The Cats Meow Company produces cat food that it sells in 12 pound bags for $10.00 per bag. The Cats Meow currently has 10,800 bags of finished product with an inventory cost of $47,196. Additional information about the company includes the following:

a) Sales estimates for the first five months of the year are as follows: January-54,000 bags, February-43,200 bags, March-59,400 bags, April-54,000 bags, and May-59,400 bags. A desired ending inventory level for completed products is 25% of next months sales levels. The company is instituting a new credit policy this year-previously all sales were for cash. For 2013, an analysis of sales indicates that 85% will be cash sales and 15% will be on credit. Of the credit sales, The Cats Meow expects to collect 75% in the month of sale and the remainder in the month following the sale.

b) The Cats Meow makes the cat food from a mixture of chicken by-products and fish byproducts. Each bag consists of a mixture of 70% chicken by-products and 30% fish byproducts. As there was no change in cost from the previous period, the chicken by-products cost of $0.08 per pound and the fish by-products cost of $0.06 per pound is used in the budget process. Previously, the Cats Meow paid all material costs on delivery. The company had been granted credit from its suppliers so payments for materials and other costs will be extended to increase cash flow. The company has created a policy that 60% of next months usage requirements should be in ending inventory. Payment for these direct materials is now expected to be 85% in the month of purchase with the remainder paid in the month following purchase.

c) Each bag of cat food requires .12 hours of direct labor for processing costing $12 per hour. The Cats Meow pays three-fourths of each months direct labor costs in the month incurred and the remainder the following month. The wages payable for direct labor at the beginning of January was $16,740 for December production.

d) The Cats Meows computes all overhead costs in terms of unit of product. Variable factory overhead costs are $1.52 per bag produced and fixed factory overhead costs are $64,800 (which includes $27,000 of depreciation). Previously all cash basis overhead costs were paid on delivery. With the new credit policies the company expects that factory overhead costs will now be 90% paid in the month incurred and 10% the following month. (Remember- depreciation is a noncash expense.) For budgeting valuation calculations quarterly fixed data is used.

e) The Cats Meow will still pay both variable selling expenses of $1.10 per bag sold and fixed selling expenses of $10,800 per month in the month incurred.

f) General and administrative expenses totaling $70,200 per month (which includes $21,600 of depreciation expense) are all fixed. The company will continue to pay the general and administrative costs in the month incurred.

g) The Cats Meows cash balance on January 1st is $48,600.

h) The company has Contributed Capital of $189,432 and Retained Earnings of $213,324 at the beginning of the period. The Cats Meow also has Property, Plant and Equipment costs net of depreciation of $286,200. Merchandise Inventory at the beginning of the period is $23,340 consisting of $19,440 of Chicken By-products inventory and $3,900 of Fish ByProducts Inventory purchased at the current cost levels.

i) The companys income tax rate is 30% of income.

j) Along with the new credit policies on sales and purchasing the company has established a $300,000 line of credit with the local bank. The company desires to have a minimum $100,000 balance in cash at the end of each month. If the cash balance at the end of the month falls below that balance, the company will borrow the needed funds to bring the ending cash balance to $100,000. The rate of interest on these borrowings is 10% per year. If the funds at the end of the period exceed $100,000, then these excess funds will first pay any interest due, and if funds are still available, to reduce the principal-if possible to zero. This policy will go into effect on January 1st, 2014.

k) No dividends have been declared nor paid in the first quarter of 2014.

1) Prepare a Master Budget for The Cats Meow Company for the first quarter of 2014.

2) For the Sales Budget, Production Budget, Direct Materials Purchases Budgets, Direct Labor Budget and Overhead budget prepare for each month in the first quarter and by quarter. The Cash Budget should also be prepared by month and by quarter.

3) For the financial statements-the Budgeted Income Statement, Budgeted Statement of Retained Earnings and Budgeted Balance Sheet- as well as supporting schedules for these statements-prepare quarterly statements. Round to the nearest penny for all calculations, if needed.

The Balance Sheet at the beginning of the quarter-January 1st is provided. For this problem the following inventories will be used: Beginning Ending Chicken By-Products $19,440 $20,655 Fish By-Products 3,900 4,131 Work in Process Inventory 14,160 15,200 Finished Goods Inventory 47,196 49,032