1. Budget exercise:

Topsy & Turvy have decided to buy a new restaurant.

They initially invested $280,000 of their own money and borrowed the remaining $240000 on a 10-year loan agreement. The interest will be calculated at 5% per annum and payable monthly in the month of occurrence. The current portion of the debt will be paid by the end of the businesss financial year.

With the fund raised they purchased:

Land $100000

Building $250000

FF&E $120000

China, Glass & Silverware $ 36000

Food & beverage inventory $ 12000

Use straight line depreciation over 25 years for the building, 5 years for the FF&E with no residual value. China, glass & silverware are to be fully written off in first year.

You will open in October, you anticipate having 1 very good month before low season and then business will pick up in December with end of year parties.

Sales forecast are as follow:

October: $80000 November: $10000 December: $80000

• Sales revenue will be 50% cash and 50% accounts receivable with maximum credit period allowed of 30 days. That trend will change in December with 20% cash & 80% on accounts receivable.
• Food cost of sales is expected to be 30% and all purchases will be cash in October and November. By December you anticipate having built trust with suppliers and hope to achieve 50% cash and 50% with 30-day credit.
• Wages & salaries will be $20000 per month. However, in a month when sales exceed $70000, additional staff will have to be hired, and the extra wages cost is estimated at 20% of any excess sales. All salaries and wages are paid when they are earned.
• Utilities cost will be paid in the month of occurrence and that will likely be 5% of revenue but with a minimum of $3000.
• During November it is anticipated the business will collect $10000 of advanced deposit for January business.
• Other operating expenses are 12% of revenue and paid in the month following their incurrence.

Prepare:

1. A budgeted income statement for each of the three months 20 points
2. A cash budgeted for each of the three months 20 points
3. A balance sheet at the end of the quarter 20points
4. Discuss your findings (profit & cash) and if any, action you propose 15 points