FOOD SERVICE COMPANY, INC. Food Service Company, Inc. sells packaged meals to the airlines. Even though the company has been in business for several years, because of continued problems experienced by the airlines, the company has lost several major customers in recent years and finds it very difficult to plan operations and cash requirements on an annual basis. As a result, the company has asked you to prepare a budget for the remaining quarter of 2015 in the hopes of better controlling sales and costs. You are the accounting manager. The charge to you is to: I. Prepare a master budget. II. Prepare a flexible budget. III. Prepare a performance report. Using the information and instructions provided, complete your assignment. I. Prepare the master budget. (100 points) The master budget consists of: 1) a sales budget for the quarter. 2) a purchases budget for the quarter. 3) a selling and administrative budget for the quarter. 4) a cash budget for the quarter. 5) a proforma income statement for the quarter ending Dec. 31, 2015. 6) a proforma balance sheet as of December 31, 2015. The following is the information you will need: Sales Forecast: October - 23,000 meals November - 29,000 meals December - 31,000 meals January - 22,000 meals The airlines will be charged $4.00 for each meal; they are required to pay 25% of the cost in the month of delivery, 60% the following month and the remaining 15% in the next month; no bad debts are expected. (September sales were 22,000 meals). Purchases and inventory levels: The company buys the meals wholesale from a local restaurant and pays an average of $1.50 for each meal. Because the meals can be frozen and, in order to keep up with unexpected demand, especially during the Thanksgiving and Christmas holidays, the company keeps a minimum inventory of 10% of the next month's expected sales. The company must pay 60% of the cost of the meals in the month they are purchased and 40% in the following month. Selling and Administrative expenses: Four salesmen work for the company and sell to the major airlines. They have a base salary of $1,000 each per month and also earn a combined commission of 10% of sales. The salaries are paid in the month the sales are made and the commission is paid the following month. In addition, a trucking company delivers the meals from either the restaurant or company freezer to the airline. The charge is $.10 per meal and is paid in the month of delivery. Other costs of the company are estimated to be: Telephone $ 400 mo. * Rent 1,000 mo. Office salaries 3,000 mo. Insurance 12,000 per year Utilities 500 mo. * Supplies 200 mo. * Advertising (paid the lst day of the qtr.) 300 per quarter * indicates they are paid in the month following usage. All other expenses are paid in the month incurred unless otherwise noted. The company has office equipment costing $25,000 which is expected to last 5 years and office furniture costing $50,000 which is expected to last 10 years. There is no salvage value. The company had to borrow $30,000 in January of 2015; the terms of the loan was 10% per year, with interest paid quarterly and the principal due December 31, 2017. The minimum cash on hand that the company feels it must keep is $5,000. Should the cash budget indicate an ending cash balance below $5,000, a line of credit for the company can be accessed? Any principal borrowed is due on the last day of the quarter; however the interest must be paid in the following month. The balance sheet as of September 30, 2015 is as follows: Food Service Company, Inc. Balance Sheet September 30, 2015 Assets Current assets: Cash $ 7,500 Accounts receivable 72,600 Inventory 3,450 Prepaid expenses 3,000 Supplies 100 Total current assets 86,650 Property, plant and equipment: Office equipment 25,000 Office furniture 50,000 Less accumulated depreciation (27,500) Net property and equipment 47,500 $ 134,150 Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 14,100 Commissions payable 8,800 Interest payable 2,250 Total current liabilities 25,150 Long-term liabilities: Note payable 30,000 Stockholders' equity: Common stock 50,000 Retained earnings 29,000 Total stockholders' equity 79,450 $ 134,150 II. Prepare a flexible budget. (40 points) In anticipation of changing sales in 2016, the management team has decided to also prepare a flexible budget for the quarter. Meal sales ranges are from 85,000 to 105,000 in increments of 5,000's. In preparing this budget, do not consider beginning and ending inventory amounts, but assume that purchases are exactly the amount that will be sold. III. Prepare a performance report. (40 points) Actual results for the last quarter of 2015 are as follows: Meals sold: 101,000 During December, the salesmen made a special deal with the airlines which dropped the quarterly sales price from $4.00 per meal to an average of $3.80 each. Unfortunately, the restaurant had a price increase which brought the average cost Food Service Company, Inc. had to pay for the meal from $1.50 to $1.55 each. Plus, because of the Christmas rush, the delivery company also increased its price to an average cost of $.12 per meal. The company decided to pay Christmas bonuses of $500 to each salesman and a total of $2,000 to the salaried employees. Other actual costs for the quarter were as follows: Telephone $ 2,150 Rent 3,000 Office salaries 9,000 (excluding bonuses) Utilities 1,100 Supplies 500 Advertising 500 The company paid the bank any interest due as of December 31. Your report should compare actual quarterly activity to both the flexible budget and the master budget. As part of your report, comment on how effective you felt your efforts were in preparing the quarterly budget and point out any items you feel management should address or look into as a result of the performance report. IV. Report to management with recommendations. Put in a word document, not the Excel file. (20 points) How do you feel about the future of the company? What changes would you recommend to management and why? I would also like the formulas as it needs to be submitted in excel. this is quite extensive, but will be sure appreciated.