments except purchases of raw materials are made monthly as incurred. a All borrowings occur at the beginning of each month, and all repayments occur at the end of the month. Borrowings and repayments may occur in any amount. . All interest on borrowed funds is paid atthe end of each month at a late of 0.5% per month. a A minimum cash balance of $30,000 is required at the end of each month. Page 3 of 4 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 14640 14.640 Total cash disbursements $36,900 $32,670 $34.620 $104.1903 a. Direct labour and Overhead budget: January February March Quarter April Units of production required 10,800 10,600 12,600 34.000 11,000 Direct labour hours required (1.25 per unit) 13,500 13,250 15,750 42,500 Direct labour cost ($16/hr) $216,000 $212,000 $252,000 $680,000 b. Manufacturing overhead: January February March Quarter April Variable (50% of DL) $108,000 $106,000 $126,000 $340,000 Fixed: Factory supervisor's salary 75,000 75,000 75,000 $225,000 Factory insurance 1,400 1,400 1,400 $4,200 Factoru rent 8,000 8,000 8,000 $24,000 Depreciation of factory equipment 1,200 1,200 1,200 $3,600 Total Fixed overhead 85,600 85,600 85,600 256,800 Total manufacturing overhead $193,600 $191,600 $211,600 $596,800 Total cost of direct labour and manufacturing overhead $409,600 $403,600 $463,600 $1,276,800 C. Cash paid for direct labour $216,000 $212,000 $252,000 $680,000 d. Cash paid for manufacturing overhead Total manufacturing overhead 193,600 191,600 211,600 596,800 Less non-cash items 1,200 1,200 1,200 3,600 Total cash paid for manufacturing overhead 192,400 190,400 210,400 593,2004 a. Selling & administrative budget January February March Quarter Sales in units 11,000 Variable: 10,000 13,000 34,000 Shipping ($4 per unit) $44,000 Sales commissions (10% of sales) $40,000 $52,000 $136,000 1,100 Total Variable 1,000 1,300 3,400 45,100 Fixed: 41,000 53,300 $139,400 Advertising 300 300 Depreciation 300 900 9,000 9,000 Depretiation additional asset 9,000 27,000 6,000 6,000 Insurance 6,000 18,000 250 Salaries 250 250 750 4,000 4,000 Other 4,000 12,000 14,550 Total Fixed 14,550 14,550 43,650 34,100 34,100 34,100 102,300 Total cost of selling & administrative $79,200 $75,100 $87,400 $241,700 b. Cash paid for selling & administrative Total cost of selling & administrative 79,200 75,100 Less non-cash items 87,400 241,700 15,000 15,000 Total cash paid for for selling & administrative 15,000 45,000 64,200 60,100 72,400 196,7005 a. Cash budget January February March Quarter Cash balance, beginning $30,000 $0 $0 Operating cash receipts: Total (from Sales) Q Q 30,000 IP Operating cash payments Raw Materials Purchases $0 $0 $0 $0 Direct labour Manufacturing overhead OOO OOO Selling and administrative b booo Purchase of equipment Total Net operating cash inflows (outflows) bboo bo boooo Interest on notes payable Excess (deficiency) of cash available bbook Borrowing* bboo Repayment Interest on bank loan (0.5% per month)** Ending balance $30,000 Check 0 0 0 * January: Deficiency in cash + X - .005X = $30,000, X = ?????? (rounded) **January and February: Borrowing x .005 = ????? March: ($169,749 - $94,481) x .005 = $376