Example Inc. has just closed the books for the year ending December 31, 2020. Based on the information provided, answer the questions that follow.

December 31, 2020 Balance Sheet

ASSETS		LIABILITIES AND EQUITY
Cash	$75,000	Accounts Payable	$200,000
Accounts Receivable, net	1,185,000	Salary Payable	250,000
Inventories ***		Interest Payable	7,500
Finished Goods 346,500 Raw Materials 75,000	421,500	Bank Line	20,000
Current Assets	1,681,500	Current Liabilities	477,500
		Term Debt	900,000
Fixed Assets, net of accumulated depreciation	988,017	Total Liabilities	1,377,500
		Common Stock	161,250
		Retained Earnings	1,130,767
		Total Equity	1,292,017
Total Assets	$2,669,517	Total Liabilities & Equity	$2,669,517

*** Inventory Finished Goods represents 23,100 units of finished goods at a cost of $15 per unit, Raw materials for 30,000 units at $2.50 per units, Work-in process inventory is zero at December 31.

The company is now in the process of finishing its projections for the year ended December 2021. Historical sales for the last quarter as well as sales projections for the next thirteen months are shown below:

Month	Units Sold and Sales Price
October 2020 (Actual)	(60,000 units at $25.00 each)
November 2020 (Actual)	(60,000 units at $25.00 each)
December 2020 (Actual)	(60,000 units at $25.00 each)
January 2021	(66,000 units at $28.00 each)
February	(69,000 units at $28.00 each)
March	(73,000 units at $28.00 each)
April	(77,000 units at $28.00 each)
May	(79,000 units at $28.00 each)
June	(80,000 units at $28.00 each)
July	(85,000 units at $28.00 each)
August	(89,000 units at $28.00 each)
September	(92,000 units at $28.00 each)
October	(100,000 units at $28.00 each)
November	(100,000 units at $30.00 each)
December	(100,000 units at $30.00 each)
Expected Monthly sales after December 2021	(110,000 units at $30.00 each)

The company has had steady sales of 60,000 units per month for the past several years, but the factory has enough capacity to produce 110,000 units per month, without having to invest in significant additional fixed assets. Changes in the economy have resulted in higher sales forecasts

For forecasting purposes, the company assumes 35% of sales are collected the month of the sale, 45% in the subsequent month, 17% in the second month after the sale and 3% uncollectible. The percent of sales method is used for allowance for Doubtful Accounts. Bad Debts are written off each month.

Desired ending finished goods inventory is 30% of next months sales. This is lower than the prior level.

Purchases of raw materials are made in the month they are used in production and now cost $2.50 each. Two units of raw material is needed for each unit produced. Payments for raw materials are made 25% in the month of purchase and 75% in the month after purchase. Accounts payable represents unpaid purchases of raw materials. Raw material desired ending inventory is 20% of next months material required for production. This percent has also changed for this budget.

Labor costs are $20 per hour and each unit uses .4 hours of direct labor. Direct labor is paid half in the month incurred and half the following month. Direct labor rates have increased for this budget.

Production overhead is allocated at $6 per unit produced and is paid in the month incurred. All production equipment is leased and therefore no depreciation is necessary as part of overhead.

Work in Process Inventories equal zero at the end of each month.

Selling and administrative total fixed costs are $50,000 per month and sales commissions are $5.00 per unit sold both are paid monthly. In addition, depreciation on Office Fixed assets is $55,000 per month. This is on equipment used in the office.

The line of credit interest rate is 3% APR. Interest on the line is paid at the end of each month based on the ending lime balance at the end of the previous month. The interest of 5% on the Term Loan will be paid every November 1. However, interest is accrued on the loan every month.

Additional office equipment will be purchased with cash at the end of June for $300,000 and the end of September for $350,000 and will be added to Office fixed assets. The equipment will be depreciated straight-line over four years with depreciation beginning in July. This results in an additional $3,000 per month beginning in July with no change to depreciation for the September purchase.

The company will declare and pay a $500,000 dividend in December.

Targeted Cash at each month end is $100,000 beginning January 2021, with any excess cash being used to pay down the Bank line of credit and any shortfall below $100,000 funded by borrowing against the line. Any excess cash above $100,000 will be invested in short term securities once the bank line of credit has been completely paid off. Accumulated short term investment balances can be used to cover cash shortfalls if available. (For simplicity, assume any investment does not yield any monthly cash flow and do not accrue the interest.)

The company uses an estimated tax rate of 21%, with estimated payments made monthly.

REQUIRED

1. PART 1 - For the 12 months of ending 12/31/21 (Make sure all columns are on one page and it is readable. Use landscape orientation and minimal margins.)
   1. Construct a sales budget and a schedule of cash receipts for each of the months and total for the year.
   2. Construct a production budget for each month and the year to calculate the number of units to be produced and desired ending finished goods inventory.
   3. Construct a raw materials budget and a schedule of cash payments for materials for each month and the year.
   4. Construct a direct labor budget for each month and the year including direct labor costs and cash payments.
   5. Construct a Manufacturing Overhead budget for each month and the year including cost and cash payments.
   6. Calculate the total and per unit cost of producing the units each month and the year.
   7. Compute ending Inventory in Dollars and units for each month of the year for both Finished Goods and Raw Materials inventories.
   8. Compute total cost of goods sold for each month and the year using FIFO inventory valuation.

2. PART 2
   1. Construct a budgeted income statement for each month and the year.
   2. Construct a complete cash budget for each month and the year including borrowing and repayment on the bank line of credit. Assume the company can borrow on the first day of the month and will repay on the last day of the month.
   3. Construct a budgeted Statement of Retained Earnings for the year.
   4. Construct a budgeted balance sheet for the year.