The first task you have been assigned in your new role is to prepare the master budget for the quarter ended December 31^st, 2020.

You have assembled the following information.

Information on sales

The masks sell for $18 each.Recent and budgeted sales (in units) are as follows:

August (actual)7,550

September (actual)8,200

October7,850

November8,100

December8,300

January7,680

February7,400

All sales are on credit, with no discount. The company has found that only 30% of a month's sales are collected by month-end. An additional 50% is collected in the month following the sale, and the remaining 20% is collected in the second month following the sale. Bad debts have been negligible, so they can be ignored for the purposes of the budget.

Information on inventory and production

Inventories of finished goods on hand at the end of each month are to be equal to 50% of the following months budgeted sales.As of September 30^th, 2020, the company had 3,925 masks in finished goods inventory. The company has no work-in-process (WIP) inventory.

Each mask requires 1/10^th of a yard of antimicrobial silver ion fabric, which the company purchases for $55.00 per yard.Note - both the mask and the straps are made from this same fabric so there is only one raw material used to make the product.It is company policy to keep enough fabric in raw materials to meet 70% of the next month's production needs.As of September 30^th, Safe Smiles had 558 yards of fabric in raw materials inventory.Purchases of raw materials are paid for as follows: 50% in the month of purchase and the remaining 50% in the following month.

Each mask requires 0.25 labour hours (15 minutes) to assemble by hand. Employees who make the masks are paid $15.00 per hour, and never work overtime. The company has enough casual/on-call workers that they can call in if additional work is required.

Manufacturing overhead includes all the costs of production other than direct materials and direct labour. The variable component of manufacturing overhead is $1.00 per mask in production, and the fixed component is $17,000 per month.The $17,000 of fixed manufacturing overhead includes depreciation of $2,000 per month on the sewing machines and graphic print machines used to manufacture the masks. Direct labour hours is used as an allocation base for assigning manufacturing overhead to units produced.

Information on selling and administrative expenses and cash outlays

Safe Smiles' other monthly operating expenses are given below:

Variable:

License

$1.75 per mask sold **

Fixed:

Wages and salaries

$10,000

Utilities

$2,500

Insurance

$800

Depreciation (S&A)

$1,200

Miscellaneous

$1,000

**All masks have a print of a character popular with children.The license amount is paid directly to the companies with the exclusive rights to the characters.The Poppy Pig and Captain Sweatpants masks are expected to be the top sellers this season.

All operating expenses are paid during the month in cash, with the exception of the depreciation, as it is not a cash expense. Due to the planned introduction of a new mask line for teens in 2021, the company will be purchasing a new set of industrial sewing machines in October for $23,000 and a new print machine in November for $12,000.The equipment will not be used until 2021.The machines were purchased ahead of schedule, as Safe Smiles did not want to experience any delays in case a future shutdown.The company has a policy to declare a dividend of $10,000 on the last day of each quarter, which will be paid in the first month of the next quarter.

Balance Sheet of Safe Smiles Protective Masks Inc. at September 30^th, 2020:

Assets

Cash

22,500

Accounts receivable

130,500

Inventory - Raw Materials

30,704

Inventory - Finished Goods

48,515

PP&E

254,000

Accumulated depreciation

(71,000)

183,000

TOTAL ASSETS

$415,219

Liabilities and Equity

Bank loan

-

Accounts payable, purchases

21,973

Dividends payable

10,000

Capital stock, no par

150,000

Retained earnings

233,246

TOTAL LIABILITIES AND EQUITY

$415,219

Additional information on cash requirements and financing

Management of Safe Smiles requires a minimum ending cash balance each month of $22,000.The company can borrow money from its bank at 5% annual interest. All borrowing must be done at the beginning of a month, and repayments must be made at the end of a month. Borrowings and repayments of principal must be in round $1,000 amounts. Interest is computed and paid when any repayments occur. Round all interest payments to the nearest whole dollar. Compute interest using whole months, not days. The company wishes to use any excess cash to pay loans off as rapidly as possible.

REQUIRED:

Prepare the following for the company for the quarter ending December 31^st:

a.Sales Budget and Schedule of Expected Cash Collections

b.Production Budget

c.Direct Materials Budget and Schedule of Expected Cash Disbursements

d.Direct Labour Budget (inclusive of expected labour disbursements)

e.Manufacturing Overhead Budget (inclusive of expected overhead disbursements)

f.Ending Finished Goods Inventory Budget

g.Selling and Administrative Budget

h.Cash Budget

i.Schedule of Cost of Goods Manufactured

j.Budgeted Income Statement

(with the cost of goods sold computation included in the income statement)

You may ignore income taxes for the purposes of this budget

k.Budgeted Retained Earnings Statement

l.Budgeted Balance Sheet at December 31^st, 2020

NOTES

Preparing the schedules

For items (a) through (h) show each of the 3 months and a total column for the whole quarter (ended December 31). It may be helpful to prepare (a) through (g) on one individual worksheet in Excel, to make building and referencing easier.

For items (i) through (k), show only for the quarter ended December 31^st, 2020.

All schedule and statements should be formatted professionally.

Use Excel to do the work.Use cell references and formulas in your schedules - you will thank yourself when/if you need to make any changes. You will be able to update certain numbers and have the changes instantly flow through the rest of the schedules. Think about this - have you already entered that number once before, or was it calculated somewhere else? If it was calculated elsewhere, use a cell reference to the first place it shows up. Don't just type it in.

Check figure

Amount

Schedule

Total cash collections for the quarter

$433,260

(Expected cash collections)

Total required production for the quarter (units)

24,165

(Production)

Raw materials to purchase for the quarter (total yards)

2,386

(Direct materials)

Ending cash balance

$33,359

(Cash budget)

Total cost of goods manufactured for the quarter

$298,705

(Schedule of COGM)

Total assets

$451,993

(Balance sheet)