$)$

You were recently hired as an assistant controller at the Hairy Yak Yarn Company $("$the Company"$).$ Your

employer manufactures and sells a single product: balls of yarn! With people learning to knit because of

the COVID$-19$ pandemic, the Company has seen a significant increase in demand for their yarn.

The first task you have been assigned in your new role is to prepare the master budget for the quarter

ended March ${31}^{st},2023.$

You have assembled the following information.

Information on sales

The yarn balls sell for $$25$ each. Recent and budgeted sales $($in units$)$ are as follows:

All sales are on credit, with no discount. The company has found that only $25\%$ of a month's sales are

collected by month$-$end. An additional $70\%$ is collected in the month following the sale, and the

remaining $5\%$ is collected in the second month following the sale. Bad debts have been negligible, so

they can be ignored for the purposes of the budget.

Information on inventory and production

Inventories of finished goods on hand at the end of each month are to be equal to $10\%$ of the following

months budgeted sales. As of December ${31}^{st},2022,$ the company had $1,200$ balls of yarn in finished

goods inventory. The company has no work$-$in$-$process $($WIP$)$ inventory.

Each ball of yarn requires $2$ yards of fleece, which the company purchases for $$5\mathrm{.}00$ per yard. It is

company policy to keep enough fleece in raw materials to meet $50\%$ of the next month's production

needs. As of December ${31}^{st},$ the Company had $11,900$ yards of fleece in raw materials inventory.Purchases of raw materials are paid for as follows: $50\%$ in the month of purchase and the remaining $50\%$

in the following month.

Each ball of yarn requires only $0\mathrm{.}5$ labour hours $(30$ minutes$)$ to assemble by hand, as most of the work is

done by machine. Employees making the yarn are paid $$15\mathrm{.}00$ per hour, and do not work overtime. The

Company has enough casual$/$on$-$call workers that they can call in if additional work is required.

Manufacturing overhead includes all the costs of production other than direct materials and direct

labour. The variable component of manufacturing overhead is $$1\mathrm{.}00$ per ball of yarn in production, and

the fixed component is $$17,000$ per month. The $$17,000$ of fixed manufacturing overhead includes

depreciation of $$2,000$ per month on the machines used to manufacture the yarn. Direct labour hours is

used as an allocation base for assigning manufacturing overhead to units produced.

Information on selling and administrative expenses and cash outlays

The Company's other monthly operating expenses are given below:

Variable:

Fixed:

$**$The Company pays "yarn colour experts" a licensing fee per ball of yarn to use their cool, wacky

colorways.

All operating expenses are paid during the month in cash, with the exception of the depreciation, as it isAssets

Cash

Accounts receivable

Inventory $-$ Raw Materials

Inventory $-$ Finished Goods

PP&E

Accumulated depreciation

Total assets

Liabilities and Equity

Financing

Accounts payable, purchases

Dividends payable

Capital stock, no par

Retained earnings $($see below$)$

Total liabilities and equity

$22,500$

$218,750$

$59,500$

$24,016$

$254,000$

$(71,000)$

$507,766$

$57,500$

$150,000$

$300,266$

$507,766$

Additional information on cash requirements and financing

Management of the Company requires a minimum ending cash balance each month of $$10,000.$ The

Company can borrow money from its bank at $6\%$ annual interest. All borrowing must be done at the

beginning of a month, and repayments must be made at the end of a month. Borrowings and

repayments of principal must be in round $$1,000$ amounts. Interest is computed and paid when any

repayments occur. Round all interest payments to the nearest whole dollar. Compute interest using

whole months, not days. The company wishes to use any excess cash to pay loans off as rapidly as

possible.

REQUIRED:

$1-$ Prepare the following for the company for the quarter ending March ${31}^{st\text{:}}$ :

a$.$ Sales Budget and Schedule of Expected Cash Collections

b$.$ Production Budget

c$.$ Direct Materials Budget and Schedule of Expected Cash Disbursements

d$.$ Direct Labour Budget $($inclusive of expected labour disbursements$)$

e$.$ Manufacturing Overhead Budget $($inclusive of expected overhead disbursements$)$

f$.$ Ending Finished Goods Inventor

not a cash expense.