Question

1. 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:
  • Last year’s Finished Goods and Cost of Goods Sold had a constant cost per unit.
  • 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).
  • Ending inventory for both should be 40% of next month’s activity (activity is constant).
  • 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.
• 1. DM/RM (Beef) Inventory/Purchases (10 points)

• 	Jan	Feb	Mar
  Beginning Raw materials (units)
  Needed for Production (units)
  Minimum Required Inventory (units)
  Purchases (units)
  Purchases ($)
  Actual Ending Inventory Balance (units)
  Ending Balance ($)

• 2. Capital Purchases (10 points)

• 	Jan	Feb	Mar
  Capital Purchases
  Equip Balance
  Depreciation
  Acc. Depreciation

• 3. Cost of Goods Manufactured (10 points)

• 	Jan	Feb	Mar
  DM used (units)
  DM used ($s)
  DL
  VOH
  FOH
  Total
  Cost per unit

Answer 1