Toys 4U Corp Cash Budget For the year ending December 31, 2020 Mar Apr May Jun Jul Aug Sep Oct Nov Dec Year Feb 97888 ! Jan Cash balance, beginning Add receipts: Collections from customers L Tolal cash available before financing Lees disurgernents: Direct materials Direct Inbour Manufacturing overhead Selling and admin expenses Tax rernillance Tax payable Prepaid Insurance Prepaid property and business tax Capital asset purchases Dividend payment Total disbursements Excess (deficiency of cash avaiable over disbursements Financing Borrowing (at the beginning of marth) Repayment at the end of the month) Interest expense paid monthly Total financing Cash balance, ending Master Budget Case: Toys4U Corp. Toys4U Corp, Toy. For planning and least six months in adve Toys4U Corp. is a company that manufactures and sells a single product, which they call a Rooster Pull Toy. For planning and control purposes they utilize a monthly master budget, which is usually developed at least six months in advance of the budget year. Their fiscal year end is December 31. Their sales forecast consisted of these few lines: For the year ended December 31, 2019: 95,000 units at $45.00 each* For the year ended December 31, 2020: 100,000 units at $50.00 each For the year ended December 31, 2021: 110,000 units at $52.00 each *Expected sales for the year ended December 31, 2019 are based on actual sales to date and budgeted sales for the duration of the year. Raw data 1. Sales are seasonal with the peak months being summer and winter holidays. The following table shows expected distribution of sales for each month based on percentage of the total budgeted sales. This pattern of sales is not expected to change in the next three years. Months Percentage of sales Jan, Feb, Mar 3% each Apr, Aug, Sept 5% each May, Jun, Jul 10% each Oct 11% Nov 15% Dec 20% 2. From previous experience, management has determined that an ending inventory equal to 25% of the next month's sales is required to fit the buyer's demands. 3. Because sales are seasonal, Toys4U must rent an additional storage facility from October to December to house the additional inventory on hand. The related costs, which cover the rent, additional security and extra insurance, is a flat $6,000 per month, payable at the beginning of the month. 4. There are three types of raw material used in the production of Rooster Pull Toys. Plastic #25 (P#25) is a very compact material that is purchased in powder form. Each Rooster Pull Toy requires 0.4 kilograms of P#25, at a cost of $30.00 per kilogram. This is an increase of $6.00 from 2019. The supplier of P#25 tends to be somewhat erratic so Toys4U finds it necessary to maintain an inventory 1/5 balance equal to 50% of the following month's production needs as a precaution against stock-outs. A wooden wheel assembly is purchased in kit form, and is attached during the assembly process. For a small premium, Toys4U has made a JIT agreement with the supplier which includes on-time and quality assurances. Each Rooster Pull Toy uses two kits, which cost $1.80 each. The final component for the toy is a length of sisal rope which is used to pull the toy along the ground or floor. The rope is supplied by a student entrepreneur, who must be paid in cash. On the first day of every month she delivers exactly the right amount to manufacture the budgeted number of units for that month. It costs $1.00 per meter and Toys4U uses 0.6 meters for each Rooster Pull Toy. 5. The beginning accounts payable (associated with P#25 purchases only) will consist of $57,810 arising from the following estimated material purchases for November and December of 2019: Material purchases in November 2019: Material purchases in December 2019: $146,100 $86,400 Toys4U pays for 50% of a month's purchases in the month of purchase, 40% in the following month and the remaining 10% two months after the month of purchase. There is no early payment discount. 6. The manufacturing process for Rooster Pull Toys is divided into three separate activities. The first step is the forming process, during which the P#25 is liquefied and formed into several shapes that snap together to make the toy. During the next stage, the molded pieces are fused together using heat. This step is referred to as the assembly stage. The last stage is for finishing, during which the wheel and the pull rope are attached and the toy is prepared for shipping. 7. The first two steps of the manufacturing process are highly automated, so the only direct labour required consists of four highly specialized technicians, who are trained to operate the equipment and make repairs as required. These employees work shifts, allowing the plant to operate for longer hours during the busier months. On an annual basis, they are each paid an average of $60,000 including employee benefits. 8. The last step, finishing, employs wage earners. Most of the staff work on a part-time basis, so their hours can be set based on production requirements. This also eliminates the need for overtime. These employees are paid based on the number of units produced. They receive an average of $12.00 per hour including employee benefits. Each Rooster Pull Toy spends 18 minutes in the finishing department. 9. Because of the large difference in the manufacturing stages, Toys4U uses two separate variable manufacturing overhead rates. The forming and assembly departments use similar equipment and with the company's concentration on a single product, the manufacturing overhead is allocated based on volume (i.e. the units produced). The combined unit variable overhead manufacturing rate for forming and assembly is $6.20, consisting of: Utilities--$2.50; Indirect Materials-- $1.00; Plant maintenance--$1.50; environmental fee- $0.70; and Other--$0.50. The best cost driver for the finishing department is considered to be direct labour hours. Here the predetermined variable manufacturing overhead is expected to be $4.00 per hour. 10. Fixed manufacturing overhead costs are not separated between departments. The total costs for the entire year are as follows: Training and development Supervisor's salaries & benefits Amortization on equipment Insurance Other $ 43,620 169,224 178,800 72,600 120.900 $ 585,144 The annual insurance premium, which will be paid on July 1, will be $73,200. All other "cash-related" fixed manufacturing overhead costs are incurred evenly over the year and paid as incurred. Toys4U uses the straight line method of amortization. 11. Selling and administrative expenses are known to be a mixed cost; however, there is a lot of uncertainty about the portion that is fixed. Previous year's experience has provided the following information (rounded): Lowest level of sales: 75,000 units Highest level of sales: 115,000 units Total Operating Expenses: $863,700 Total Operating Expenses: $1,123,700 The annual amount of amortization on office furniture and equipment is only $9,000and this amount is already included in the fixed portion of the selling and administration expenses. Not included in the above expenses is bad debt expense. Payments for selling and administrative expenses occur in the month in which they are incurred. 12. Sales are on a cash and credit basis, with 75% collected during the month of the sale, 15% the following month, and 9.5% the month thereafter. 12 of 1% of sales are considered uncollectible (bad debt expense). 13. Sales in November and December 2019 are expected to be $641,250 and $855,000 respectively. Based on the above collection pattern this will result in Accounts Receivable of $270,394 at December 31, 2019 which will be collected in January and February, 2020. 14. During the fiscal year ended December 31, 2020, Toys4U will be required to make monthly income tax installment payments of $5,000. Outstanding income taxes from 3/5 the year ended December 31, 2019 must be paid in April 2020. Income tax expense is estimated to be 35% of net income. Income taxes for the year ended December 31, 2020, in excess of installment payments, will be paid in April, 2021. 15. Toys4U is planning to acquire additional manufacturing equipment on July 1, 2020 for $306,000 cash (including installation). The equipment is expected to last for 10 years, and will be replacing an older model with a net book value of zero. They have a special agreement to pay the supplier in three equal installments starting in August, 2020. The manufacturing overhead costs shown above do not include the amortization on this equipment. Because of recent innovations, the new equipment is expected to operate more efficiently than the old one. It is expected that the per unit cost for utilities will decrease by $0.93 when the new machine comes on-line. 16. An arrangement has been made with the local bank that if Toys4U maintains a minimum balance of $30,000 in their bank account, they will be given a line of credit at a preferred rate of 6% per annum. 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 $1,000 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. 15. Toys4U Corp. has a policy of paying dividends at the end of each quarter. The president tells you that the board of directors is planning on continuing their policy of declaring dividends of $50,000 per quarter. Toys 4U Corp Cash Budget For the year ending December 31, 2020 Mar Apr May Jun Jul Aug Sep Oct Nov Dec Year Feb 97888 ! Jan Cash balance, beginning Add receipts: Collections from customers L Tolal cash available before financing Lees disurgernents: Direct materials Direct Inbour Manufacturing overhead Selling and admin expenses Tax rernillance Tax payable Prepaid Insurance Prepaid property and business tax Capital asset purchases Dividend payment Total disbursements Excess (deficiency of cash avaiable over disbursements Financing Borrowing (at the beginning of marth) Repayment at the end of the month) Interest expense paid monthly Total financing Cash balance, ending Master Budget Case: Toys4U Corp. Toys4U Corp, Toy. For planning and least six months in adve Toys4U Corp. is a company that manufactures and sells a single product, which they call a Rooster Pull Toy. For planning and control purposes they utilize a monthly master budget, which is usually developed at least six months in advance of the budget year. Their fiscal year end is December 31. Their sales forecast consisted of these few lines: For the year ended December 31, 2019: 95,000 units at $45.00 each* For the year ended December 31, 2020: 100,000 units at $50.00 each For the year ended December 31, 2021: 110,000 units at $52.00 each *Expected sales for the year ended December 31, 2019 are based on actual sales to date and budgeted sales for the duration of the year. Raw data 1. Sales are seasonal with the peak months being summer and winter holidays. The following table shows expected distribution of sales for each month based on percentage of the total budgeted sales. This pattern of sales is not expected to change in the next three years. Months Percentage of sales Jan, Feb, Mar 3% each Apr, Aug, Sept 5% each May, Jun, Jul 10% each Oct 11% Nov 15% Dec 20% 2. From previous experience, management has determined that an ending inventory equal to 25% of the next month's sales is required to fit the buyer's demands. 3. Because sales are seasonal, Toys4U must rent an additional storage facility from October to December to house the additional inventory on hand. The related costs, which cover the rent, additional security and extra insurance, is a flat $6,000 per month, payable at the beginning of the month. 4. There are three types of raw material used in the production of Rooster Pull Toys. Plastic #25 (P#25) is a very compact material that is purchased in powder form. Each Rooster Pull Toy requires 0.4 kilograms of P#25, at a cost of $30.00 per kilogram. This is an increase of $6.00 from 2019. The supplier of P#25 tends to be somewhat erratic so Toys4U finds it necessary to maintain an inventory 1/5 balance equal to 50% of the following month's production needs as a precaution against stock-outs. A wooden wheel assembly is purchased in kit form, and is attached during the assembly process. For a small premium, Toys4U has made a JIT agreement with the supplier which includes on-time and quality assurances. Each Rooster Pull Toy uses two kits, which cost $1.80 each. The final component for the toy is a length of sisal rope which is used to pull the toy along the ground or floor. The rope is supplied by a student entrepreneur, who must be paid in cash. On the first day of every month she delivers exactly the right amount to manufacture the budgeted number of units for that month. It costs $1.00 per meter and Toys4U uses 0.6 meters for each Rooster Pull Toy. 5. The beginning accounts payable (associated with P#25 purchases only) will consist of $57,810 arising from the following estimated material purchases for November and December of 2019: Material purchases in November 2019: Material purchases in December 2019: $146,100 $86,400 Toys4U pays for 50% of a month's purchases in the month of purchase, 40% in the following month and the remaining 10% two months after the month of purchase. There is no early payment discount. 6. The manufacturing process for Rooster Pull Toys is divided into three separate activities. The first step is the forming process, during which the P#25 is liquefied and formed into several shapes that snap together to make the toy. During the next stage, the molded pieces are fused together using heat. This step is referred to as the assembly stage. The last stage is for finishing, during which the wheel and the pull rope are attached and the toy is prepared for shipping. 7. The first two steps of the manufacturing process are highly automated, so the only direct labour required consists of four highly specialized technicians, who are trained to operate the equipment and make repairs as required. These employees work shifts, allowing the plant to operate for longer hours during the busier months. On an annual basis, they are each paid an average of $60,000 including employee benefits. 8. The last step, finishing, employs wage earners. Most of the staff work on a part-time basis, so their hours can be set based on production requirements. This also eliminates the need for overtime. These employees are paid based on the number of units produced. They receive an average of $12.00 per hour including employee benefits. Each Rooster Pull Toy spends 18 minutes in the finishing department. 9. Because of the large difference in the manufacturing stages, Toys4U uses two separate variable manufacturing overhead rates. The forming and assembly departments use similar equipment and with the company's concentration on a single product, the manufacturing overhead is allocated based on volume (i.e. the units produced). The combined unit variable overhead manufacturing rate for forming and assembly is $6.20, consisting of: Utilities--$2.50; Indirect Materials-- $1.00; Plant maintenance--$1.50; environmental fee- $0.70; and Other--$0.50. The best cost driver for the finishing department is considered to be direct labour hours. Here the predetermined variable manufacturing overhead is expected to be $4.00 per hour. 10. Fixed manufacturing overhead costs are not separated between departments. The total costs for the entire year are as follows: Training and development Supervisor's salaries & benefits Amortization on equipment Insurance Other $ 43,620 169,224 178,800 72,600 120.900 $ 585,144 The annual insurance premium, which will be paid on July 1, will be $73,200. All other "cash-related" fixed manufacturing overhead costs are incurred evenly over the year and paid as incurred. Toys4U uses the straight line method of amortization. 11. Selling and administrative expenses are known to be a mixed cost; however, there is a lot of uncertainty about the portion that is fixed. Previous year's experience has provided the following information (rounded): Lowest level of sales: 75,000 units Highest level of sales: 115,000 units Total Operating Expenses: $863,700 Total Operating Expenses: $1,123,700 The annual amount of amortization on office furniture and equipment is only $9,000and this amount is already included in the fixed portion of the selling and administration expenses. Not included in the above expenses is bad debt expense. Payments for selling and administrative expenses occur in the month in which they are incurred. 12. Sales are on a cash and credit basis, with 75% collected during the month of the sale, 15% the following month, and 9.5% the month thereafter. 12 of 1% of sales are considered uncollectible (bad debt expense). 13. Sales in November and December 2019 are expected to be $641,250 and $855,000 respectively. Based on the above collection pattern this will result in Accounts Receivable of $270,394 at December 31, 2019 which will be collected in January and February, 2020. 14. During the fiscal year ended December 31, 2020, Toys4U will be required to make monthly income tax installment payments of $5,000. Outstanding income taxes from 3/5 the year ended December 31, 2019 must be paid in April 2020. Income tax expense is estimated to be 35% of net income. Income taxes for the year ended December 31, 2020, in excess of installment payments, will be paid in April, 2021. 15. Toys4U is planning to acquire additional manufacturing equipment on July 1, 2020 for $306,000 cash (including installation). The equipment is expected to last for 10 years, and will be replacing an older model with a net book value of zero. They have a special agreement to pay the supplier in three equal installments starting in August, 2020. The manufacturing overhead costs shown above do not include the amortization on this equipment. Because of recent innovations, the new equipment is expected to operate more efficiently than the old one. It is expected that the per unit cost for utilities will decrease by $0.93 when the new machine comes on-line. 16. An arrangement has been made with the local bank that if Toys4U maintains a minimum balance of $30,000 in their bank account, they will be given a line of credit at a preferred rate of 6% per annum. 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 $1,000 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. 15. Toys4U Corp. has a policy of paying dividends at the end of each quarter. The president tells you that the board of directors is planning on continuing their policy of declaring dividends of $50,000 per quarter