Question

I. Master Budget

Pedro’s Pizza makes frozen pizza dough. The company just finished its first year of operation (12 months, Jan-Dec). The following is its traditional income statement and Balance Sheet

Sales (15,000 units) $ 300,000

CGS 180,000

Gross Profit $ 120,000

Sales Commissions $ 30,000

Salaries 30,000

Depreciation expense 6,000

Net Income $ 54,000

                  Cash $5,000 AP $3,000

                  AR 5,000 Credit Line 7,000

                  Inventory – Raw Mat 9,000

      Inventory – Finished Goods 3,000 Common Stock 12,000

      Equipment 60,000 Retained Earn 54,000

                  Acc Depreciation ( 6,000)        

                       Total Assets $76,000        Total L & Eq $76,000

VCP wants to prepare a cash budget for the first 3 months of the next year.

Use the following estimates:

- The quantity sold is projected to increase 4% for the year. Price will increase 5%. Sales are spread evenly throughout the year. CGS should be calculated on a FIFO basis.

- 25% of sales is collected in the month of sale; the remainder is collected the next month.

- Inventory:

o Last year’s Finished Goods and Cost of Goods Sold had a constant cost per unit.

o All raw materials is purchased on credit ($1.50 per lb) and is the same price as last year. Each product requires 2.5 lbs).

o Ending inventory for both should be 40% of next month’s activity (activity is constant).

o Beginning and ending WIP is zero

- 20% of purchases are paid in the month of purchase, 80% in the following. All other expenses are paid with cash.

- Direct Labor is 0.2 hours per product at $30 per hour. Variable Overhead is $2.25 per product. Fixed Overhead is zero.

- The credit line is used for cash shortfalls. Excess cash will pay down this line. Interest is 1% per month of last month’s balance.

- Projections are to buy $6000 of new equipment at the end of January. Equipment is depreciated straight-line to zero salvage over 5 years. All of this is used in administration.

- Sales commission rate will remain the same. Salaries will increase by 4%.

- VCP wants to maintain a minimum cash balance of at least $5,000. Excess to repay credit line.

e. Cost of Goods Manufactured (10 points)

	Jan	Feb	Mar
DM used (units)	3,925	3,250	3,250
DM used ($s)
DL
VOH
FOH	0	0	0
Total
Cost per unit

Answer 1

Cost of Goods Manufactured
	Jan	Feb	Mar
DM Used (Units)	3925	3250	3250
DM Used ($s)	$         5,887.50	$      4,875.00	$            4,875.00
DL	$         9,420.00	$      7,800.00	$            7,800.00
VOH	$         3,532.50	$      2,925.00	$            2,925.00
FOH	$                     -	$                  -	$                        -
Total	$ 18,840.00	$    15,6000.00	$         15,600.00
Units	1570	1300	1300
Cost per unit	$              12.00	$            12.00	$                 12.00