Endless Mountain Company manufactures a single product that ispopular with outdoor recreation enthusiasts. The company sells itsproduct to retailers throughout the northeastern quadrant of theUnited States. It is in the process of creating a master budget for2017 and reports a balance sheet at December 31, 2016 as follows:Endless Mountain Company Balance Sheet December 31, 2016 AssetsCurrent assets: Cash $ 46,200 Accounts receivable (net) 260,000 Rawmaterials inventory (4,500 yards) 11,250 Finished goods inventory(1,500 units) 32,250 Total current assets $ 349,700 Plant andequipment: Buildings and equipment 900,000 Accumulated depreciation(292,000 ) Plant and equipment, net 608,000 Total assets $ 957,700Liabilities and Stockholders’ Equity Current liabilities: Accountspayable $ 158,000 Stockholders’ equity: Common stock $ 419,800Retained earnings 379,900 Total stockholders’ equity 799,700 Totalliabilities and stockholders’ equity $ 957,700 The company’s chieffinancial officer (CFO), in consultation with various managersacross the organization has developed the following set ofassumptions to help create the 2017 budget: The budgeted unit salesare 12,000 units, 37,000 units, 15,000 units, and 25,000 units forquarters 1-4, respectively. Notice that the company experiencespeak sales in the second and fourth quarters. The budgeted sellingprice for the year is $32 per unit. The budgeted unit sales for thefirst quarter of 2018 is 13,000 units. All sales are on credit.Uncollectible accounts are negligible and can be ignored.Seventy-five percent of all credit sales are collected in thequarter of the sale and 25% are collected in the subsequentquarter. Each quarter’s ending finished goods inventory shouldequal 15% of the next quarter’s unit sales. Each unit of finishedgoods requires 3.5 yards of raw material that costs $3.00 per yard.Each quarter’s ending raw materials inventory should equal 10% ofthe next quarter’s production needs. The estimated ending rawmaterials inventory on December 31, 2017 is 5,000 yards. Seventypercent of each quarter’s purchases are paid for in the quarter ofpurchase. The remaining 30% of each quarter’s purchases are paid inthe following quarter. Direct laborers are paid $18 an hour andeach unit of finished goods requires 0.25 direct labor-hours tocomplete. All direct labor costs are paid in the quarter incurred.The budgeted variable manufacturing overhead per direct labor-houris $3.00. The quarterly fixed manufacturing overhead is $150,000including $20,000 of depreciation on equipment. The number ofdirect labor-hours is used as the allocation base for the budgetedplantwide overhead rate. All overhead costs (excludingdepreciation) are paid in the quarter incurred. The budgetedvariable selling and administrative expense is $1.25 per unit sold.The fixed selling and administrative expenses per quarter includeadvertising ($25,000), executive salaries ($64,000), insurance($12,000), property tax ($8,000), and depreciation expense($8,000). All selling and administrative expenses (excludingdepreciation) are paid in the quarter incurred. The company plansto maintain a minimum cash balance at the end of each quarter of$30,000. Assume that any borrowings take place on the first day ofthe quarter. To the extent possible, the company will repayprincipal and interest on any borrowings on the last day of thefourth quarter. The company’s lender imposes a simple interest rateof 3% per quarter on any borrowings. Dividends of $15,000 will bedeclared and paid in each quarter. The company uses a last-in,first-out (LIFO) inventory flow assumption. This means that themost recently purchased raw materials are the “first-out” toproduction and the most recently completed finished goods are the“first-out” to customers. 2. Prepare a budgeted variable costingincome statement for 2017. Stop your computations at net operatingincome.