Note: The company desires a minimum ending cash balance each month on $35,000. The beard grooming products are sold to retailers for $20 each and the sales have been stagnant due to the Covid-19. However, the marketing department has been positive toward the end of the year due to season change and upcoming holiday. The marketing department has just sent you their forecasted quarter sales and marketing budget.
Sales in Unit
The increased sales volume before and during June and January is due to Father’s Day and holidays with AATB being a favorite. Ending finished goods inventories are supposed to be equal to 20% of the next month’s sales in units. AATB currently does its own assembly production in house. Each unit consists of 3 shaves and the cost of each is $1.50. Each unit needs 0.10 labour hour from assemble to finish package. The hourly pay rate to the assembling workers is $15 per hour. The production manager also required desired direct material ending inventory to 30% of the next quarter production.
Purchases are paid for in the following manner: 50% in the quarter of the purchase and the remaining 50% paid in the quarter following the purchase. All sales to the distributors are made on credit terms with no discount (for now), and payable within 15 days. The AATB has determined that only 50% of sales are collected by the end of the quarter in which the sale occurred. An additional 30% is collected in the quarter following the sale, and the remaining 20% is collected in the second quarter following the sale. Bad debts have been negligible, supporting the credit terms as favorable.
Below is a display of the AATB division monthly manufacture overhead and selling and administrative expenses:
Indirect labour $0.5 per labour hour
Indirect Materials $0.2 per labour hour
Wages and Salaries$2,000 per month
Utilities $1,500 per month
Insurance $2,000 per month
Depreciation $2,000 per month
Selling and Administrative
Sales Commissions $1 per unit
Fixed (Monthly) :
Wages and Salaries$22,000
Labour, Manufacture Overhead, and Selling and Administrative expenses are all paid during the month, in cash, with the exception of depreciation (of course). AATB will make a purchase of a parcel of land during the quarter of 2021 for $22,500 cash. AATB contributes to the corporate dividend at a rate of $12,000 each quarter, payable in the first month of the following quarter. AATB’s balance sheet at the end of the first quarter is shown below:
Accounts receivable ($48,000 sales in Q2 and $152,000 in Q3 this year ) $200,000
Accounts payable $85,700
An agreement with Bank of the West allows AATB to borrow in increments of $1,000 at the beginning of each month, up to a total loan amount of $550,000. The interest rate on these loans is 12% annually (pretty high considering market rates) but the interest is not compounded, meaning this is simple interest only.
Prepare a master budget for twelve months from Oct, 2020 to Oct, 2021. Include the following budget schedules and financial statements:
1) Master Budget
2) Cash Budget. Show the cash budget by month and in total.
3) Budgeted Income statement
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