In: Accounting
I. Master Budget
Pedro’s Pizza makes frozen pizza dough. Thecompany 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
Equipment60,000 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 ($1.50per 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.
f. Cost of Goods Sold/Ending Finished Goods (FIFO) (10 points)
Jan
Feb
Mar
Beg FG (units)
Cost per unit, BEG FG
Quantity produced (units)
Cost per produced unit
Quantity of Units sold
Cost of Goods Sold
Units in Ending FG
Cost of Ending FG
Cash Budget/Interest/Credit line (10 points)
Jan
Feb
Mar
Cash Beg Bal
Collections
AP Payments
Other Cash Payments:
Cash subtotal
Projected monthly Income statement for Jan, Feb, Mar (10 points)
*please help. I want to make sure I’m heading the right direction. Thank you
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