Green Grower Inc. (GGI) has created a new type of indoor vegetable hydroponic system. The systems have been very popular with the ‘home grower’ movement since the company first introduced them 4 years ago in 2018. GGI manufactures and sells two models — the HSX and the HSY. The attached exhibits (1-4) contain key information for the Master Budget to be prepared for the upcoming 2022 fiscal year. GGI benefits from the final year of a 5-year tax holiday.

You’re in charge of the Master Budget and all planning and control at GGI. It is early January 2022 and the coming year’s budget is to be prepared by your team along with other relevant planning decisions.

The Chief Financial Officer (CFO), who is your direct supervisor, has asked you for the 2022 master budget and the amount (if any) of required borrowing to maintain the minimum cash balance on December 31, 2022. Your report must also include the following:

1. Break-even point in dollars for the bundle of HSX and HSY as well as the Margin of Safety in dollars for the planned level of activity in 2022.

2. Due to recession fears, the CFO would like to know the dollar impact on Operating Income if Sales decrease 20% from the planned activity in 2022. Additionally, how much in bank borrowings would be required to maintain the minimum cash balance on December 31, 2022?

Required: Prepare a report which includes everything the CFO has requested.

  

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Exhibit 1: Balance Sheet on January 1, 2022 and related notes له Assets Cash Accounts Receivable ← Inventories له Liabilities Direct Materials Finished goods له له Factory Equipment - at cost $1,000,000 Accumulated depreciation $ 800,000 Net book value $ 200,000 Equity Trade payables Accrued liabilities Long-term debt at 5% $300,000 $350,000 Common stock Retained earnings $100,000 $400,000 $150,000 $25,000 $475,000 $200,000 $500,000 Direct labour Variable manufacturing overhead Fixed overhead manufacturing (includes depreciation) Notes Minimum balance of $100,000 is to be maintained Collection pattern 40% in month after sale and 60% 2 months after sale Selling and administrative costs:< 4 Target ending inventory is always $100,000< Target ending inventory is always $400,000 Purchased January 1, 2018 Depreciated straight-line over 5 years Exhibit 2: Cost structure and product mix Cost (all in relevant range) and production data are as follows: Selling price per unit Cost to produce 40,000 units of each product:< Direct materials Settlement date is 30 days after supplier billing Legal and professional fees due in February 2022< Principal repayment of $175,000 due at end 2022, + $300,000 due in 2024. Interest is due every December 31. HSX $75 H $150,000 $80,000 $400,000 $400,000 Shipping costs per unit Fixed Advertising allocated Ratio of sales in product mix is 5:2 (HSX.HSY)< GGI plans on selling 30,000 HSX models as part of the planned product mix.< $10 $150,000 HSY+ $150+ $360,000 $80,000 $600,000+ $500,000+ $10 $250,000+ Exhibit 1: Balance Sheet on January 1, 2022 and related notes له Assets Cash Accounts Receivable ← Inventories له Liabilities Direct Materials Finished goods له له Factory Equipment - at cost $1,000,000 Accumulated depreciation $ 800,000 Net book value $ 200,000 Equity Trade payables Accrued liabilities Long-term debt at 5% $300,000 $350,000 Common stock Retained earnings $100,000 $400,000 $150,000 $25,000 $475,000 $200,000 $500,000 Direct labour Variable manufacturing overhead Fixed overhead manufacturing (includes depreciation) Notes Minimum balance of $100,000 is to be maintained Collection pattern 40% in month after sale and 60% 2 months after sale Selling and administrative costs:< 4 Target ending inventory is always $100,000< Target ending inventory is always $400,000 Purchased January 1, 2018 Depreciated straight-line over 5 years Exhibit 2: Cost structure and product mix Cost (all in relevant range) and production data are as follows: Selling price per unit Cost to produce 40,000 units of each product:< Direct materials Settlement date is 30 days after supplier billing Legal and professional fees due in February 2022< Principal repayment of $175,000 due at end 2022, + $300,000 due in 2024. Interest is due every December 31. HSX $75 H $150,000 $80,000 $400,000 $400,000 Shipping costs per unit Fixed Advertising allocated Ratio of sales in product mix is 5:2 (HSX.HSY)< GGI plans on selling 30,000 HSX models as part of the planned product mix.< $10 $150,000 HSY+ $150+ $360,000 $80,000 $600,000+ $500,000+ $10 $250,000+

Answer rating: 100% (QA)

Green Grower Inc GGI is preparing a master budget for the upcoming 2022 fiscal year This report includes the required borrowing to maintain the minimum cash balance on December 31 2022 the breakeven p... View the full answer