UAVEV is a small-scale contract producer and seller of microchips for unmanned aerial vehicles (UAVs) and electric vehicles (EVs). The master budget will detail each quarters activity and the activity for the year in total. UAVEV will base the 2022 budget on the following information:

1. Expected sales, in units, for the four quarters of 2022 and the first two quarters of 2023 are as follows:

2022 Q1	3,400
2022 Q2	17,000
2022 Q3	29,000
2022 Q4	39,000
2023 Q1	47,000
2023 Q2	50,000

The selling price for 2022 has been set at $50.00 per unit. UAVEVs fiscal year ends on December 31. All sales are on account. 70% of sales on account are collected in the quarter of sale; 30% of sales on account are collected in the following quarter. Assume that all the balance in accounts receivable (as of 31^st December, 2021) will be collected in the first quarter of 2022. Assume no bad debts are incurred.

2. Each component requires the following direct inputs:

• 4 milligrams (mg) of direct material available at a price of $1.50 per mg.
• 0.004 hours of direct labour at a rate of $40.00 per hour.

UAVEV has a policy of maintaining direct material ending inventory equal to 20% of direct materials needed for the next quarters production requirements. All raw materials are purchased on account. 50% of a quarters purchases are paid for in the quarter of purchase; the remaining in the following quarter. UAVEV has a policy of keeping ending finished goods inventory equal to 20% of next quarters forecasted sales. There is no beginning or ending work-in-process inventory. Direct labourers are paid at the end of each month.

3. Total budgeted variable overhead costs for the 2022 year (at a level of sales estimated in Item 1 above) follow:

Indirect materials	$30,241
Indirect labour	63,734
Employee benefits	90,105
Testing	28,000
Utilities	49,320
Total	$261,400

Variable overhead is applied to components using a predetermined overhead rate based on annual direct labour hours. All variable overhead items are paid for in the quarter incurred.

4. The annual budget for fixed manufacturing overhead items follows:

Supervisory salaries	$199,500
Property taxes	31,000
Insurance	33,750
Maintenance	51,000
Utilities	36,700
Engineering	43,220
Depreciation	85,000
Total	$480,170

All fixed overheads are paid evenly each quarter except for property taxes which are paid for in the second quarter of the year. Fixed overhead is applied to production using a predetermined overhead rate based on the estimated annual number of units produced.

5. Variable selling and administration expenses include commissions and other administrative expenses. Commissions are budgeted at 4% of sales dollars for the quarter. 60% of these commissions are paid in the quarter they incurred, while 40% are paid in the following quarter. Other variable administration costs are $3.00 per unit. These costs are paid for in the quarter they incurred.

Annual fixed selling and administration expenses are as follows:

Sales salaries	$174,000
Administration salaries	110,000
Travel	20,000
Insurance	4,200
Utilities	3,300
Depreciation	14,000
Other	3,500
Total	$329,000

Fixed selling and administration expenses are paid evenly over the four quarters of the year.

6. UAVEV makes quarterly income tax installments based on the projected taxable income for the year. The company is subject to a 35% tax rate. For the master budget, UAVEV assumes tax expenses incurring for the year 2022 are paid in cash evenly over the four quarters of the year 2022.

7. UAVEV plans the following financing and investing activities for the coming year:

• The company is planning to buy a trademark, costing $50,000, in the last quarter of 2022. This trademark will be held until such time that the company is ready to sell directly to vehicle manufacturers. The company will pay cash for the trademark and will finance any resulting cash shortfall by drawing on its operating line of credit.
• The company has an operating line of credit established with its bank. This allows the company to borrow to cover any cash shortfalls. All borrowing is assumed to occur at the beginning of the quarter in which the funds are required and all repayment is assumed to be made at the end of the quarter in which funds are available for repayment. Simple interest at the rate of 11% per annum is paid on a quarterly basis on all outstanding short-term loans.
• The company currently has $220,000 in an outstanding long-term loan with an annual interest rate of 8% and makes quarterly interest only payments at the end of each quarter. The loan is due in 2034.
• The company outsources some of the manufacturing for $600,000. The company will pay the outsourcing fee in cash at the end of the first quarter of year 2022.

8. The companys simplified balance sheet as of December 31, 2021 is anticipated to be as follows:

Cash	$51,000	Accounts Payable (1)	$30
Accounts Receivable	400	Commissions Payable	100
Raw Material Inventory	0	Long-term Debt	220,000
Finished Goods Inventory	0	Capital Stock	1,849,270
Buildings and Equipment	2,080,000	Retained Earnings (Deficit)	(250,000)
Accumulated Depreciation	(312,000)
Total Assets	$1,819,400	Total Liabilities and Shareholders Equity	$1,819,400

These balance sheet figures must be taken as given. In other words, these specific December 31, 2021 balance sheet amounts override any expectations based on 2021 sales and purchase amounts. Negative balances are shown in parentheses.

1. Only used for direct materials

Required:

1. Prepare a master budget for UAVEV for each quarter of 2022 and for the year in total. The following component budgets must be included:

1. Overhead budget (be sure to show disbursements for variable and fixed overheads, in addition to applied variable and fixed overhead expenses).Selling and administrative
2. budget (be sure to show disbursements for selling and administrative expenses).
3. Cash budget

Prepare the following for the year, 2022, in total.

11. Cost of goods manufactured budget
12. Cost of goods sold budget
13. Pro forma income statement (using absorption costing)
14. Pro forma classified balance sheet

Cash budget and pro forma income statement are completed at the same time when you build a formula to account for tax expenses, and a set of formulas to account for cash outflow in the cash budget. Pro forma classified balance sheet are completed last.