ToyWorks Ltd. is a company that manufactures and sells a single product, which they call a Toodle. 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 June 30.

During the summer of 2021, Chris Leigh,theToyWorks controller, spent considerable time with Pat Frazer, the Manager of Marketing, putting together a sales forecast for the next budget year (July 2021 to June 2022).Unfortunately, their collaboration worked so well they eloped to Las Vegas, were married by an Elvis impersonator, and settled down somewhere in the desert. Prior to their departure they e-mailed letters of resignation and a cryptic sales forecast to the President of ToyWorks.

Their sales forecast consisted of these few lines:

• For the year ended June 30, 2021: 480,000 units at $10.00 each*
• For the year ended June 30, 2022: 500,000 units at $12.00 each
• For the year ended June 30, 2023: 525,000 units at $15.00 each

*Expected sales for the year ended June 30, 2021 are based on actual sales to date and budgeted sales for the duration of the year.

ToyWorks's Presidentfelt certain that the marriage wouldn't last, and expected Chris would be back any day. But time is passing quickly, and there is still no word from the desert.The President, desperately needing the budget completed, has approached you, a management accounting student, for help in preparing the budget for the coming fiscal year. Your conversations with the President and your investigations of the company's records have revealed the following information:

1. Peak months for sales correspond with gift-giving holidays. History shows that January, March, May and June are the slowest months with only 1% of sales for each month. Sales pick up over the summer with July, August and September each contributing 3% to the total. Valentine's Day in February boosts sales to 7%, and Easter in April accounts for 11%. As Christmas shopping picks up momentum, winter sales start at 14% in October, move to 20% in November and then peak at 35% in December. This pattern of sales is not expected to change in the next two years.

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,ToyWorksmust rent an additional storage facility from September to December to house the additional inventory on hand. The only related cost is a flat $6,000 per month, payable at the beginning of the month.

4. There is only one type of raw material used in the production of toodles. Space-age acrylic (SAA) is a very compact material that is purchased in powder form. Each toodle requires 12 kilograms of SAA, at a cost of $0.26 per kilogram. The supplier of SAA tends to be somewhat erratic soToyWorksfinds it necessary to maintain an inventory balance equal to 40% of the following month's production needs as a precaution against stock-outs. ToyWorks pays for 35% of a month's purchases in the month of purchase, 30% in the following month and the remaining 35% two months after the month of purchase. There is no early payment discount.

5. Beginning accounts payable will consist of $53,890 arising from the following estimated direct material purchases for May and June of 2021:

SAA purchases in May, 2021: $56,628

SAA purchases in June, 2021 $52,416

6. ToyWorks's manufacturing process is highly automated, so their direct labour cost is low. Employees are paid on a per unit basis. Their total pay each month is, therefore, dependent on production volumes and averages $16.00 per hour. This rate already includes the employer's portion of employee benefits. All payroll costs are paid in the period in which they are incurred.

Each unit spends a total of 15 minutes in production.

7. 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 (i.e. the units produced). The unit variable overhead manufacturing rate is $1.85, consisting of:Utilities--$0.70; Indirect Materials--$0.25; Plant maintenance--$0.60; environmental fee--$0.14; and Other--$0.16.

8. The fixed manufacturing overhead costs budgeted for the entire year are as follows:

Training and development $ 43,900

Property and business taxes 40,000

Supervisor's salary 149,500

Amortization on equipment 178,800

Insurance 24,000

Other 76,200

$ 512,400

• The property and business taxes are paid in advance on December 31 of each year. The expected payment for next year is $40,600.
• The annual insurance premium is paid at the beginning of March each year. There should be no change in the premium from last year.
• All other "cash-related" fixed manufacturing overhead costs are incurred evenly over the year and paid as incurred.
• ToyWorks uses the straight line method of amortization.

9. 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:

Lowest level of sales: 400,000 units Total Operating Expenses: $633,800

Highest level of sales: 850,000 units Total Operating Expenses: $993,800

It is estimated that selling and administrative expenses for the budget year will be about 10% greater than the previous average.These costs are paid in the month in which they occur, with the exception of the only non-cash item: a monthly amortization of office equipment in the amount of $950. Not included in the above expenses is bad debt expense or warehouse rental.

10. Sales are on a cash and credit basis, with 70% collected during the month of the sale, 20% the following month, and 9.5% the month thereafter. 0.5% of sales are considered uncollectible (bad debt expense).

11. Sales in May and June 2021 are expected to be $180,000 and $190,000 respectively. Based on the above collection pattern this will result in Accounts Receivable of $73,150 at June 30, 2021 which will be collected in July and August, 2021.

12. During the fiscal year ended June 30, 2022 ToyWorks will be required to make monthly income tax installment payments of $3,000. Outstanding income taxes from the year ended June 30, 2021 must be paid in October 2021. Income tax expense is estimated to be 25% of net income. Income taxes for the year ended June 30, 2022, in excess of installment payments, will be paid in October 2022.

13. Prior to the busy season, ToyWorks is planning to upgrade its manufacturing equipment for which they will need to pay cash. The bid that was accepted totaled $225,000 of which 40% is to be paid in August 2021 and 50% in September 2021. The 10% holdback will be paid in January 2022, assuming everything goes as planned. Manufacturing overhead costs shown above already include the amortization on this equipment.

14. An arrangement has been made with the local bank that if ToyWorks maintains a minimum balance of $25,000 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. ToyWorks Ltd. 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 $25,000 per quarter.

16. A listing of the estimated balances in the company's ledger accounts as of June 30, 2021 is given below:

	Cash	$ 38,871
	Accounts receivable	73,150
	Inventory-raw materials	18,720
	Inventory-finished goods	29,438
	Prepaid insurance	16,000
	Prepaid tax	19,200
	Capital assets (net)	724,000
	Total	$ 919,378
	Accounts payable	$ 53,890
	Income tax payable	$ 21,500
	Capital stock	$ 500,000
	Retained earnings	$ 343,988
		$ 919,378

Required:

1. Create a monthly master budget for ToyWorks for the year ended June 30, 2022, including the following schedules:

Sales Budget & Schedule of Cash Receipts

Production Budget

Direct Materials Budget & Schedule of Cash Disbursements

Direct Labour Budget

Manufacturing Overhead Budget

Ending Finished Goods Inventory Budget

Selling and Administrative Expense Budget

Cash Budget

2. Create a budgeted income statement and a budgeted statement of retained earnings for the year ended June 30, 2022 using absorption costing.

3. Create a budgeted balance sheet at June 30, 2022.