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 $2023$ in the hopes of better controlling sales and costs.

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.

The following is the information you will need:

Sales Forecast:

October $-26,000$ meals

November $-32,000$ meals

December $-41,000$ meals

January $-20,000$ meals

The airlines will be charged $$4\mathrm{.}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\mathrm{.}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 $$\mathrm{.}10$ per meal and is paid in the month of delivery.

Other costs of the company are estimated to be:

Telephone $ $500$ mo$.*$

Rent $1,000$ mo$.$

Office salaries $3,000$ mo$.$

Insurance $12,000$ per year

Utilities $300$ mo$.*$

Supplies $100$ 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 $$30,000$ in January of $2023$; the terms of the loan was $10\%$ per year, with interest paid quarterly and the principal due December $31,2025.$ The minimum cash on hand that the company feels it must keep is $$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 $30,2023$ is as follows:

Food Service Company, Inc.

Balance Sheet

September $30,2023$

Assets

Current assets:

Cash $ $7,500$

Accounts receivable $66,000$

Inventory $3,900$

Prepaid expenses $3,000$

Supplies $100$

Total current assets $80,500$

Property, plant and equipment:

Office equipment $25,000$

Office furniture $50,000$

Less accumulated depreciation $(27,500)$

Net property and equipment $47,500$

$ $128,000$

Liabilities and Stockholders' Equity

Current liabilities:

Accounts payable $ $14,100$

Commissions payable $2,200$

Interest payable $2,250$

Total current liabilities $18,550$

Long$-$term liabilities:

Note payable $30,000$

Stockholders' equity:

Common stock $50,000$

Retained earnings $29,450$

Total stockholders' equity $79,450$

$ $128,000$