In: Accounting
Master Budget
Pedro’s Pizza makes frozen pizza
dough. The company just finished its first year of...
- 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.
-
- Projected monthly Income statement for Jan,
Feb, Mar (10 points)