ACC – Example Inc. has just closed the books

Example Inc. has just closed the books for the year ending December 31, 2014. Based on theinformation provided, answer the questions that follow.December 31, 2014 Balance SheetASSETSLIABILITIES AND EQUITYCash$36,000 Accounts PayableAccounts Receivable, net990,000 Salary PayableInventories ***0 Interest PayableFinished Goods290,000Bank Line (7%)Raw Materials40,000330,000Current Assets1,356,000 Current LiabilitiesTerm Debt (9%)Fixed Assets, net ofaccumulated depreciation1,542,600 Total LiabilitiesCommon StockRetained EarningsTotal EquityTotal Assets$2,898,600 Total Liabilities & Equity$400,000125,00090,000110,000725,0001,000,0001,725,000210,000963,6001,173,600$2,898,600*** Inventory Finished Goods represents 20,000 units of finished goods at a cost of $14.50per unit, Raw materials for 5,000 units at $8.00 per units, Work-in process inventory is zero atDecember 31.The company is now in the process of finishing its projections for the year 2015. Historical salesfor the last quarter as well as sales projections for the next thirteen months are shown below:MonthOctober, 2010November, 2010December, 2010January, 2015FebruaryMarchAprilMayJuneJulyAugustSeptemberOctoberNovemberDecemberMonthly sales 2016Units Sold and Sales Price(50,000 units at $20.00 each)(50,000 units at $20.00 each)(50,000 units at $20.00 each)(50,000 units at $25.00 each)(60,000 units at $25.00 each)(70,000 units at $25.00 each)(80,000 units at $25.00 each)(95,000 units at $25.00 each)(100,000 units at $25.00 each)(100,000 units at $25.00 each)(100,000 units at $25.00 each)(102,000 units at $25.00 each)(105,000 units at $25.00 each)(107,000 units at $25.00 each)(110,000 units at $25.00 each)(110,000 units at $30.00 each)The company has had steady sales of 50,000 units per month for the past several years, but thefactory has sufficient capacity to produce 150,000 units per month, without having to invest insignificant additional fixed assets.For forecasting purposes the company assumes 25% of sales are collected the month of thesale, 45% in the subsequent month, 27% in the second month after the sale and 3%uncollectible. The percent of sales method is used for allowance for Doubtful Accounts. BadDebts are written off each quarter.Desired ending finished goods inventory is 20% of next months sales. This is lower than the2014 level.Purchases of raw materials are made in the month they are used in production and now cost $8.00for each unit produced. Payments for raw materials are made the month after purchase. Rawmaterial desired ending inventory is 15% of next months material required for production.Labor costs are $7.00 per unit and are paid half in the month incurred and half the following month.Direct labor rates have been increase from $5 in 2014 to $7.00 in 2015Production overhead is allocated at $2 per unit (PDOHR) regardless of the number of unitsproduced in a month, but the estimated total cash overhead expense is $175,000 per monthpaid in the month incurred. All production equipment is leased and therefore no depreciationis necessary as part of overhead.Work in Process Inventories equal zero at the end of each month.Selling and administrative total fixed costs are $80,000 per month and sales commissions are$4.00 per unit sold both are paid monthly. In addition, depreciation on Office Fixed assets is$25,000 per month. This is on equipment used in the office.Interest on the line is paid at the end of each month based on the ending loan balance at theend of the previous month. The interest on the Term Loan will be paid every January 1.Additional office equipment will be purchased at the end of June for $100,000 and the end ofNovember for $500,000 and will be added to Office fixed assets. The equipment will bedepreciated straight-line over four years with depreciation beginning in July. This results in$2,000 per month beginning in July with no change to depreciation for the Novemberpurchase.Targeted Cash at each month end is $50,000 beginning January 2015, with any excess cashbeing used to pay down the Bank line of credit and any shortfall below $50,000 funded byborrowing against the line. Any excess cash above $50,000 will be invested once the bank lineof credit has been completely paid off. Accumulated Investment balances can be used tocover cash shortfalls if available.(For simplicity, assume any investment does not yield anymonthly cash flow and do not accrue the interest.)The company uses an estimated tax rate of 30%, with estimated payments made the lastmonth of the quarter.REQUIRED1. PART 1 For the 12 months of 2015a. Construct a sales budget and a schedule of cash receipts for each of the monthsand total for the year.b. Construct a production budget for each month and the year to calculate thenumber of units to be produced and desired ending finished goods inventory.c. Construct a raw materials budget and a schedule of cash payments for materialsfor each month and the year.d. Construct a direct labor budget for each month and the year including direct laborcosts and cash payments.e. Construct a Manufacturing Overhead budget for each month and the yearincluding applied overhead, actual overhead cash costs and over/under appliedamount.f. Calculate the cost of producing the units each month and the year.g. Compute total adjusted cost of goods sold for each month and the year usingFIFO inventory valuation.h. Compute ending Inventory in Dollars and units for each month of the year.PART 2 Using the correct answer from part 1.a. Construct a schedule of cash payments for January.b. Construct a budgeted income statement for January.c. Construct a complete cash budget for January including borrowing and repaymenton the bank line of credit. Assume the company can borrow on the first day of themonth and will repay on the last day of the month.d. Construct a budgeted balance sheet as for January.PART 3 Using the correct answer from part 2.a. Construct a schedule of cash payments for each month and the year.b. Construct a budgeted income statement for each month and the year.c. Construct a complete cash budget for each month and the year includingborrowing and repayment on the bank line of credit. Assume the company canborrow on the first day of the month and will repay on the last day of the month.d. Construct a budgeted balance sheet as for each month and the year.e. Analyze what you learned from preparing these projections specifically address:e.i. Cash flow before financing and what caused the monthly differences.e.ii. The cause of the difference between projected cash flow before financingand projected after tax earnings.e.iii. Manufacturing overhead costs applied vs. actual (monthly and annual).