Background Chet and Sandy Wilson saw a business opportunity. Local school districts, churches, and other community non-profit groups were continually looking for fundraisers to raise money. The Wilsons loved to support the community but also wanted to make some extra income. Their friends and family raved about the couples homemade pizzas, and the concept for their company was born. Part 1: First Month of Business In October, with $1,500 cash in hand, the Wilsons paid an attorney friend $250 to help them form Freshly Frozen Pizzas (FFP) as a limited liability corporation. Their first customer was the preschool at their church. The Wilsons spent $50 to design and copy a flyer featuring one of two Freshly Frozen Pizzas varieties cheese or pepperoni - at a sales price of $12 each. The charge from FFP to the preschool would be $6 per pizza. Preschool families were given one week to complete their orders. At the end of the sales period, preschool families had ordered 96 pizzas: 52 cheese pizzas and 44 cheese and pepperoni combo pizzas. Working out of their home kitchen, it took the Wilsons a week to make enough pizzas to fill the orders (and a $480 new chest freezer they put on their credit card; theyll pay it off next month). They spent $115 for dough and sauce ingredients, $120 for cheese, $55 for the pepperoni, and an additional $20 for packaging supplies. They delivered the frozen pizzas to the preschool at a scheduled pickup time. Rather than trying to collect payment from each family, the preschool agreed to charge each familys monthly tuition statement for their pizzas and would cut a check to Freshly Frozen Pizzas for the total due during the first week of November. Part 1 Assignment Use an Excel worksheets to complete the following: a. First month T-Accounts transactions The equipment will depreciate straight line over 60 months Assume there was no inventory remaining at month end b. First month Income Statement c. First month Balance Sheet d. First month Statement of Cash Flows

Part 2: Expansion and Second Month of Business Deciding the pizza business would soon take over their home kitchen, the Wilsons signed a lease for a 400 square foot space at an annual gross lease cost of $18 per square foot. (Gross lease cost means the rent includes all utilities, insurance, property taxes, etc.) The previous tenant, a gelato maker, had left its installed commercial freezer/refrigerator, and the space was already equipped with ample counter space for assembling pizzas. Freshly Frozen Pizzas could move into the space immediately; the first lease payment is due December 1. In the first week of November, the Wilsons spent $75 fine-tuning their pizza fundraiser flyers and distributing the flyers to two high school band departments, an elementary school PTA, and their church youth group. They would keep the prices the same as for the preschool fundraiser Freshly Frozen Pizzas would charge $6 per pizza, and the sponsor

would charge $12 per pizza. All four groups enthusiastically agreed to sponsor a pizza fundraiser. The church youth group was ready to start immediately; they wanted the pizzas ready to deliver by Thanksgiving. The two band departments and the PTA wanted to distribute the flyers in November, and accept delivery of the pizzas during the second week of December. In all cases, Freshly Frozen Pizzas would not collect payment from individual pizza customers, but the company would be paid by the fundraising sponsor (band, PTA, youth group, etc.) in the subsequent month after the pizzas are delivered. Next, the Wilsons secured a wholesale supplier for the pizza ingredients and packaging supplies. Freshly Frozen Pizzas would save about 25 percent by purchasing supplies in volume, driving down the average cost per pizza to $2.25. The wholesale supplier required payment at the time of supply delivery. Because Freshly Frozen Pizzas delivers its products frozen, the Wilsons decided to stock up on inventory by making and freezing pizzas in advance so that they could readily fill upcoming orders. In November, they spent $675 on pizza supplies, enough to make 300 pizzas (160 cheese, 140 pepperoni). The church youth group had orders for 128 pizzas (68 cheese and 60 pepperoni). Freshly Frozen Pizzas delivered the frozen pizzas by the desired date. On November 10, Freshly Frozen Pizza received payment in full from their first customer (the preschool fundraiser from the previous month).

Part 2 Assignment Use the accompanying Excel worksheets to complete the following: a. Second month T-Accounts transactions The freezer purchased in the first month will continue to depreciate FFP paid off the credit card bill from the previous month There is inventory remaining at month end b. Second month Income Statement c. Second month Balance Sheet d. Second month Statement of Cash Flows Part 3: Third Month of Business The first week in December, Band A ordered 79 pizzas (35 cheese, 44 pepperoni), while Band B ordered 91 pizzas (55 cheese and 36 pepperoni). The Wilsons filled the orders from their inventory and delivered the pizzas on December 14. On December 16, the Wilsons received payment from the youth group fundraiser. On December 18, with their inventory almost depleted and not wanting to have to make pizzas over Christmas, the Wilsons decided to restock and spent $450 on pizza supplies, enough for 200 pizzas, (107 cheese, 93 pepperoni). On December 25, Sandys parents gave the Wilsons a $200 short term loan. On December 29, the PTA group placed an order for 86 pizzas (40 cheese, 46 pepperoni).

Part 3 Assignment a. Third month T-Accounts transactions The freezer purchased in the first month will continue to depreciate FFP made the first lease payment on December 1 There is inventory remaining at month end b. Third month Income Statement c. Third month Balance Sheet d. Third month Statement of Cash Flows e. Using Decembers financial results, calculate each of the following for Freshly Frozen Pizzas: Gross Profit Margin Net Profit Margin Current Ratio Inventory Turnover Days in Accounts Receivable (hint: take into account # days in business) Individually: f. Identify three strengths for Freshly Frozen Pizzas. g. Identify three significant issues or concerns for Freshly Frozen Pizzas. h. For each issue or concern you noted in part b), provide a recommended solution.