Master Budget Preparation for Archie-Boy Dog Toy Corp

You were recently promoted to assistant controller at Archie-Boy Dog Toy Corp. (“Archie-Boy”). Your employer manufactures and sells a single product, which is an ultra-durable dog toy that cannot be shredded or broken by a dog chewing on it. 

The first task you have been assigned in your new role is to prepare the master budget for the quarter ended March 31st, 2020. 

You have assembled the following information. 

Information on sales 
The toys sell for $45 each. Recent and budgeted sales (in units) are as follows: 

November (actual)                 3,000 
December (actual)                 2,880 
January                                  3,150 
February                                3,450 
March                                    3,320 
April                                      3,500 
May                                      3,400 

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 60% is collected in the month following the sale, and the remaining 15% 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 30% of the following months budgeted sales. As of December 31st, 2019, the company had 945 toys in finished goods inventory. The company has no work-in-process (WIP) inventory. 

Each toy requires 6 ounces of synthetic rubber, which the company purchases for $1.80 per ounce. It is company policy to keep enough synthetic rubber in raw materials to meet 65% of the next month’s production needs. As of December 31st, Archie-Boy had 12,636 ounces of synthetic rubber in raw materials inventory. Purchases of raw materials are paid for as follows: 40% in the month of purchase and the remaining 60% in the following month. 

Each toy requires 0.5 labour hours to assemble by hand. Employees who make the toys are paid $18 per hour, and never work overtime. The company has enough casual/on-call workers that they can call in if additional work is required. The toys were named after a dog who was so upset when his owners had to work, so the company is built on a foundation of appropriate work-life balance. Employees are also paid 
a competitive wage so that they have disposable income to spend on their own pets – dog, human or otherwise. 

Manufacturing overhead includes all the costs of production other than direct materials and direct labour. The variable component of manufacturing overhead is $3 per toy in production, and the fixed component is $25,000 per month. The $25,000 amount includes depreciation of $2,500 per month on the hydraulic press and other equipment used to manufacture the toys. Direct labour hours is used as an allocation base for assigning manufacturing overhead to units produced.

Additional information on cash requirements and financing 

Management of Archie-Boy requires a minimum ending cash balance each month of $20,000. The company can borrow money from its bank at 8% 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. 

Prepare the following for the company for the quarter ending March 31st: 

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 Inventory Budget 

g. Selling and Administrative Budget 

h. Cash Budget 

i. Schedule of Cost of Goods Manufactured 

j. Budgeted Income Statement (with the cost of goods sold computation included in the income statement) You may ignore income taxes for the purposes of this budget 

k. Budgeted Retained Earnings Statement 

l. Budgeted Balance Sheet at March 31st, 2020