The Hammerly Corporation is preparing its master budget for thequarter ending March 31. It sells a single product for $25 a unit.Budgeted sales are 40% cash and 60% on credit. All credit sales arecollected in the month following the sales. Budgeted unit sales asprovided by Regional Vice Presidents of Sales across the UnitedStates for the next four months follow:

Key Facts

	January	February	March	April
Sales in units ……………….	1,200	1,000	1,600	1,400

At December 31, the balance in accounts receivable is $10,000,which represents the uncollected portion of December sales. Thecompany desires merchandise inventory equal to 30% of the nextmonth's sales in units. The December 31 balance of merchandiseinventory is 340 units, and inventory cost is $10 per unit. 40% ofpurchases are paid in the month of purchase and 60% are paid in thefollowing month. At December 31, the balance of Accounts Payable is$8,000, which represents the unpaid portion of December'spurchases.

Other Relevant and Important BudgetAssumptions:

Operating expenses are paid in the month incurred and consistof:

· Sales commissions (10% of sales)

· Freight (2% of sales)

· Office salaries ($2,400 per month)

· Rent ($4,800 per month)

Legal and Professional Services are $500 per month

Depreciation expense is $4,000 per month. The income tax rate is40%, and income taxes will be paid on April 15. A minimum cashbalance of $10,000 is required by the company’s major bank/lender,and the cash balance at December 31 is $10,200. Loans are obtainedat the end of a month in which a cash shortage occurs. Interest is1% per month, based on the beginning of the month loan balance, andmust be paid each month (The interest payment is rounded to thenearest whole dollar). If the ending cash balance exceeds theminimum, the excess will be applied to repaying any outstandingloan balance. At December 31, the loan balance is $0.

Prepare a master budget (round all dollar amounts to the nearestwhole dollar) for each of the months of January, February, andMarch that includes the following major categories of the budgetprocess:

Sales budget, Production Budget, Purchases Budget, Selling,General & Adminstrative Budget (SG&A), Cash Budget, CashPayments Budget, etc:

· Schedule of cash receipts

· Merchandise purchases budget

· Schedule of cash payments for merchandise purchases

· Schedule of cash payments for selling and administrativeexpenses (combined)

· Cash budget, including information on the loan balance

· Budgeted income statement for the quarter