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.

Assuming a price of $3.52 per cupcake, answer the following questions:

Prepare the companys forecasted functional income statement for the year ended on 6/30/2018 based on the sale of 40,000 cupcakes.

Prepare a contribution format income statement assuming sales of 44,000 cupcakes.

If sales could increase by 10% (to 44,000 from 40,000 cupcakes), by how much in dollars would net operating income increase? Use operating leverage to calculate the percentage increase in operating income?

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

Based on the assumption that the number of cupcakes calculated in item 14 are made and sold during the first year of business, calculate the margin of safety and the operating leverage for the business. What do these figures tell you about how risky the business is?

Prepare a cash budget for the companys first year of operations based on the sales calculated in item 14. 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.