Master Budget Case: Wooden Pull Toys Inc. Wooden Pull Toys Ltd.is a company that manufactures and sells a single product, whichthey call a Baby Turtle. For planning and control purposes theyutilize a quarterly master budget, which is usually developed atleast six months in advance of the budget period. Their fiscal yearend is December 31. During the summer of 2019, Jimmy C., the WoodenPull Toys controller, spent considerable time with Fanny L., theManager of Marketing, putting together a sales forecast for thefirst quarter of next year (January to March, 2020). Unfortunately,their collaboration worked so well they eloped to Niagara, ON, weremarried and settled down. Prior to their departure they e-mailedletters of resignation and a cryptic sales forecast to thePresident of Wooden Pull Toys. Their sales forecast consisted ofthese few lines: • For the year ended December 31, 2019: 475,000units at $11.00 each* • For the year ended December 31, 2020:500,000 units at $11.00 each • For the year ended December 31,2021: 500,000 units at $11.00 each *Expected sales for the yearended December 31, 2019 are based on actual sales to date andbudgeted sales for the duration of the year. Wooden Pull Toys’President felt certain that the marriage wouldn’t last, andexpected Chris would be back any day. But the end of the year isquickly approaching, and there is still no word from the desert.The President, desperately needing the budget completed, hasapproached you, a management accounting student, for help inpreparing the budget for the first quarter. Your conversations withthe President and your investigations of the company’s records haverevealed the following information: 1. Sales of Baby Turtles areseasonal. History shows that January, March, May and June are theslowest months with only 5% of sales for each month. Sales pick upover the summer with July, August and September each contributing6% to the total. Valentines Day in February boosts sales to 10%,and spring break in April accounts for 7%. As Christmas shoppingpicks up momentum, winter sales start at 10% in October, move to15% in November and then peak at 20% in December. This pattern ofsales is not expected to change in the next two years. 2. Fromprevious experience, management has determined that an endinginventory equal to 25% of the next month’s sales is required to fitthe buyer’s demands. 3. There is only one type of raw material usedin the production of Baby Turtles. R700 is a very compact materialthat is purchased in powder form. Each Baby Turtle requires 5kilograms of R700, at a cost of $0.45 per kilogram. The supplier ofR700 tends to be somewhat erratic so Wooden Pull Toys finds itnecessary to maintain an inventory balance equal to 40% of thefollowing month’s production needs as a precaution againststock-outs. Wooden Pull Toys pays for 20% of a month’s purchases inthe month of purchase, 45% in the following month and the remaining35% two months after the month of purchase. There is no earlypayment discount. 4. Beginning accounts payable will consist of$167,084 arising from the following estimated direct materialpurchases for November and December of 2019: R700 purchases inNovember 2019: $173,953 R700 purchases in December 2019 $132,750 5.Wooden Pull Toys’ manufacturing process is highly automated, sotheir direct labour cost is low. Employees are paid on a per unitbasis. Their total pay each month is, therefore, dependent onproduction volumes and averages $9.00 per hour. This rate alreadyincludes the employer’s portion of employee benefits. All payrollcosts are paid in the period in which they are incurred. Each unitspends a total of 18 minutes in production. 6. Due to thesimilarity of the equipment in each of the production stages andthe company’s concentration on a single product, manufacturingoverhead is allocated based on volume (i.e. the units produced).The unit variable overhead manufacturing rate is $1.30, consistingof: Utilities--$0.60; Indirect Materials--$0.20; Plantmaintenance--$0.30; environmental fee--$0.14; and Other--$0.06. 7.The fixed manufacturing overhead costs for the entire year are asfollows: Training and development $ 43,200 Repairs and maintenance39,000 Supervisors’ salaries 149,400 Depreciation on equipment178,800 Plant Insurance 96,000 Other 117,600 $ 624,000 • The annualinsurance premium of $96,000 will be paid at the beginning ofJanuary. There is no change in the premium from last year. • Allother “cash-related” fixed manufacturing overhead costs areincurred evenly over the year and paid as incurred. • Wooden PullToys uses the straight line method of depreciation. 8. Selling andadministrative expenses are known to be a mixed cost; however,there is a lot of uncertainty about the portion that is fixed.Previous years’ experience has provided the following information:Lowest level of sales: 375,000 units Total Operating Expenses:$778,710 Highest level of sales: 750,000 units Total OperatingExpenses: $1,022,460 These costs are paid in the month in whichthey occur. Not included in the above expenses is bad debt expense.9. Sales are on a cash and credit basis, with 55% collected duringthe month of the sale, 35% the following month, and 9.5% the monththereafter. ½ of 1% of sales are considered uncollectible (bad debtexpense). 10. Sales in November and December 2019 are expected tobe $783,750 and $1,045,000 respectively. Based on the abovecollection pattern this will result in Accounts Receivable of$539,481 at December 31, 2019 which will be collected in Januaryand February, 2020. 11. During the fiscal year ended December 31,2020, Wooden Pull Toys will be required to make monthly income taxinstallment payments of $1,500. Outstanding income taxes from theyear ended December 31, 2019 must be paid in March 2020. Income taxexpense is estimated to be 25% of net income. Income taxes for theyear ended December 31, 2020, in excess of installment payments,will be paid in March, 2021. 12. Wooden Pull Toys is planning toacquire additional manufacturing equipment for $304,200 cash. 40%of this amount is to be paid in January 2020, the rest, in February2020. The manufacturing overhead costs shown above already includethe depreciation on this equipment. 13. An arrangement has beenmade with the local bank that if Wooden Pull Toys maintains aminimum balance of $20,000 in their bank account, they will begiven a line of credit at a preferred rate of 6% per annum. Allborrowing is considered to happen on the first day of the month,repayments are on the last day of the month. All borrowings andrepayments from the bank should be in multiples of $1,000 andinterest must be paid at the end of each month. Interest iscalculated on the balance at the beginning of the month, whichincludes any amounts borrowed that month. 14. Wooden Pull Toys Ltd.has a policy of paying dividends at the end of each quarter. ThePresident tells you that the board of directors is planning oncontinuing their policy of declaring dividends of $50,000 perquarter. 15. A listing of the estimated balances in the company’sledger accounts as of December 31, 2019 is given below: Cash $64,165 Accounts receivable 539,481 Inventory-raw materials 28,125Inventory-finished goods 45,625 Capital assets (net) 724,000 $1,401,396 Accounts payable $ 167,084 Income tax payable 21,500Capital stock 1,000,000 Retained earnings 212,813 $ 1,401396________________________________________

Required: Prepare a master budget for Wooden Pull Toys for thefirst quarter (January, February and March) of the year endingDecember 31, 2020, including the following schedules: Schedule ofCash Receipts