THE CASE Marceaux Manufacturing Ltd. (MML) produces and distributes Rose 20-20, a specialised fertilizer for roses. The information below about MML's operations has been assembled to assist budget preparation. The company is preparing its master budget for the first 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 first two quarters of 2020. Actual and estimated sales are as follows: Actual 2019 November: 10,000 units December: 12,000 units Estimated 2020 January: 11,000 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 2019 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 2019. MML pays 40% of raw material purchases in the month of purchase and the remaining 60% in the following month. 4. Each unit of finished 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 first 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 fixed selling and administrative expenses are as follows: Advertising Depreciation Insurance Salaries Other $300 9,000 250 4,000 14,550 10. The company will purchase assets for use in the sales office at a cost of $300,000, which will be paid cash at the end of January 2020. The monthly depreciation expense on the additional capital assets will be $6,000, starting January. 11. The balance sheet as of December 31, 2019, is as follows: Assets $80,000 612,000 Cash Accounts receivable Inventory: Raw materials Finished goods Plant and equipment Less: accumulated depreciation Total assets $8,100 72,600 1,000,000 - 100.000 80,700 900.000 $1,672.700 Liabilities and Equity Accounts payable 6% long-term notes payable Common shares Retained earnings Total liabilities and shareholders' equity $24,000 900,000 735,000 13,700 $1,672.700 Additional information: All cash payments except purchases of raw materials are made monthly as incurred. 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 at the end of each month at a rate of 0.5% per month. A minimum cash balance of $30,000 is required at the end of each month. Page 3 of 4 Required: For the first three months of 2020, prepare: 1. The Sales budget and the Schedule of expected cash collections (use Excel worksheet "Sales"). (4 marks) 2. The Production budget, Raw materials purchase budget, and the Cash disbursements for the raw materials purchased (use Excel worksheet "Production"). (15 marks) 3. The Direct labour and manufacturing overhead budget, cash paid for the direct labour and overhead (use Excel worksheet "DL and MOH"). (18 marks) 4. The Selling and administrative budget and the Cash paid for selling and administrative (use Excel worksheet "S&A"). (15 marks) 5. The Cash budget (use Excel worksheet "Cash budget"). (24 marks) 6. Prepare a budgeted income statement for each of the first three months of 2020 (use Excel worksheet "IS"). (16 marks) 7. Prepare budgeted balance sheet as of March 31, 2020 (use Excel worksheet "BS"). (8 marks) 100 marks DATA INPUT AREA $60.00 Average unit selling price Sales Unit sales for November 2019 Unit sales for December 2019 Expected unit sales for January 2020 Expected unit sales for February 2020 Expected unit sales for March 2020 Expected unit sales for April 2020 Expected unit sales for May 2020 Amount of ending inventory to keep on hand 10,000 12,000 11,000 10,000 13,000 11,000 11,000 56,000 Cash collections Cash sales Collected in one month after Collected in two months after Cash budget details Cash balance, December 31 Minimum cash on hand Interest rate on borrowing New equipment purchased Direct materials Quantity per unit December 31, ending inventory Amount of ending inventory to keep on hand Cost per kg Direct labour Time to complete 1 unit Labour rate Accounts payable Paid in month of purchase Paid in month following purchase Accounts payable, December 31 Manufacturing overhead Factory supervisor's salary Factory insurance Factoru rent Depreciation of factory equipment per month per month per month per month per month Selling and administrative Advertising Depreciation Depretiation additional asset Insurance Salaries Other per month per month per month per month per month Finished goods inventory, December 31 (units) Finished goods inventory, cost per unit Sales budget: January February March Quarter April 11,000 Budgeted sales in units Selling price per unit Total sales 11,000 X $60 $660.000 10,000 13,000 $60 $60 $600.000 $780,000 34,000 X $60 $2.040.000 Schedule of expected cash collections: January February March Quarter Apri 330,000 Cash current month (40%) November sales (50%) December sales (50%) January sales (50%) February sales (50%) Total cash collections $0 330,000 0 0 300,000 $630,000 300,000 $0 $300,000 $330.000