You are the assistant controller of Iron Curtain Draperies $($ICD$).$ ICD sells one product, floor to ceiling black out curtains. You have been charged with preparing a cash budget for the fourth quarter $($October to December$)$ so that management can be aware of any financing requirements. You have collected the following information to assist you in preparation of the quarterly budget:

Recent and forecasted sales in units are as follows:

July $($actual$)600$

August $($actual$)500$

September $($actual$)700$

October $600$

November $500$

December $600$

January $700$

February $800$

March $800$

Curtains are sold to retailers for $$110$ each. The company has a policy of having an ending inventory each month equal to $75\%$ of the next month$$s sales. The inventory balance at September $30$th was $450$ curtains.

Each curtain requires $4$ square meters of fabric, which the company purchases for $$5$ per square meter. To protect against disruptions in production, management likes to keep enough fabric on hand at all times equal to $50\%$ of the next month$$s production needs. This requirement had been met on September $30$th in that the company had $1,050$ square meters of fabric in the warehouse.

Purchases of fabric are paid for $50\%$ at the time of purchase with the other $50\%$ being paid the next month. All sales are on credit with $25\%$ being collected in the month of sales, $60\%$ being collected in the month following the month of sale and the remaining $15\%$ being collected two months after the month of sale. ICD has a tight credit policy and, as a result, does not have any bad debts.

Curtains are hand cut and stitched taking, on average, $45$ minutes to assemble $($i$.$e$.\mathrm{.}75$ hours$).$ Employees cutting and stitching the curtains are paid $$20$ per hour and never work overtime.

Manufacturing overhead includes all the costs of production other than the fabric and direct labour. The variable component is $$5$ per curtain manufactured and the fixed component is $$12,000$ per month. Fixed manufacturing overhead includes $$4,000$ of depreciation. Manufacturing overhead is applied to curtains produced on the basis of direct labour hours.

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ICD$$s monthly operating expenses are given below:

Variable:

Sales commissions $$3$ per curtain sold

Fixed:

Wages and salaries $$13,000$

Utilities $2,500$

Insurance $1,500$

Depreciation $1,100$

Miscellaneous $2,200$

All operating expenses are paid in the month for cash, with the exception of depreciation and insurance. Insurance is paid once a year in July $($$$18,000)$ then expensed over the entire year. The company plans to purchase some new manufacturing equipment in October for $$40,000.$ ICD declares a dividend of $$5,000$ on the last day of every quarter $($i$.$e$.$ March $31$st$,$ June $30$th$,$ September $30$th and December $31$st$)$ and pays it one month later $($i$.$e$.$ the March dividend is paid April $30$th$,$ the June dividend is paid July $31$st$,$ etc.$)$

The balance sheet at September $30$th is given below:

Assets

Cash $ $25,000$

Accounts receivable $66,000$

Inventory, fabric $($raw materials$)5,250$

Inventory, curtains $($finished goods$)27,450$

Prepaid insurance $13,500$

Fixed assets $270,000$

Accumulated depreciation $(162,000)108,000$

Total Assets $245,200$

Liabilities and Shareholder$$s Equity

Accounts payable, purchases $6,275$

Dividends payable $5,000$

Capital stock $15,000$

Retained earnings $218,925$

Total liabilities and shareholder$$s equity $245,200$

Management believes in keeping a minimum cash balance of $$20,000$ at the end of each month. The company can borrow from the bank at $12\%$ annual interest. All borrowing must be done at the beginning of the month, and repayments must be done at the end of the month. Borrowings and repayments must also be in increments of $$1,000.$ Interest is paid at the end of each quarter. Round all interest payments to the nearest whole dollar. The company wishes to use any excess cash to pay off the loan as rapidly as possible.

Required:

$1.$ Prepare a Sales Budget, Production Budget, Direct Materials Budget, Direct Labour Budget, Manufacturing Overhead Budget and Sales and Administration Budget.

$2.$ Prepare Schedules of Expected Cash Collections and Expected Cash Disbursements for Materials as well as a Cash Budget.

$3.$ Prepare a Budgeted Income Statement for the Quarter Ended December $31$st$.$

$4.$ Prepare a Budgeted Balance Sheet at December $31$st$.$