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Endless Mountain Company manufactures a single product that is popular with outdoor recreation enthusiasts. The company sells its product to retailers throughout the northeastern quadrant of the United States. It is in the process of creating a master budget for $2022$ and reports a balance sheet at December $31,2021$ as follows:

Endless Mountain Company

Balance Sheet

December $31,2021$

Assets

Current assets:

Cash $ $46,200$

Accounts receivable $($net$)260,000$

Raw materials inventory $(4,500$ yards$)11,250$

Finished goods inventory $(1,500$ units$)32,250$

Total current assets $ $349,700$

Plant and equipment:

Buildings and equipment $900,000$

Accumulated depreciation $(292,000)$

Plant and equipment, net $608,000$

Total assets $ $957,700$

Liabilities and Stockholders$$ Equity

Current liabilities:

Accounts payable $ $158,000$

Stockholders$$ equity:

Common stock $ $419,800$

Retained earnings $379,900$

Total stockholders$$ equity $799,700$

Total liabilities and stockholders$$ equity $ $957,700$

The company$$s chief financial officer $($CFO$),$ in consultation with various managers across the organization has developed the following set of assumptions to help create the $2022$ budget:

The budgeted unit sales are $12,000$ units, $37,000$ units, $15,000$ units, and $25,000$ units for quarters $1-4,$ respectively. Notice that the company experiences peak sales in the second and fourth quarters. The budgeted selling price for the year is $$32$ per unit. The budgeted unit sales for the first quarter of $2023$ 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 the quarter of the sale and $25\%$ are collected in the subsequent quarter.

Each quarter$$s ending finished goods inventory should equal $15\%$ of the next quarter$$s unit sales.

Each unit of finished goods requires $3\mathrm{.}5$ yards of raw material that costs $$3\mathrm{.}00$ per yard. Each quarter$$s ending raw materials inventory should equal $10\%$ of the next quarter$$s production needs. The estimated ending raw materials inventory on December $31,2022$ is $5,000$ yards.

Seventy percent of each quarter$$s purchases are paid for in the quarter of purchase. The remaining $30\%$ of each quarter$$s purchases are paid in the following quarter.

Direct laborers are paid $$18$ an hour and each unit of finished goods requires $0\mathrm{.}25$ direct labor$-$hours to complete. All direct labor costs are paid in the quarter incurred.

The budgeted variable manufacturing overhead per direct labor$-$hour is $$3\mathrm{.}00.$ The quarterly fixed manufacturing overhead is $$150,000$ including $$20,000$ of depreciation on equipment. The number of direct labor$-$hours is used as the allocation base for the budgeted plantwide overhead rate. All overhead costs $($excluding depreciation$)$ are paid in the quarter incurred.

The budgeted variable selling and administrative expense is $$1\mathrm{.}25$ per unit sold. The fixed selling and administrative expenses per quarter include advertising $($$$25,000),$ executive salaries $($$$64,000),$ insurance $($$$12,000),$ property tax $($$$8,000),$ and depreciation expense $($$$8,000).$ All selling and administrative expenses $($excluding depreciation$)$ are paid in the quarter incurred.

The company plans to maintain a minimum cash balance at the end of each quarter of $$30,000.$ Assume that any borrowings take place on the first day of the quarter. To the extent possible, the company will repay principal and interest on any borrowings on the last day of the fourth quarter. The company$$s lender imposes a simple interest rate of $3\%$ per quarter on any borrowings.

Dividends of $$15,000$ will be declared and paid in each quarter.

The company uses a last$-$in$,$ first$-$out $($LIFO$)$ inventory flow assumption. This means that the most recently purchased raw materials are the $$first$-$out$$ to production and the most recently completed finished goods are the $$first$-$out$$ to customers.

Integration Exercise $16$ Master Budgeting $[$LO $8-2,$ LO $8-3,$ LO $8-4,$ LO $8-5,$ LO $8-6,$ LO $8-7,$ LO $8-8,$ LO $8-9,$ LO $8-10]$

Required:

The company$$s CFO has asked you to prepare the $2022$ master budget. To fulfill this request, prepare the following budget schedules and financial statements.

$2.$ Quarterly production budget.

$3.$ Quarterly direct materials budget including a schedule of expected cash disbursements for purchases of materials.

$4.$ Quarterly direct labor budget.

$10.$ Balance sheet at December $31,2022.$

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