Bruce Wills is the majority stockholder and CEO of Puree Freeze, Inc., a company he started in Los Angeles, California in 2016. The company makes premium popsicles using only natural ingredients and featuring exotic flavors such as tangy tangerine and minty mango. The companys business is highly seasonal, with most of the sales occurring in spring and summer (Quarters 2 and 3 of every year). In 2017, the companys second year of operations, a major cash crunch in the first and second quarters almost forced the company into bankruptcy. In spite of this cash crunch, 2017 turned out to be a very successful year in terms of both cash flow and net income. Below is the balance sheet of Puree Freeze as of December 31, 2017: Selling price of popsicles is $20 per case. Based on previous experience, 70% of sales are collected in the quarter in which the sale is made and the remaining 30% are collected in the following quarter. Management believes that an ending finished goods inventory equal to 20% of the next quarters sales is appropriate. For quarter 4 2018, management is targeting to have 3,000 cases of popsicles as ending inventory. Since Puree Freeze is a manufacturing company, it is required to prepare a production budget. The only raw material required in production is high fructose sugar, which is the major ingredient in popsicles other than water. The remaining raw materials are relatively insignificant and are included in variable manufacturing overhead. As with finished goods, management would like to maintain some minimum inventories of raw materials as a cushion. Management would like to maintain ending inventories of sugar equal to 10% of the following quarters production needs. Each case of popsicles requires 15 pounds of sugar. Sugar costs $0.20 per pound. It is companys policy to pay for 50% of purchases in the quarter in which the purchases is made and 50% in the following quarter. For quarter 4 2018, management would like to maintain 22,500 pounds of sugar. In terms of direct labor, each case of popsicles requires 0.40 direct labor hour per case. Puree Freeze has 25 workers who are classified as direct labor and each of them is guaranteed at least 480 hours of pay each quarter at the rate of $15 per hour. Puree Freezes manufacturing overhead is separated into variable and fixed components. The variable component is $4 per direct labor hour and the fixed component is $60,600 per quarter. Depreciation is budgeted to be $15,000 per quarter in 2018. The companys pre-determined overhead rate for 2018 is $10 per direct labor hour, computed as total budgeted manufacturing overhead for the year of $404,000 divided by total budgeted direct labor hour for the year of 40,400. The companys variable selling and administrative expense per case is $1.80 with its fixed selling and administrative expenses comprising of the following in 2018:

Advertising, quarterly $20,000 Executive salaries, quarterly 55,000 Insurance, comprising $1,900 to be incurred in Q2 and $37,750 in Q3 39,650 Property taxes, to be incurred in Q4 18,150 Depreciation, quarterly 10,000

It is assumed that both manufacturing overhead and selling and administrative expenses are paid in the quarter they are incurred. To prepare for the cash budget in 2018, the following additional data are provided below: Management plans to spend $130,000 during the year on equipment purchases: $50,000 in the first quarter; $40,000 in the second quarter; $20,000 in the third quarter; and $20,000 in the fourth quarter. The board of directors has approved cash dividends of $8,000 per quarter. Management would like to have a cash balance of at least $40,000 at the beginning of each quarter for contingencies. Puree Freeze has an open line credit with a bank that enables the company to borrow at an interest rate of 10% per year. All borrowing and repayments are in round $1,000 amounts. All borrowing would occur at the beginning of quarters and all repayments would be made at the end of the quarters. Interest would be due when repayments are made and only on the amount of principal that is repaid.

Required: 1. Prepare all operating budgets for 2018. 2. Prepare the cash budget for 2018.

3. Prepare the budgeted balance sheet for the year ended December 31, 2018.

Assets $42,500 90,000 4,200 26,000 $162,700 Current Assets: Cash Accounts Receivable Raw Materials Inventory (21,000 pounds) Finished Goods Inventory (2,000 cases) Total Current Assets Plant and Equipment: Land Building and Equipment Accumulated Depreciation Plant and Equipment (net) Total Assets 80,000 700,000 (292,000) 488,000 $650,700 $25,800 Liabilities and Stockholders' Equity Current Liabilities Accounts Payable (Raw Materials) Stockholders' Equity: Common Stock, no par Retained Earnings Total Stockholders' Equity Total Liabilities and Stockholders' Equity $175,000 449,900 624,900 $650,700 In late 2017, Bruce Wills hired a financial advisor, Mel Gibbons to help create a 2018 master budget for the company to avoid another cash crisis from occurring. Data for 2018 are gathered diligently. Below are the budgeted sales in cases per quarter in 2018: Q1 2018 10,000 Q2 2018 30,000 Q3 2018 40,000 Q4 2018 20,000 2018 100,000 Budgeted sales in cases Assets $42,500 90,000 4,200 26,000 $162,700 Current Assets: Cash Accounts Receivable Raw Materials Inventory (21,000 pounds) Finished Goods Inventory (2,000 cases) Total Current Assets Plant and Equipment: Land Building and Equipment Accumulated Depreciation Plant and Equipment (net) Total Assets 80,000 700,000 (292,000) 488,000 $650,700 $25,800 Liabilities and Stockholders' Equity Current Liabilities Accounts Payable (Raw Materials) Stockholders' Equity: Common Stock, no par Retained Earnings Total Stockholders' Equity Total Liabilities and Stockholders' Equity $175,000 449,900 624,900 $650,700 In late 2017, Bruce Wills hired a financial advisor, Mel Gibbons to help create a 2018 master budget for the company to avoid another cash crisis from occurring. Data for 2018 are gathered diligently. Below are the budgeted sales in cases per quarter in 2018: Q1 2018 10,000 Q2 2018 30,000 Q3 2018 40,000 Q4 2018 20,000 2018 100,000 Budgeted sales in cases