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Master Budget Case Study As part of the continued advancement of technology, a drone camera market has emerged in recent years. The drone camera market has been growing as more photography enthusiasts have begun adopted this high- tech approach to capturing still images and video using remotely controlled devices. Eager to capture a share of this growing market, CamDrone entered the market in early 2018. CamDrone manufactures camera drones, selling primarily to retailers. CamDrone is pleased with its financial performance over its first few years of operations, optimistic to achieve continued financial success. For planning and control purposes the company utilizes a monthly master budget, which is usually developed at least three months in advance of the budget year. The company has a fiscal year ending December 31. It is now Sept 15, 2019. You have been asked to prepare the Master Budget for the year ending December 31, 2020 Based on your discussions with the various departments throughout the company, you have collected the following relevant information for preparing the budget: Sales 1. The marketing department is forecasting the following annual sales: For the year ended December 31, 2019: 9,000 units at $1,000 each . For the year ended December 31, 2020: 10,000 units at $1,000 each For the year ended December 31, 2021: 15,000 units at $1,000 each *Expected sales for the year ended December 31, 2019 were based on actual sales to date and budgeted sales for the duration of the year. 2 Peak months for sales generally correspond with summer weather and gift-giving holidays. History shows that January is the slowest month, with only 1% of annual sales, followed closely behind by Feb-April with 2% of annual sales for each month. Sales spike during summer months with May, June, July, and August contributing 12%, 15%, 12%, and 10% of annual sales respectively. With the back-to-school focus in September, there is a significant dip in camera drone sales to 3% of annual sales. As Christmas shopping picks up momentum, winter sales increase to 8% in October, 13% in November, and then peak at 20% in December. This pattern of sales is not expected to change in the next two years. Manufacturing Costs and Inventory Payments Pattern 12 CamDrone pays for 20% of a month's purchases of direct materials in the month of purchase, 50% in the following month and the remaining 30% two months after the month of purchase. There are no early payment discounts offered by suppliers. 12. Based on the payment pattern described above, accounts payable as at end of business day on December 31, 2019 is projected to be $78,641 arising from the following estimates: Direct Material Purchases November 2019 595256 Direct Material Purchases (December 2019562,384 14. All payroll costs are paid in the period in which they are incurred. is. The property and business taxes, paid at the beginning of July cach year, apply to the following 12-month period. Any increases for inflation on property and business taxes do not take effect until the beginning of July each year. in Annual insurance premiums, paid at the beginning of April each year, apply to the following 12-month period. Any increases for inflation on insurance premiums do not take effect until the beginning of April each year. 17. Fixed manufacturing overhead costs are incurred evenly over the year and "cash-related" amounts are paid as incurred. 1x Selling and administrative expenses are paid in the month in which they occur. Other 19. Anticipating a significant increase in customer demand and market share over the next few years, CamDrone is planning a significant expansion involving acquiring additional manufacturing equipment for $3,000,000 cash. Half of this amount is to be paid to the equipment supplier in July 2020, with the remainder to be paid in October 2020. 20. Selling and administrative expenses are known to be a mixed cost; however, there is a lot of uncertainty about the portion that is fixed. Based on prior year experience: Lowest level of monthly sales:80 units ... Total Operating Expenses: 887,270 Highest level of monthly sales:1,600 units ... Total Operating Expenses: $360,780 * excluding bad debts and amounts described below These expenses are expected to increase by 3% in 2020 due to inflation 21. To secure and grow its market share. Cam Drone is planning to operate "pop-up" kiosks in various local retail centers during peak kiosks will be in addition to the normal selling and administrative expenses described above and is not expected to increase during 2020. 22 Income tax expense is estimated to be 25% of net income CamDrone makes monthly income tax installment payments of $25,000 and pays all outstanding income taxes in excess of installment payments) in March of the following year. As such, any outstanding income tax balance for the year ended December 31, 2019 it will be paid in March 2020. 23. An arrangement has been made with the local bank that if CamDrone maintains a minimum balance of $50,000 in their bank account, they will be given a line of credit at a preferred rate of 3% per annum (0.25% per month). All borrowing is considered to happen on the first day of the month, repayments are on the last day of the month. All borrowings and repayments from the bank should be in multiples of $10,000 and interest must be paid at the end of each month. Interest is calculated on the balance at the beginning of the month, which includes any amounts borrowed that month. 24. Cam Drone has a policy of paying dividends at the end of each quarter. The President tells you that the Board of Directors is planning on declaring dividends as follows: March 2020 550.000 June 2020 $100.000 September 2020 250.000 December 2000 5280.000 Dividends are paid in the month they are declared. 25. The company is forecasting the following balances as at the end of business day on December 31, 2019: Cash 10 Accounts Receivable Inventory Direct Mail 1.50 Inventory. Finished God Prepaid Property and Business Tees 34.000 Prepaid Inserne Capital 371 Total A 51.80930 Libilities and Scholar Accounts Payable Income Taxes Payable 19,700 Capital Stock 500.00 Retinol amings Total Liabilities and Shareholders 51.830930 Required: Prepare a monthly master budget for Cam Drone for the year ending December 31, 2020, whow your answers for the following schedules only Sales Budget 2 Schedule of Expected Cash Collections Production Budget Direct Materials Budget Schedule of Expected Cash Disbursements Required: Prepare a monthly master budget for CamDrone for the year ending December 31, 2020, whow your answers for the following schedules only. 1. Sales Budget 2. Schedule of Expected Cash Collections 3. Production Budget 4. Direct Materials Budget 5. Schedule of Expected Cash Disbursements Manufacturing Costs and Inventory 3. Each camera drones spends a total of 3.5 hours in production 4. Due to the highly technical nature of CamDrone's manufacturing process, Cam Drone's direct labour rate has averaged $30.00 per hour for 2019. This rate already includes the employer's portion of employee benefits. A new collective agreement is being negotiated, with a 3% pay increase anticipated effective January 1, 2020. s. Each CamDrone requires 1.25kg of direct materials. During 2019, the average cost of direct materials was $57/kg. The supplier of the direct materials tends to be somewhat erratic, so CamDrone finds it necessary to maintain a direct materials inventory balance equal to 40% of the following month's production needs as a precaution against stock-outs. Due to the similarity of the equipment in each of the production stages and the company's concentration on a single product, manufacturing overhead is allocated based on volume (1.e. the units produced). The variable manufacturing overhead rate for 2019 is $160/unit, consisting of Plant & liquipment Maine 20 Indirect Material Ulities Other The fixed manufacturing overhead costs for 2019 are as follows: Superior alary 18.00 Amortion of Past & Equipments 132.000 ce 84,000 Training & Developm 54,750 Property and we 45,000 Other 20.000 S530.550 Amortization is calculated using the straight-line method, with no amortization calculated in the year capital assets are acquired. . Aside from amortization, all other manufacturing costs are expected to increase by 3% in 2020 due to inflation 9. From previous experience, management has determined that an ending finished goods inventory equal to 25% of the next month's sales is required to efficiently meet customer demands. Collections Pattern 10. Sales are on a cash and credit basis, with 49% collected during the month of the sale, 33% the following month, and 17% the month thereafter. There are no early payment discounts for customers. Bad debt expense (amounts considered uncollectible) account for 1% of sales. 11. Based on the collection pattern described above, accounts payable as at end of business day on December 31, 2019 is projected to be S1,098,899 arising from the following estimates Sales November 2010 S1.100 Sales December 201951,800.00 Payments Pattern