ACCT 1320 Handwritten Homework #9 Chapter 24 Back Alley, Inc. manufactures bowling balls. Its pro forma balance sheet for the year ending December 31, 2019, is presented below. Back Alley, Inc. Balance Sheet Year Ending December 31, 2019 Cash $38,000 Accounts Payable $10,600 Short-term Investments 2,000 Bonds Payable 50.000 Accounts Receivable 60,000 Total Liabilities $60,600 Raw Materials Inventory 2,480 Common Stock-$10 par $100,000 Finished Goods Inventory Equipment 26,400 Additional Paid-in Capital 10,000 100,000 Retained Earnings 22.280 Accumulated Depreciation (36,000) Total Assets $192,880 Total Shareholders' Equity Total Liabilities & SE 132.280 $192,880 You are required to prepare a 2020 master budget for Back Alley, Inc. The master budget needs to include the following components, and should be presented in a professional format using either an Excel spreadsheet or a Word document: 1. Sales budget 2. Production budget 3. Direct materials purchase budget 4. Direct labor budget 5. Manufacturing overhead budget 6. Selling and administrative expenses budget 7. Ending finished goods inventory/Cost of goods sold 8. Cash budget 9. Pro forma income statement for the year ending December 31, 2020 10. Pro forma balance sheet as of December 31, 2020 Sales Volume: 3,000 units the first quarter of 2020, with a 500-unit increase each quarter for the next 2 years. The company has a standard selling price of $60 per unit. Cash collections are as follows: 60% is collected in period sold, and the remaining 40% is collected in the following quarter. The December 2019 accounts receivable is expected to be collected in full the first quarter of 2020. Beginning RM inventory consists of 620-lbs, at an average cost of $4 per lb. Beginning FG inventory consists of 600 units at an average cost of $44 each Production: The company has adopted the policy that the desired finished goods ending inventory for any quarter should be equal to 20% of the next quarter's budgeted sales volume. Raw Materials: The company has adopted the policy that the desired ending inventory for raw materials should be equal to 10% of the next quarter's production needs. It takes 2-lbs. of the raw material to make one completed unit. The expected cost per pound for raw materials is $4. The company's disbursement policy for payment of raw materials: 50% is paid for in the quarter purchased, and the remaining 50% is paid in the following quarter. The December 2019 accounts payable is expected to be paid in full the first quarter of 2020. Direct Labor: It takes 2 direct labor hours to complete one unit. The average hourly wage is $10. The company pays all direct labor costs in the quarter incurred. Manufacturing Overhead: The following is a breakdown of the variable and fixed overhead expected costs. The company pays for all manufacturing overhead in the quarter incurred. Back Alley uses a predetermined overhead rate based on the number of direct labor hours expected to be incurred. Variable (per DLH): Indirect Materials: $1.00 Indirect Labor: $1.40 Utilities: $.40 Maintenance: $.20 Fixed (annual basis); Supervisor salary: $80,000 Depreciation: $15,200 Property taxes and insurance: $36,000 Maintenance: $22,800 Selling and Administrative Expenses: The following is a breakdown of the variable and fixed selling and administrative expected costs. The company pays all selling and administrative costs in the quarter incurred. Variable (per unit basis): Commission: $3.00 Freight-out: $1.00 Fixed (annual basis): Advertising: $20,000 Sales Salaries: $60,000 Office Salaries: $30,000 Depreciation: $4,000 Property taxes and insurance: $6,000 2 Other additional information: The company expects to purchase a truck for $10,000 cash in the second quarter of 2020. Short-term investments are expected to be sold for $2,000 cash in the first quarter. There is no gain or loss on the sale (selling price equals cost basis). The company makes equal quarterly payments ($3,000/quarter) for its estimated annual income taxes which are expected to total $12,000 for 2020. The company has adopted the policy of a $15,000 minimum cash balance. If it needs to borrow, a revolving line of credit is available up to $50,000. The company can borrow and repay in increments of $1,000 only. The interest is due in the following quarter on any borrowings outstanding at the rate of 5% per quarter. The company repaid $10,000 worth of its bonds (face value with no gain or loss) in the fourth quarter. For simplicity assume there is no bond interest due during the calendar year. The company paid dividends to shareholders totaling $5,000 in the fourth quarter