For this assignment you will create a financial business plan that will tie together an

income statement, a purchases budget, a cash budget, and a pro forma balance sheet. The

completed assignment must be printed on

two pages

. You must also turn in a hard copy

of your report.

The first step is to produce the income statement.

Income Statement

To complete this first step, we need to project monthly sales and expenses. This requires

estimates of monthly sales volume, selling price, and cost behaviors. The following are

the estimates you should use in developing your model.

Annual sales: 18,000 pizzas

Projected monthly sales pattern for 2018:

January 8%

April 10.5%

July

4%

October 10.5%

February 10%

May

7%

August 6%

November 9%

March 11%

June

6%

September 9.5%

December 8.5%

Note: Assume January of 2019 will have the same sales volume as January of 2018.

Selling Price: $11.50 per pizza

Annual cost behaviors:

Fixed

Variable (per pizza)

Ingredients

$ 0

$3.00

Salaries & wages

48,000

.50

Advertising

3,000

.00

Depreciation

9,000

.00

Utilities

3,000

.25

Supplies

0

.15

Local taxes

4,200

.00

Insurance

2,400

.00

Miscellaneous

2,400

.10

The above fixed expenses are for the entire year. Assume fixed expenses are incurred

evenly throughout the year.

Your assignment is to produce a computer spreadsheet that will generate monthly income

statements for the entire year. The spreadsheet should allow for easy manipulation of

annual volume, selling price, and changes in cost behavior.

Purchases budget, balance sheet, and cash budget

After completing the projected income statement, you are now able to prepare the

purchases budget, cash budget, and balance sheet. The purchasing budget is used to plan

raw material (ingredient) purchases. The purpose of the cash budget is to predict our cash

position at the end of each period, thus allowing us to plan short-term borrowing if it is

needed. We create the cash budget by determining the amount and timing of cash receipts

and cash payments. To do this, we make certain assumptions about expected cash flow

patterns. The following assumptions apply to the Pizza Shoppe:

1. Revenues are collected in the month of sale.

2. Ingredients purchased are paid as follows:

Forty percent in the month of purchase.

Sixty percent in the month following the purchase.

3. Our policy is to have enough ingredients on hand at the end of each month to satisfy

20% of the next months cost of ingredients.

4. Salaries and wages are paid as follows:

Seventy-five percent in the month incurred.

Twenty-five percent in the following month.

5. Advertising is paid in the month incurred.

6. Utilities are paid in the month after its incurred.

7. Supplies are purchased and paid in the month before use.

8. Insurance is paid 50% in January and 50% in July.

9. The local taxes are paid 50% in April and 50% in October.

10. All miscellaneous expenses are paid in the month after they are incurred.

11. The long-term loan carries a 12% interest rate.

12. The owner withdraws $3,000 per month.

In addition to the amount and timing of cash flows, we need to know what our initial

financial position is. Financial position is captured by the balance sheet. The balance

sheet is a listing of our resources (assets), our obligations (liabilities), and the net worth

of the business (owners equity). The balance sheet for the Pizza Shoppe on January 1,

just after we purchase it, is as follows:

ASSETS

LIABILITIES

Cash

$ 100

Accounts Payable

$ 0

Ingredients inventory

700

Salaries & Wages Payable

0

Supplies inventory

216

Utilities payable

500

Prepaid taxes

0

Taxes payable

0

Prepaid insurance

0

Misc. expenses payable

0

Equipment & fixtures

30,000

Short-term bank loan

0

Less: Accumulated deprec.

0

Long-term bank loan

90,000

Building

60,000

Total Liabilities

$ 90,500

Less: Accumulated deprec.

0

Land

29,500

OWNERS EQUITY

$ 30,016

Total Assets

$120,516

TOTAL LIABILITIES & O.E.

$120,51

DocViewer

Pages

THE

PIZZA

SHOPPE

Annual

Sales

18000

Selling

Price

$11.50

Cost

Behaviors

(annual):

Fixed

Variable

Ingredients

$0

$3.00

Salaries

&

wages

$48,000

$0.50

Advertising

$3,000

$0.00

Depreciation

$9,000

$0.00

Utilities

$3,000

$0.25

Supplies

$0

$0.15

Local

taxes

$4,200

$0.00

Insurance

$2,400

$0.00

Miscellaneous

$2,400

$0.10

Total

Costs

$72,000

$4.00

Income

Statement

Units

18000

1440

1800

1980

1890

1260

1080

720

1080

1710

1890

1620

1530

1440

Total

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Jan

Sales

Revenue

$207,000

$16,560

$20,700

$22,770

Less:

Expenses

Ingredients

$54,000

$4,320

$5,400

$5,940

Salaries

&

wages

$57,000

$4,720

$4,900

$4,990

Advertising

$3,000

$250

$250

$250

Depreciation

$9,000

$750

$750

$750

Utilities

$7,500

$610

$700

$745

Supplies

$2,700

$216

$270

$297

Local

taxes

$4,200

$350

$350

$350

Insurance

$2,400

$200

$200

$200

Interest

$10,800

$900

$900

$900

Miscellaneous

$4,200

$344

$380

$398

Total

Costs

$154,800

$12,660

$14,100

$14,820

Net

Income

$52,200

$3,900

$6,600

$7,950

PURCHASES

BUDGET

Cost

of

Sales

$4,320

$5,400

$5,940

Desired

Ending

Inventory

$1,080

$1,188

$1,134

Required

Inventory

$5,400

$6,588

$7,074

Beginning

Inventory

$700

$1,080

$1,188

Required

Purchases

$4,700

$5,508

$5,886

Payments

$1,880

$5,023

$5,659

$5,648

$4,698

CASH

BUDGET

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Beginning

cash

$100

$5,120

$10,541

Cash

receipts

$16,560

$20,700

$22,770

Cash

available

$16,660

$25,820

$33,311

Cash

disbursements:

Ingredients

$1,880

$5,023

$5,659

Salaries&

wages

$3,540

$4,855

$4,968

Advertising

$250

$250

$250

Utilities

$500

$610

$700

Supplies

$270

$297

$284

Local

taxes

Insurance

$1,200

Miscellaneous

$0

$344

$380

Interest

$900

$900

$900

Disbursement

to

owner

$3,000

$3,000

$3,000

Total

Disbursements

$11,540

$15,279

$16,140

Cash

surplus

(deficit)

$5,120

$10,541

$17,171

$20,719

$29,534

BALANCE

SHEET

ASSETS:

Cash

$100

$5,120

$10,541

$17,171

Ingredients

inventory

$700

$1,080

$1,188

$1,134

Supplies

inventory

$216

$270

$297

$284

Prepaid

taxes

$0

$0

$0

$0

Prepaid

insurance

$0

$1,000

$800

$600

Equipment

&

fixtures

$30,000

$30,000

$30,000

$30,000

Acc.

Dep.

Equip.

$0

($500)

($1,000)

($1,500)

Building

$60,000

$60,000

$60,000

$60,000

Acc.

Dep.

Bldg.

$0

($250)

($500)

($750)

Land

$29,500

$29,500

$29,500

$29,500

Total

Assets

$126,220

$130,826

$136,438

LIABILITIES:

Accounts

Payable,

ingre.

$2,820

$3,305

$3,532

Salaries

&

wages

payable

$1,180

$1,225

$1,248

Utilities

payable

$610

$700

$745

Local

taxes

payable

$350

$700

$1,050

Misc.

expenses

payable

$344

$380

$398

L.

T.

Note

payable

$90,000

$90,000

$90,000

Total

Liabilities

$95,304

$96,310

$96,972

OWNER'S

EQUITY

Beginning

owner's

equity

$30,016

$30,916

$34,516

Net

income

$3,900

$6,600

$7,950

Distributions

to

owner

$3,000

$3,000

$3,000

Ending

owner's

equity

$30,916

$34,516

$39,466

Total

liabilities

and

OE

$126,220

$130,826

$136,438

$139,264

$141,114

Annotations