The XY Gadget Company manufactures a home assistance device that makes household tasks easier and more efficient. The company has only been in business for 9 months, and management has never prepared a formal business budget. You will be using the template provided to prepare a master budget for the 4th quarter ending December 31, 2020 Overview The XY Gadget Company manufactures a home assistance device that makes household tasks easier and more efficient. The company has only been in business for 9 months, and management has never prepared a formal business budget. The balance sheet, based on actual results, at September 30, 2020 is provided below: The company's manufacturing function consists of three departments: cutting, assembly, and finishing. Each device requires the following direct material: XY Gadget Company Balance Sheet September 30, 2020 4 units of Material X @ $11.00 per unit 2 units of Material Y @ $16.00 per unit $ 100,000 Assets Cash Inventories Materials Finished goods Income taxes recoverable $1,777,152 330.000 2,107,152 725,000 2,932,152 Production equipment & tools Accum. depreciation - Prod Equip 4,700,000 (352,500) XY pays shipping costs for Material X of $1.00 per unit. Material Y is shipped at no charge. All material purchased are paid for within the same quarter they are purchased 4,347.500 Fumiture & fixtures Accum. depreciation - Fum & fixt 300,000 (22.500) 277 500 Building Accum. depreciation - Building Total assets 2,000,000 75.000 1.925,000 $9.482.152 The cutting and assembly departments employs hourly workers who complete the required direct labour. Each department has the following configuration: Liabilities Line of credit - First National Bank Accounts payable Notes payable, Commercial Credit Union Total liabilities S 0 172.173 3.000.000 3,172, 173 Shareholders' Equity Common stock Retained earnings Total liabilities & shareholders' equity $6,000,000 309.979 6,309.979 $9.482.152 # of production machines 30 # workers at each machine 5 Maximum workers employed per shift150 Hours per shift (8 hours/day x 22 days/month x 3 months/quar- 528 Maximum units made per hour 1.8 ter) Product Information: Beginning inventory consists of 148,096 units of Material X. There was no Material Y inventory on hand at the be- ginning of the quarter. Workers in each department are paid $8 per hour for the first shift. XY is able to run a second shift if needed. Work- ers on the 2nd shift are paid the normal hourly wage PLUS a 20% shift premium. There were 2,000 units of Finished Goods on hand at the beginning of the quarter. XY plans to have the same number of Finished Goods on hand at the end of the quarter. No new materials are added in the finishing department. All labour in the finishing department is considered indi- rect. XY completes all production each day (there is no WIP inventory). Material X can sometimes be difficult to get on a timely basis. There has never been any difficulties getting as much Material Y as needed, very quickly. Sales have been increasing each quarter. XY hopes to increase their ending materials inventory at December 31 to: Manufacturing Overhead: Fixed manufacturing overhead (MOH) for Quarter 3 was $1,889,574, and has been applied based on expected production of 55,000 per quarter. Fixed MOH is ex- pected to be the same in Quarter 4. Total fixed MOH is comprised of the following: Material X Material Y 153,000 units 5,000 units Indirect labour - cutting dept.$60,000 Indirect labour - assembly dept. 100,000 Indirect labour finishing dept.950,000 Utilities 10,500 Production planning & control120,000 XY sells finished units for $300 each. All sales are cash sales, and no discounts are offered. Purchasing & receiving 447,074 Factory insurance 12,000 Depreciation - factory equipment117,500 Depreciation - building 20,000 Factory supplies 10,000 Factory 42,500 $1,889,574 Due to a poor compensation plan, all salespeople em- ployed by XY quit at the end of the third quarter. To meet the sales demand for the fourth quarter, XY will need to hire 1,000 salespeople immediately. It will cost XY $270 to train each new salesperson. This will be treated as a fixed selling expense for quarter 4. Each finished unit requires one hour of machine time. Variable manufacturing overhead is applied based on hours of machine time as follow: The new compensation plan will pay salespeople a sal- ary of $3,000 per quarter plus 10% of sales. Utilities Repairs & maintenance Supplies Material spoilage $0.75 2.00 0.75 2.20 $5.70 In order to meet the sales target, XY plans to spend $800,000 in advertising for the upcoming quarter. XY sells products in several Provinces. Fixed selling costs, in addition to those described above include: Marketing/sales information: As mentioned above, demand has been increasing each quarter. XY expects they will be able to sell 57,024 fin- ished units in Quarter 4. Provincial Sales Office Rent$45,000 Provincial Offices Operating Expenses 180,000 Head Office Sales Expenses 73,175 Variable: XY will also incur some variable selling expenses. Sales- people are expected to make a total of 235,000 sales calls in the 4th quarter, and the travel cost is estimated at $1.65 per sales call made. Also, packaging costs are ex- pected to be $2.00 per unit sold. Supplies $1.00 per unit sold Travel $3.15 per unit sold XY's current income tax rate is 40%. Cash information: VK management requires a minimum of $100,000 cash on hand at the end of the quarter. They have access to a $1,000,000 Line of Credit at First National Bank. Interest rates are negligible and therefore will be ignored for budgeting purposes. Any accounts payable from the pre- vious quarter should be paid in full. Other information: XY has administrative costs as follows: Fixed: Marking Rubric Executive salaries $480,000 Secretarial & clerical 180,000 Supplies 15,000 Depreciation - building 5,000 Depreciation - furniture & fixtures 7,500 Marks Marks The XY Gadget Company manufactures a home assistance device that makes household tasks easier and more efficient. The company has only been in business for 9 months, and management has never prepared a formal business budget. You will be using the template provided to prepare a master budget for the 4th quarter ending December 31, 2020 Overview The XY Gadget Company manufactures a home assistance device that makes household tasks easier and more efficient. The company has only been in business for 9 months, and management has never prepared a formal business budget. The balance sheet, based on actual results, at September 30, 2020 is provided below: The company's manufacturing function consists of three departments: cutting, assembly, and finishing. Each device requires the following direct material: XY Gadget Company Balance Sheet September 30, 2020 4 units of Material X @ $11.00 per unit 2 units of Material Y @ $16.00 per unit $ 100,000 Assets Cash Inventories Materials Finished goods Income taxes recoverable $1,777,152 330.000 2,107,152 725,000 2,932,152 Production equipment & tools Accum. depreciation - Prod Equip 4,700,000 (352,500) XY pays shipping costs for Material X of $1.00 per unit. Material Y is shipped at no charge. All material purchased are paid for within the same quarter they are purchased 4,347.500 Fumiture & fixtures Accum. depreciation - Fum & fixt 300,000 (22.500) 277 500 Building Accum. depreciation - Building Total assets 2,000,000 75.000 1.925,000 $9.482.152 The cutting and assembly departments employs hourly workers who complete the required direct labour. Each department has the following configuration: Liabilities Line of credit - First National Bank Accounts payable Notes payable, Commercial Credit Union Total liabilities S 0 172.173 3.000.000 3,172, 173 Shareholders' Equity Common stock Retained earnings Total liabilities & shareholders' equity $6,000,000 309.979 6,309.979 $9.482.152 # of production machines 30 # workers at each machine 5 Maximum workers employed per shift150 Hours per shift (8 hours/day x 22 days/month x 3 months/quar- 528 Maximum units made per hour 1.8 ter) Product Information: Beginning inventory consists of 148,096 units of Material X. There was no Material Y inventory on hand at the be- ginning of the quarter. Workers in each department are paid $8 per hour for the first shift. XY is able to run a second shift if needed. Work- ers on the 2nd shift are paid the normal hourly wage PLUS a 20% shift premium. There were 2,000 units of Finished Goods on hand at the beginning of the quarter. XY plans to have the same number of Finished Goods on hand at the end of the quarter. No new materials are added in the finishing department. All labour in the finishing department is considered indi- rect. XY completes all production each day (there is no WIP inventory). Material X can sometimes be difficult to get on a timely basis. There has never been any difficulties getting as much Material Y as needed, very quickly. Sales have been increasing each quarter. XY hopes to increase their ending materials inventory at December 31 to: Manufacturing Overhead: Fixed manufacturing overhead (MOH) for Quarter 3 was $1,889,574, and has been applied based on expected production of 55,000 per quarter. Fixed MOH is ex- pected to be the same in Quarter 4. Total fixed MOH is comprised of the following: Material X Material Y 153,000 units 5,000 units Indirect labour - cutting dept.$60,000 Indirect labour - assembly dept. 100,000 Indirect labour finishing dept.950,000 Utilities 10,500 Production planning & control120,000 XY sells finished units for $300 each. All sales are cash sales, and no discounts are offered. Purchasing & receiving 447,074 Factory insurance 12,000 Depreciation - factory equipment117,500 Depreciation - building 20,000 Factory supplies 10,000 Factory 42,500 $1,889,574 Due to a poor compensation plan, all salespeople em- ployed by XY quit at the end of the third quarter. To meet the sales demand for the fourth quarter, XY will need to hire 1,000 salespeople immediately. It will cost XY $270 to train each new salesperson. This will be treated as a fixed selling expense for quarter 4. Each finished unit requires one hour of machine time. Variable manufacturing overhead is applied based on hours of machine time as follow: The new compensation plan will pay salespeople a sal- ary of $3,000 per quarter plus 10% of sales. Utilities Repairs & maintenance Supplies Material spoilage $0.75 2.00 0.75 2.20 $5.70 In order to meet the sales target, XY plans to spend $800,000 in advertising for the upcoming quarter. XY sells products in several Provinces. Fixed selling costs, in addition to those described above include: Marketing/sales information: As mentioned above, demand has been increasing each quarter. XY expects they will be able to sell 57,024 fin- ished units in Quarter 4. Provincial Sales Office Rent$45,000 Provincial Offices Operating Expenses 180,000 Head Office Sales Expenses 73,175 Variable: XY will also incur some variable selling expenses. Sales- people are expected to make a total of 235,000 sales calls in the 4th quarter, and the travel cost is estimated at $1.65 per sales call made. Also, packaging costs are ex- pected to be $2.00 per unit sold. Supplies $1.00 per unit sold Travel $3.15 per unit sold XY's current income tax rate is 40%. Cash information: VK management requires a minimum of $100,000 cash on hand at the end of the quarter. They have access to a $1,000,000 Line of Credit at First National Bank. Interest rates are negligible and therefore will be ignored for budgeting purposes. Any accounts payable from the pre- vious quarter should be paid in full. Other information: XY has administrative costs as follows: Fixed: Marking Rubric Executive salaries $480,000 Secretarial & clerical 180,000 Supplies 15,000 Depreciation - building 5,000 Depreciation - furniture & fixtures 7,500 Marks Marks