D'Unique Enterprise, a company that manufactures hair growth oil is preparing for its upcoming financial year (2021). D’Unique' is seeking a loan from JNT Bank to purchase equipment that will be used to package the oils in anticipation of sales. The loans officer at the bank is requesting the company's upcoming financial year's budget to assess their cash position to repay the loan The following information was used torrepare the master budget for D’Unique Enterprise: A. Sales/Collection Sales unit in the fourth quarter of 2020 will be 2500 units and is expected to increase by 500 units over each quarter in 2021. Selling price is $60 per unit. All sales are on account. Management expects future sales collection to follow past experiences. Customers pay 60\% in the quarter of sales and 40\% in the quarter following sales. Accounts receivable for December 31, 2020 is expected to be $60,000. B. Production To reduce the risk of a stockout or idle time, D'Unique Co. has maintained an ending inventory policy of 20% of the following quarter's sales unit. C. Direct material Each bottle of hair growth oil requires four ounces of liquid which cost $3.50 per ounce. The company wants to maintain an ending inventory of raw materials equal to 10\% of the next quarter's production requirements. Ending inventory of raw material for the fourth quarter of 2020 will be 1,520 ounces. Payments to suppliers for the purchase of direct material are done in two tranches - 70% in the quarter of purchase and 30the quarter following purchase. Accounts payable of $10,600 at December 31, 2020, is expected to be paid in full in the first quarter of 2021. D. Direct Labour The standard wages rate of direct labour is $10.00 per hour. E. Manufacturing Overhead D'Unique Company manufacturing overheads is absorbed on the basis of direct labour hours. The following variable cost rates are: 1. Indirect materials 2. Indirect labor 3. Utilities 4. Maintenance $1.00 $ 1.40 $0.40 $0.20 D’Unique also recognizes the following fixed manufacturing overheads costs per quarter: Fixed Overhead$
Supervisors salary20,000
Depreciation3,800
Property tax9,000
maintenance5,700
F. Selling and Administrative Expense Variable selling and administrative expense rates per unit of sales are: sales commissions $ 3.00 and freight -out $1.00. Fixed expenses for each quarter are : Fixed Costs Advertising sales salaries office salaries depreciation property taxes and insurance $ 6,500 15,000 4,000 3,500 2,500 G. Other expenses 1. Management plans to purchase a delivery truck in the first quarter for $100,000 cas This will be a loan from the bank in the first quarter of 2021. Interest rate on the loan is 4% per annum 2. D’Unique makes equal quarterly payments of its estimated annual income taxes of $ 36,000. H. Other information The company is expected to have a cash balance of 65,000 on January 1 , 2021. The company wants to maintain a minimum cash balance of $15,000 . Loan and interest payments are made in multiples of 10,000 in the earliest quarter in which there is sufficient cash ( that is, when the cash on hand exceeds the $ 15,000 minimum required balance). Page 3 of 4 Required Prepare the following budgets : 1. Sales Budget 2. Cash collection Schedule 3. Production 4. Direct material 5. Cash disbursement schedule [7 marks ] 10 marks [ 17 marks ] [21 marks] [9 marks [11 marks] [29 marks] [20 marks] [36 marks] 6. Labour 7. Manufacturing overheads 8. Selling and admin 9. Cash budget