You are a Consultant for the professional service firm, BUSI 2083 LLP. Your firm specializes in providing a wide variety of internal business solutions for different clients. One of the partners in your practice would like to give back to the community through helping a non-for-profit company, Guardian Angel, prepare a master budget without charging them service fees. She asks you to take the lead on this engagement with the hope that a successful outcome may lead to your promotion to Senior Consultant. You take the background files from the partner and get started.

Guardian Angel is a non-for-profit organization that helps give street youth a second chance by providing them with business clothing and teaching them work related skills. The company is getting ready for a fundraiser by selling crystal angle wing key chains. The information below about Guardian Angels operations has been assembled to assist budget preparation. The company is preparing its master budget for the first quarter of 2014. The budget will detail each months activity and the activity for the quarter in total. The master budget will be based on the following information:

Additional Information

Selling price is $60 per unit in 2013 and will not change for the first two quarters of 2014.

Actual and estimated sales are as follows:

Actual 2013	Estimated 2014
November: 10,000 units	January: 11,000 units
December: 12,000 units	February: 10,000 units
	March: 13,000 units
	April: 11,000 units
	May: 10,000 units

The company produces enough units each month to meet that months sales plus a desired inventory level equal to 20% of next months estimated sales. Finished Goods inventory at the end of 2011 consisted of 2,200 units at a variable cost of $33 each.

The company purchases enough raw materials each month for the current months production requirement and 25% of next months production requirements. Each unit of product requires 5 kilograms of raw material at $0.60 per kilogram. There were 13,500 kilograms of raw materials in inventory at the end of 2013. Guardian Angel pays 40% of raw material purchases in the month of purchase and pays the remaining 60% in the following month.

Each unit of finished product requires 1.25 labor-hours. The average wage rate is $16 per hour.

Variable manufacturing overhead is 50% of the direct labor cost.

Credit sales are 60% of total sales. The company collects 50% of the credit sales during the first month following the month of sale and 50% during the second month.

Fixed overhead cost (per month):

Factory supervisors salary	$75,000
Factory insurance	$1,400
Factory Rent	$8,000
Depreciation of factory equipment	$1,200

Total fixed selling and administrative expenses are as follows

Advertising	$300
Depreciation	$9,000
Insurance	$250
Salaries	$4,000
Other	$14,550

Variable selling and administrative expenses consist of $4 for shipping and sales commissions of 10% of sales.

The company is going to acquire assets for use in the sales office at a cost of $300,000, which will be paid at the end of January 2014. The monthly depreciation expense on the additional capital assets will be $6,000.

The balance sheet as of December 31, 2013, is as follows:

Assets
Cash		$80,000
Accounts receivable		$612,000
Inventory: raw materials	$8,100
Finished goods	$72,600	$80,700
Plant and equipment	$1,000,000
Less: accumulated depreciation	$(100,000)	$900,000
Total Assets		$1,672,700
Liabilities and Equity
Accounts payable		$24,000
6% long term notes payable		$900,000
Common shares		$735,000
Retained earnings		$13,700
Total liabilities and equity		$1,672,700

All cash payments except purchases of raw materials are made monthly as incurred.

All loan repayments and borrowings, when appropriate, occur at the end of each month.

All interest on borrowed funds is paid at the end of each month at the rate of 6% per year.

Loan repayments and borrowings, when appropriate, may be made in any amount.

A minimum cash balance of $30,000 is required at the end of each month.

Having a better grasp of the client and information required in order to prepare a master budget, you get to work on solving the clients needs.

Required:

Prepare the following budgets for the first three months of 2014:

1. Sales budget

Guardian Angel Sales Budget First Quarter of 2014
Particulars	January	February	March
Sales Units	11,000	10,000	13,000
Selling Price	$60	$60	$60
Total Sales	$660,000	$600,000	$780,000

2. Production budget

Guardian Angel Production Budget First Quarter of 2014
Particulars	January	February	March	April
Sales Units	11,000	10,000	13,000	11,000
Add: Ending Finished Goods	2,000	2,600	2,200	2,000
Total Required Units	13,000	12,600	15,200	13,000
Less: Beginning Finished Goods	2,200	2,000	2,600	2,200
Required Production Units	10,800	10,600	12,600	10,800

3. Raw materials purchases budget

Guardian Angel Raw Materials Purchases Budget First Quarter of 2014
Particulars	January	February	March
Units to be produced	10,800	10,600	12,600
Direct Material per Unit	5	5	5
Total Material needed for Production	54,000	53,000	63,000
Add: Ending Direct Material	13,250	15,750	13,500
Total material required	67,250	68,750	76,500
Less: Beginning Direct Material	13,500	13,250	15,750
Direct Material Purchases	53,750	55,500	60,750
Cost per Kg	0.6	0.6	0.6
Total Cost of Direct Material Purchased	$32,250	$33,300	$36,450

4. Direct labor and manufacturing overhead budget

Guardian Angel Direct Labour Budget First Quarter of 2014
Particulars	January	February	March
Units to be produced	10,800	10,600	12,600
Direct Labor Time per Unit	1.25	1.25	1.25
Total Required Labour Hours	13,500	13,250	15,750
Direct Labour cost per hour	16	16	16
Total Direct Labour Cost	216,000	212,000	252,000

Guardian Angel Manufacturing Overhead Budget First Quarter of 2014
Particulars	January	February	March	Total
Variable manufacturing overhead	$108,000	$106,000	$126,000	$340,000
Fixed Expenses
Factory supervisors salary	$75,000	$75,000	$75,000
Factory insurance	$1,400	$1,400	$1,400
Factory Rent	$8,000	$8,000	$8,000
Depreciation of factory equipment	$1,200	$1,200	$1,200
Total Fixed Expenses	$85,600	$85,600	$85,600	$256,800
Total Manufacturing overhead	$193,600	$191,600	$211,600	$596,800
Direct Labour Hours	$13,500	$13,250	$15,750	$42,500
Manufacturing overhead rate per direct labor hour				14.04

5. Selling and administrative budget

Guardian Angel Selling and Administrative Budget First Quarter of 2014
Particulars	January	February	March	Total
Variable Selling and Administrative Expenses	44,000	40,000	52,000
Commission	66,000	60,000	78,000
Total Variable	110,000	100,000	130,000	340,000
Fixed Expenses:
Advertising	300	300	300
Depreciation	9,000	9,000	9,000
Insurance	250	250	250
Salaries	4,000	4,000	4,000
Others	14,550	14,550	14,550
Total	28,100	28,100	28,100	84,300
Total Selling and Administrative Expenses	138,100	138,100	138,100	534,300

6. Budgeted income statement (using variable costing). Ignore income taxes.

Guardian Angel Budgeted Income Statement First Quarter of 2014
Particulars	Amount
Sales	$2,040,000
Less: Cost of Goods Sold (34,000*33)	$1,122,000
Less: Selling and Administrative	$340,000
Contribution Margin	$578,000
Less: Fixed Manufacturing	$256,800
Fixed Selling Expenses	$84,300
Net Profit	$236,900

*******Complete a Cash budget