Cost information:

Cost of goods sold:

Ingredients are .35 per cupcake

Boxes and Cupcake Cups are .05 per cupcake

Equipment that will be required to be acquired at the start of business includes ovens, racks, display case, counter, cash register, and other baking equipment and will cost $150,000. The equipment is expected to last 10 years without salvage value. Straight-line method of depreciation should be used.

On average one person can make, bake, and decorate 8 dozen (96) cupcakes in an 8 hours shift. Each worker is paid $10 per hour.

Sales personnel are required 56 hours per week and are paid $8 per hour.

Monthly rent, which includes utilities, is $1,500.

Business insurance is purchased at a cost of $2,000 per year.

Advertising costs are expected to be $12,000 per year.

Answer the following questions assuming each cupcake costs $3.52.

1. Calculate how many cupcakes need to be sold in order to make a $50,000 target profit for the year.

2. Prepare a cash budget for the companys first year of operations based on the sales calculated in question 1. Assume all sales are cash sales and that all costs and expenses are paid in cash. You decide to maintain a minimum cash balance of $5,000.