Sopchoppy Company manufactures a red industrial dye. The company is preparing its 2000 master budget and has presented you with the following information.

1. The December 31, 1999, balance sheet for the company is shown below.

2. The Accounts Receivable balance at 12/31/99 represents the remaining balances of November and December credit sales. Sales were $70,000 and $65,000, respectively, in those two months.

3. Estimated sales in gallons of dye for January through May 2000 are shown below.

January 8,000

February 10,000

March 15,000

April 12,000

May 11,000

Each gallon of dye sells for $12.

4. The collection pattern for accounts receivable is as follows: 70 percent in the month of sale; 20 percent in the first month after the sale; 10 percent in the second month after the sale. Sopchoppy expects no bad debts and no customers are given cash discounts.

5. Each gallon of dye has the following standard quantities and costs for direct materials and direct labor:

1.2 gallons of direct material (some evaporation occurs during processing) @ $0.80 per gallon $0.96

1/2 hour of direct labor @ $6 per hour 3.00

Variable overhead is applied to the product on a machine-hour basis. It takes 5 hours of machine time to process 1 gallon of dye. The variable overhead rate is $0.06 per machine hour; VOH consists entirely of utility costs. Total annual fixed overhead is $120,000; it is applied at $1.00 per gallon based on an expected annual capacity of 120,000 gallons. Fixed overhead per year is composed of the following costs:

Salaries $78,000

Utilities 12,000

Insurance—factory 2,400

Depreciation—factory 27,600

Fixed overhead is incurred evenly throughout the year.

6. There is no beginning inventory of Work in Process. All work in process is completed in the period in which it is started. Raw Materials Inventory at the beginning of the year consists of 1,000 gallons of direct material at a standard cost of $0.80 per gallon. There are 400 gallons of dye in Finished Goods Inventory at the beginning of the year carried at a standard cost of $5.26 per gallon: Direct Material, $0.96; Direct Labor, $3.00; Variable

Overhead, $0.30; and Fixed Overhead, $1.00.

7. Accounts Payable relates solely to raw material. Accounts Payable are paid 60 percent in the month of purchase and 40 percent in the month after purchase. No discounts are given for prompt payment.

8. The dividend will be paid in January 2000.

9. A new piece of equipment costing $9,000 will be purchased on March 1, 2000. Payment of 80 percent will be made in March and 20 percent in April. The equipment will have no salvage value and has a useful life of three years.

10. The note payable has a 12 percent interest rate; interest is paid at the end of each month. The principal of the note is paid off as cash is available to do so.

11. Sopchoppy’s management has set a minimum cash balance at $5,000. Investments and borrowings are made in even $100 amounts. Investments will earn 9 percent per year.

12. The ending Finished Goods Inventory should be 5 percent of the next month’s needs. This is not true at the beginning of 2000 due to a miscalculation in sales for December. The ending inventory of raw materials should be 5 percent of the next month’s needs.

13. Selling and administrative costs per month are as follows: salaries, $18,000; rent, $7,000; and utilities, $800. These costs are paid in cash as they are incurred. Prepare a master budget for each month of the first quarter of 2000 and pro forma financial statements as of the end of the first quarter of 2000.

Assets Cash Accounts Receivable Raw Materials Inventory Finished Goods Inventory Prepaid Insurance Building Accumulated Depreciation Total Assets SOPCHOPPY COMPANY Balance Sheet December 31, 1999 Liabilities and Stockholders' Equity $ 5,080 Notes Payable 26,500 Accounts Payable 800 2,104 Dividends Payable Total Liabilities Common Stock 1,200 $300,000 (20,000) 280,000 $315,684 Paid-in Capital Retained Earnings Total Liabilities and Stockholders' Equity $100,000 50,000 128,536 $ 25,000 2,148 10,000 $ 37,148 278,536 $315,684