i just need to complete the excel

Frenchies Signature Assignment Joseph Preimesberger posted on Nov 8, 2021 9:35 AM Edited This is a shortened assignment, so just complete the three Excel tabs given and no master budget, pro-forma income statement or balance sheet are needed. Also, please put your summary in the Excel sheet to minimize files, thanks, Frenchies: Creating and Using a Master Budget Downloads: The following downloads include the Frenchies Assignment and an Excel workbook in which to complete the assignment. Frenchies Assignment Frenchies Start Background: This case is intended to help students in a graduate cost or managerial accounting course gain an in-depth knowledge of budgeting by developing and using a multi-product, multi-period master budget. The case consists of two segments that can be used in conjunction or separately. The first segment allows students to create a master budget. The second segment allows students to use their budgets to make recommendations for improving company performance. Only a portion of the first segment will be required in this course. The use of multiple products and introduction of incentives to improve company performance add a degree of complexity above that found in most budgeting problems. Working on this type of case provides you with a greater understanding of both the flexibility of a master budget and of the information, such a budget can provide to decision-makers. In addition, the case illustrates the incentives for budget padding, providing an opportunity to conduct a discussion of ethical budgeting and potential consequences in a rich context. Timeline: You will have three weeks to complete this assignment. The depth of this assignment will require you to block 1-3 hours per week to read, analyze compute, and review the data contained in the narrative. It is highly recommended that you begin the assignment during week two. Submit a draft by Wednesday, November 13 for feedback purposes only. Submit the final product by Saturday, November 23 for grading, Format: The assignment will be completed in Excel on your computer. Submit the assignment using an Excel XLS or XLSX workbook. Each budget schedule is to be contained on a separate spreadsheet tab. You are to utilize the power of Excel for totaling and referencing/linking amounts contained in other spreadsheets. Your grade is based upon the accuracy and formatting of each spreadsheet.Cells must be referenced (aka linked) between cells and tabs: this is how you will show your work and demonstrate comprehension of the use and purpose of budgets. The Signature Assignment will be assessed a 25-pt deduction if cells are not referenced/linked. What is Graded? In addition to the spreadsheet tabs, you are expected to provide a narrative recommendation for improving performance. This recommendation will be the last tab in your Excel file. Use Word Wrapping, Alignment, and punctuation for readability. The following spreadsheet tabs will be graded: Assumptions Sales Collections o Production General Impressions/Recommendations Draft: A draft of this assignment is due by Wednesday of the third week by 11:59 PM Pacific Time. Upload your Excel workbook to the via the Draft Signature Assignment link in Week 3. The instructor will review your draft budget and provide feedback. While the draft will not be graded, the feedback will have a positive impact on your project grade. Use the following file name format: Last name Signature Draft. Final Submission: Submittal of the final version of this assignment is due on Friday of the fourth week by 11:59 PM Pacific Time. Upload your Excel workbook to the Final Signature Assignment link in Week 4. Use the following file name format: Last name Signature Final. H21 G H K Total 2020 04 D E F 13 Total Sales Revenue for Cookies 14 15 Bread 16 Budgeted Sales 17 Selling price per loat 18 Total Sales Revenue for Bread 19 20 Total Sales Revenue 21 22 23 Schedule of Cash Collections 24 Collections in Quarter 25 Q1 Q2 Q3 26 Collections from last year 27 Q1 Sales 28 Q2 Sales 29 Q3 Sales 30 04 Sales 31 Total Cash Collections $0 $ SO 32 33 34 35 36 37 38 39 40 41 42 50 $ 50 $0 Share File Home Insert Draw Page Layout Formulas Data Review View Help PROTECTED VIEW Be careful_files from the Internet can contain viruses. Unless you need to edit, it's safer to stay in Protected View Enable Editing 120 f A B D H KL M N 0 E Case Data 1 Estimated Growth 5% Estimated Additional Holiday Increase 15% Meso Cookies Bread 04 65,000 85000 5525 $575 2 3 Sales Information: 4 Estimated % drop 20% 5 6 Sales Muffins 7 8 Last Year 9 45,000 10 11 Current Yeni 12 01 13 02 14 Q3 15 04 16 Next Year 17 Q1 18 Q2 19 20 Sales Pricoltom $6.00 21 22 23 Collection Information: 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 Manufacturing Information: 40 Next quarter inventory days H11 AB Production Budget 01 02 03 04 Total 2 3 Muffins Sales 5 Add ending inventory Less beginning inventory 7 Required production 3 . 4 D 1 Assumptions Sales Budget Production Budaet Frenchies: Creating and using a Master Budget BACKGROUND Frenchies is a medium-sized regional bakery that specializes in providing orders to grocery and convenience stores. Because of the popularity of its brand, it has also opened a small cafe for walk-in business In order to maintain its high quality standard, Frenchies produces only three products: breakfast muffins, fresh bread, and chocolate chip cookies. Although business has been good in the past few years, a lucky contact with a large chain has recently allowed it to expand its brand out of the local region. Growth has been high since the new contract went into effect. Andy Griff, the chief executive officer (CEO) and founder, has arranged a meeting with a venture capital firm next week. Hopefully the meeting will result in the sale of some of Frenchies stock and an opportunity to establish a significant line of credit with the venture capital firm. These extra funds, if Andy can secure them, should provide sufficient money to meet Frenchies growth targets for the next few years. The venture capital firm's assessment team has asked Andy to provide a quarterly master budget for the year that just began, complete with pro forma financial statements, at the meeting. They have expressed special interest in Frenchies earnings per share (EPS), cash flow from operations, and profit margins, indicating that good numbers in these areas will be essential for final approval. In typical managerial style, Andy immediately assigned the task of creating the budget to Nicole Quarterman, who has just been hired as Frenchies controller. Since this project is her first assignment, Nicole started by making appointments with each of the divisional managers to gather information for the budget and also to learn more about the company. PARTI: CREATING THE BUDGET MEETINGS WITH DIVISIONAL MANAGERS MEETING WITH THE SALES DEPARTMENT Walking down the hallway towards the office of Jeff Barza, the sales manager, Nicole read the results for last quarter which ended on December 31, 2018 Frenchies sold 45.000 one-dozen packages of muffins for $5.50 each, 65,000 one-dozen packages of cookies for $4.75 each, and 85,000 one dozen loaves of bread for $5.25 each. When Nicole got to Jeff's office, he motioned her in to have a seat. "Is it time for our meeting already?" he asked. "Where does the day go? "Who knows? It seems like one minute I'm having my morning muffin and the next I'm saying good- bye to everyone." Nicole said with a sigh. There's never time to get everything done. And now I get to do the budget." Jeff started to laugh. "Thanks," she muttered. "I knew I could count on your support." I'm sorry, I just have to laugh at the amount of time you are going to put into something that isn't really used anyway, except for setting bonuses, of course. "Not really used? I don't know how it's been around here in the past, but this year, at least, the budget will prove to be a valuable tool." Nicole waved away Jeff's retort. Anyway, one way or another have to create one and, as you know, the process always starts with projected sales. Do you have a copy of last quarter's results " "Yes, right here somewhere." Jeff said, shuffling papers around on his desk. "Got it" he exclaimed, waving it gently as he pulled it from under a stack of other papers. "Now, what do you want to know exactly?" "Well, Andy thinks that since we have established a strong following both locally and in our new markets, we can raise our prices slightly next year without a sharp drop in sales. He was thinking $6.00 for muffins, $5.25 for cookies, and $5.75 for bread. What do you think? "I agree," Jeff said eagerly. "I've been pushing that for years. Of course, I think that sales will drop some in the first quarter of next year. They always drop off a bit after the holidays anyway, but with the increase In sales price... I'd say a 20 percent drop from the fourth quarter results we have here." He looked up questioningly and raised an eyebrow. Nicole frowned, "That sounds kind of high. Based on what I saw in the dairy industry: I was thinking the drop would only be about 10 percent." Jeff looked a little uncomfortable and shuffled around in his chair. "Well, it's a little different for a specialty bakery. Our price is a little more elastic than dairy products. Besides, 20 percent is a more conservative estimate and in the past we wanted no surprises." He looked at her and challenged, "Are you going to change that?" "Yeah, but we'll be using this master budget to create a cash flow budget and pro forma financial statements to show our new investor. We need to look good, not bad." Nicole frowned. She didn't want to start making changes and enemies in her first few months. "I guess so. But, my bonus is tied to how well I meet my estimates. If we estimate low results and then go up...Seeing the look on her face, he quickly changed direction. Besides, Nicole, we are raising the prices. A 10 percent drop is normal after Christmas, but couple that with the increased prices, and 20 percent is reasonable Nicole frowned, and then sighed. She didn't quite accept his reasoning, but it would be better to have him on her side until she understood the company politics a bit better. "Okay, Jeff. I'll take your word for it. We'll use 20 percent. After all, you're the expert "You've got that right?" Jeff said, trying to hide his relief. He was obviously really counting on that bonus. He looked at a couple of sales reports and market projections on the desk in front of him. After that, I think sales will grow steadily at about 5 percent a quarter with these new prices. Fourth-quarter sales will be high because of the holidays, let's say 20 percent, instead of 5 percent, from the third to the fourth quarter. The first quarter of the following year will continue the 5 percent growth as though the holiday jump didn't occur. And I'm not messing with those estimates. That's really my best guess, given what I've seen in the past." He looked up. "Does that give you all you need? Just a few more questions. Have you made any changes to the credit policy? The information I have from last year says that we make about 10 percent of our sales through our caf and that we don't sell to those customers on credit." Jeff smiled. "Yep, but we do sell on credit to the business customers. If we didn't, they'd definitely go somewhere else. So, we give our business customers a lot of leeway in paying us. It makes it a little hard on us, but it keeps them loyal. Anyway, we collect 30 percent of the credit sales within the current quarter, 45 percent in the following quarter, and 25 percent in the quarter after that. The good news is that we don't have any bad debt. Our customers are mostly large chains with strong sales and even better reputations. Since they are large companies, they take their time paying small companies like us, but we get the money from all of them in the end." "Then I have only two more questions. What were total sales during the third and fourth quarters of last year, and are we still collecting any of that money?" Jeff pulled up a file. "Total sales were $802.000 and $1,002,500, respectively, and we are still collecting quite a bit of that money based on our collection breakdown." "I think that does it, then. If I've forgotten something. I'll come back and bug you later. It's more fun to interrupt you several times anyway. And you owe me one now." MEETING WITH THE PRODUCTION DEPARTMENT Nicole sighed as she headed to her meeting with Phil Mainster, Frenchies head chef. She wasn't sure about that large drop Jeff wanted her to use, but as the new member of the staff she wasn't sure what she should do. Of course, she didn't have much time to think about it now anyway. She had met Phil before, so she knew that it was going to be an interesting meeting As she had suspected, she found Phil in the kitchen instead of his office. "Phil," she called as she hurried towards him, "did you forget our meeting? "Me, forget?" Phil asked in a surprised voice. "I never forget anything!"Nicole had to chuckle at the large streak of flour across his face. "You said you wanted to see our production facility, and I'm ready to show it to you." Nicole shook her head. "No. Phill . I didn't say I wanted to see the production facility: I said I wanted to talk to you about the budget for next year." "Oh, of course you did." Phil's round face had turned a deeper shade of pink. "Then why don't we go to my office and talk?" Page 2 Phil grabbed a piece of paper. "We pay the mixers $7.50 an hour, the bakers $8.00 an hour, and the packers $6.50 an hour." "Perfect. Then I just have one more question." "Let me guess. You want a breakdown of ingredients for each item we bake." "You must be psychic, Phil." "No, I just remember being bugged about this by the last controller." He handed Nicole a piece of paper with a table on it. "Here they all are. Just make sure you don't let it out of the building! I don't want my secret recipes to get out." "Don't worry, I'll be careful." Nicole glanced down at the price sheet. "Wow. I wish I could buy my groceries at these prices." Phil chuckled. "So do I. You have to remember, though, that we buy in bulk, lots and lots of bulk. That lets us get some great deals from our local vendors." *1 guess that makes sense. Thanks for taking time to see me."Just make sure you don't leave without taking a cookie or two." Phil held out a plate loaded with perfect, if two-day old, cookies. "If we don't eat them, they go into the trash!" "My pleasurel" MEETING WITH THE ACCOUNTING DEPARTMENT Nicole hurried back to her own office. She had a staff meeting in 15 minutes. She should be able to get most of the information she still needed from Sarah, since she wrote the checks. Even though Sarah only worked part-time, she'd been with the Boulangerie from the beginning and seemed to know just about everything about the accounting system. Anything Sarah didn't know, Bob, their new summer intern, would have found out for her by now. He was very good at digging up information once he was pointed in the right direction "We thought you were going to stand us up." Sarah said as Nicole hurried into the office. "Actually, we hoped you were. Bob quipped. "We don't want to get stuck doing the budget, so we hoped that you would forget to come." "Don't worry," Nicole said with a sigh. "Andy wants me to take care of it personally. He seems to think it would be good for me to get to know the company or something. So, have you gathered all the information that I asked for? "Of course, Sarah said. "Where do you want us to start?" "Let's start with our accounts payable." "That's me." Bob said. "Most of our vendors require that we pay for everything within 30 days of making our purchase. That means that 85 percent of our purchases are paid for within the quarter they are made. And, before you ask, we ordered $210,984 worth of inventory during the last quarter last year, so we still owe 15 percent of that, or $31,648." "Thanks, Bob, but I actually knew that last part. After all, it's right there in the balance sheet." "Oh, yeah," Bob said turning pink. I forgot about that. Sarah laughed. "So, you calculated it by hand?" Well, yeah. I wanted to be prepared for the meeting today "All right, you two," said Nicole, jumping in before Sarah could pick on the young man any more. "Let's move on to our overhead assumptions." "Sure." Sarah said. "Last year we allocated variable overhead at $1.50 for each direct labor hour. This year, I think that we're going to need to increase that to $2.00 to cover increases in security fees, utility rates, and energy prices. We also spend about $160,000 a quarter in fixed overhead. Also, don't forget that we usually use total direct labor hours to calculate a predetermined overhead rate when calculating the unit cost." "Unit cost?" asked Bob. "Oh, wait," he said nodding, "I remember. We have to include direct materials. direct labor, and manufacturing overhead to get the cost of producing each unit. Direct materials are calculated from the recipe and direct labor cost from the employee information that Phil gave you. But we need to multiply the number of hours it takes to make each product by the predetermined overhead rate so that we can figure a per-unit applied overhead amount. Sorry to interrupt. "No problem." Nicole nodded approvingly at the young intern while finishing up her notes. "Just one last question, Sarah. How much of that overhead is from depreciation? "Eight percent of the fixed amount. Page 4 *Bob, tell me about our sales costs. "Well, we don't really have that much in variable sales costs. We give a one percent commission to our sales staff, "Is that based on profit or sales price?" Sarah asked. *Total sales price. Sorry, I forgot to mention that. The commission is paid both for business sales and sales in the cafe. Also, here's the table of fixed selling and administrative expenses." Nicole took the paper. "Thanks. Okay. Sarah, tell me about our debt." Exhibit 2 Exhibit 3 List of Selling and Administrative Expenses Frenchies Balance Sheet S&A Exponso Cost quarter As of December 31, 2018 Advertising $40,000 Cleaning supplies 1,000 Assets Janitorial service 6.000 Current Assets Office staff salaries 25,000 Cash $40.000 Office supplies 3.000 Accounts Receivable 812025 Rent-Office 9,000 Raw Materals Inventory 21,098 Sales salaries 35.000 13.831 Finished Goods Inventory Top management salar 80,000 Total Current Assets 5886.954 Utilities - Office 1.800 Total $200,000 Property. Plant, and Equipment Land $76,000 Building 567.000 "Well, at the end of last year, we secured a Equipment 750.000 $1.109.969 mortgage at 6 percent interest. Our Accumulated Depr - Equipment (90.000) payment each quarter is $20,000. Since it's a Total PPE 1,303.000 mortgage, the calculations are kind of fun. Each payment requires us to pay a bunch of interest Total Assets $2,189,954 and a little bit of principal. To break up the $20,000 into the two parts, we have to multiply the current mortgage value by 6 percent and Liabilities and Stockholders' Equity divide by 4... Liabilities Divide by 4?" asked Bob. $31,648 "Well, yeah, 6 percent is the annual rate. Since Accounts Payable we make quarterly payments, we divide the Mortgage Payable 1,109,969 annual rate by 4." Total Liabilities $1,141,617 "Oh," Bob said sheepishly. "I should have remembered that." Stockholders' Equity "Yes, you should have," Nicole said with a Common Stock (no par value smile. She was very pleased with how well Bob 150,000 shares outstanding) $150 000 was progressing during his summer with the firm Retained Earnings 898,337 Hiring an intem had been one of her first Total Stockholders' Equity 1,048.337 changes, and it seemed to be working out well. If the company continued to grow, maybe he could be hired full-time once he graduated in a couple Total Liabilities and Stockholders' Equit S2,189,954 of years. "Go ahead, Sarah." Right. So, our first payment will be made at the end of the upcoming quarter. We'll end up paying $16,650 as interest and $3,350 in principal. This means that the value of the mortgage in the second quarter will be $1,106,619. That's the original $1,109,969 minus the $3.350, Bob. Pages Thanks, Sarah. I appreciate the help,"Bob retorted, rolling his eyes. "I appreciate it, too." Nicole said. "If I remember right, we have to pay the $20,000 each quarter. Our contract prohibits us from paying any additional principal for the first three years." Sarah nodded. "Yep, kind of a bummer, but that was the only way we could get that 6 percent interest rate." "Okay." Nicole said. "The last thing is a recap of how we handle income taxes. I think that has pretty much stayed the same?" It sure has," Bob responded, rifling through a tax folder. "Our corporate tax rate is 30 percent and a portion of our estimated taxes must be paid each quarter to avoid late fees. Our policy is to pay 110 percent of the taxes that we owed last year over the course of the current year. Since we paid $15,000 last year, we will need to pay $16,500 this year." "And we'll pay that equally over the four quarters?" "Right. At the end of the year, we calculate our actual taxes owed as 30 percent of net income. Any difference between the cash we paid for taxes over the year and actual income tax expense on the income statement is put into income taxes payable if we haven't paid enough and into deferred tax assets if we paid too much." "Right," Nicole said. "I think that's about it." "Don't forget the balance sheet from last year," Bob said, handing her a sheet of paper. *Thanks. I'm starting to lose track of everything. I must be getting old." "Oh, I wouldn't say that," Bob quipped, then added with a grin, at least, not as long as you're my boss." MEETING WITH THE CEO "So, how goes the battle, Nicole? Andy asked as she came into his office. "Oh, it's going. Actually, I think we're just about there. I just need to check some numbers with you, and I'll be all set. Then it's just a matter of actually creating the budget. That's the fun part, you know. Andy laughed. "Right. That's why you're the accountant and I'm not. So, what do you need?" "First, I just want to confirm a couple of things from some earlier meetings. You told me a couple of weeks ago that the board of directors now wants us to have $40,000 worth of cash on hand at all times and to pay $25,000 in dividends each quarter. Is that still the plan? "Yes it is. I think it's a little restrictive myself, but sometimes we have to do as we're told. Because of the expansion, though, we are going to have to issue another 50.000 shares of common stock to the venture capital firm in the first week of the third quarter. We won't plan on changing our dividend payment schedule this year, but we will probably have to increase the amount we pay in future years. For now, though, the big factor is the capital infusion of $400,000 we'll get from selling our stock in the third quarter? Why are they waiting that long?" Andy shrugged. Because that's when they will have the money to make the investment. They're waiting for another deal to go through "Okay, so increase common stock issued by 50,000 shares and paid-in-capital by $400,000 in the third quarter, got it My next question is about the expansion to our PPE that you just mentioned. I estimate that we will need to buy $75,000 worth of new equipment in the first quarter, $100,000 in the second, $50,000 in the third, and $35,000 in the fourth Since many of our long-term assets have already been fully depreciated, this new expansion shouldn't significantly change my depreciation estimates. Does that sound about right to you?" Assuming we get this arrangement settled, it sounds perfect." "Can you give me a few more details about what else we're hoping to get from these new investors? I'll need to include those estimates. "Sure. What we are really hoping for other than the purchase of 50,000 shares of stock of course, is a $1 million revolving line of credit. Basically, if we need additional funding we can pull on the line of credit. The interest rate on the new credit line will be 8 percent and they will require that we pay off any accumulated interest before we repay any principal." "Well, I think that gives me everything I need. Just so you know, I am going to use simple interest calculations for the interest estimates. It's not 100 percent accurate, but it is typical for creating a master budget. It also simplifies things considerably and ensures that information flows through the budget easily. I'll also assume that any additional debt from the line of credit is taken out on the first day of the quarter and any payments are made at the end of the quarter. That ensures that the interest estimates should be fairly accurate, even with the simple interest calculation." Page "I think you lost me somewhere in there." "Sorry about that. Sometimes I go too fast. To get our interest payments when we repay our line of credit (assuming that we have any to repay and the funds to make a payment). I will multiply the amount I'm repaying times the quarterly interest rate times the number of quarters the money has been outstanding. So, if we draw $1,000 on the line of credit in the second quarter and repay it in the third quarter, I will multiply $1,000 by 2 percent and again by 2 percent for the two quarters that I assume it's been outstanding. Does that help? "Not really, but I think I understand enough that I can explain your assumptions if I have to." "Well, let me try again..." "No, don't worry about it." Andy said quickly. "As long as I know about what you're doing, and I don't have to do it myself, I'm good with just about anything Nicole grimaced. "Thanks. I think 1l estimate my salary up a couple hundred thousand," she said jokingly PART II - USING THE MASTER BUDGET MEETING OF THE SENIOR STAFF (TWO WEEKS LATER) "Alright, everyone, let's settle down and get to work." Everyone took their seats around the table as Andy, Frenchies CEO, shuffled through his papers. "As you know, the venture capital firm we are hoping to work with has indicated that it will not approve the deal unless we can demonstrate a strong projected EPS, cash flow from operations, and profit margin. Since you have all had a chance to review our new master budget and our pro forma financial statements, you know that we're in bit of trouble along those lines. To put it bluntly, the numbers we are currently showing are not good enough for the deal. No deal no funds. No funds, no growth. No growth, no big bonuses. He paused for a moment. "So does anyone have any ideas for ways that we can legitimately improve our numbers?" "What exactly do you mean by legitimately Phil, the head baker, asked. "I mean ways that we can change our policies or procedures." "I guess that means my idea of robbing a bank is out," Phil said dryly. "And my idea of simply randomly changing numbers agreed Sarah, the part-time staff accountant. "Well, Jeff, the head of marketing, said. 1 think I have a legitimate idea. We could increase our sales commissions to 2 percent. That should motivate our sales force to sell more. To say that would increase our sales growth from 5 to 8 percent each quarter. "For my part," Phil jumped in, we could switch to a JIT inventory system, keeping only about 3 percent of our needed raw materials on hand. That would cut down on some of our costs, but it would also require us to pay for our entire inventory in the quarteritis purchased rather than paying 15 percent in the following quarter like we do now Nicole, Frenchies new controller, shook her head. "I think our best bet is to speed up our collections We're too loose with our credit. If we were to add an additional collections specialist to our office staff, we could improve our collections to be 80 percent in the first quarter, 15 percent in the second quarter, and 5 percent in the third quarter. That would certainly improve our cash flows. Given the job market right now, I think we could hire a good collections specialist for $30,000 a year "They might help collections, argued Jeff, but those kinds of tactics could hurt our sales. Our relaxed collections policy is one of the things that set us apart from other vendors. If you decide to try that, Andy, you'd better plan on an additional 3 percent drop in sales the first quarter, The table started to buzz with conversation as the managers discussed the different options that had been presented. In the confusion, Nicole took her chance to lean over to Jeff. "Don't you want to tell them?" "Tell them what?" he said innocently. "That you have us dropping our sales by too much in the first quartert If we changed our current 20 percent estimate to a more realistic drop, it would take care of everything! Based on the research I've been doing in the industry, we could use 10 percent instead of 20. Think about it. Our EPS would be higher and so would our cash flow from operations. Why, even our profit margin would increase because our fixed costs would be allocated over more units." Jeff frowned at her. "It wouldn't improve everything, Nicole. It would totally kill my bonus. Look, the raise Page in price is a good idea with these other changes we are making. I mean, we're going to need the extra cash, but that is going to cost us some sales. I'd much rather be conservative and get a great bonus than give them a rosy number and get fired." Nicole sighed. "Jeff..." she tried again. "Another option," Jeff said loudly, before Nicole could start in on him again, "would be to not raise our prices as drastically. Let's say we only increased our prices to $5.75 for muffins, $5.00 for cookies, and $5.50 for bread. By my calculations, that would lead to only a 12 percent drop in sales in quarter one with 7 percent growth in each of the following quarters." Nicole frowned. Given Jeff's pattern, it would be more like a 2 percent drop, not 12 percent. Then she sighed. She couldn't win this argument with Jeff, especially not in the middle of a meeting with everyone else watching and listening. Besides, if she brought it up now, they would wonder why she hadn't brought it up before. They might even think that she'd been trying to get a bigger bonus for herself. And she would certainly make an enemy out of Jeff. Their relationship was already strained. No, she couldn't say anything here. She'd just have to let it go and hope that one of the other ideas would work out. Besides they really would look better if they pulled off a significant improvement this first year. And if that happened, would it really matter that Jeff had manipulated his way to a nice fat bonus? "Well," she said after a few more minutes, "I think these are all good ideas, but I'm not sure that we'll want to try all of them. If we change too much at one time the assessment team might think that we are just trying to fake our numbers to give them what they want. I would suggest making one or maybe two of these changes for now, then provide them with a written explanation of the other ideas we want to try moving forward." "agree, Nicole," Andy said. "Why don't you run the numbers, including how these changes would affect our use of the line of credit, to see which of the changes will give us the most bang. We'll go ahead and make that change now and add the others to our improvement plan. That way, we can go to them with a current improvement and a plan to keep improving." He looked around the table. "And if anyone gets any other ideas, let us know. The more improvements we take to the table, the better our chances of signing the deal." Frenchies Signature Assignment Joseph Preimesberger posted on Nov 8, 2021 9:35 AM Edited This is a shortened assignment, so just complete the three Excel tabs given and no master budget, pro-forma income statement or balance sheet are needed. Also, please put your summary in the Excel sheet to minimize files, thanks, Frenchies: Creating and Using a Master Budget Downloads: The following downloads include the Frenchies Assignment and an Excel workbook in which to complete the assignment. Frenchies Assignment Frenchies Start Background: This case is intended to help students in a graduate cost or managerial accounting course gain an in-depth knowledge of budgeting by developing and using a multi-product, multi-period master budget. The case consists of two segments that can be used in conjunction or separately. The first segment allows students to create a master budget. The second segment allows students to use their budgets to make recommendations for improving company performance. Only a portion of the first segment will be required in this course. The use of multiple products and introduction of incentives to improve company performance add a degree of complexity above that found in most budgeting problems. Working on this type of case provides you with a greater understanding of both the flexibility of a master budget and of the information, such a budget can provide to decision-makers. In addition, the case illustrates the incentives for budget padding, providing an opportunity to conduct a discussion of ethical budgeting and potential consequences in a rich context. Timeline: You will have three weeks to complete this assignment. The depth of this assignment will require you to block 1-3 hours per week to read, analyze compute, and review the data contained in the narrative. It is highly recommended that you begin the assignment during week two. Submit a draft by Wednesday, November 13 for feedback purposes only. Submit the final product by Saturday, November 23 for grading, Format: The assignment will be completed in Excel on your computer. Submit the assignment using an Excel XLS or XLSX workbook. Each budget schedule is to be contained on a separate spreadsheet tab. You are to utilize the power of Excel for totaling and referencing/linking amounts contained in other spreadsheets. Your grade is based upon the accuracy and formatting of each spreadsheet.Cells must be referenced (aka linked) between cells and tabs: this is how you will show your work and demonstrate comprehension of the use and purpose of budgets. The Signature Assignment will be assessed a 25-pt deduction if cells are not referenced/linked. What is Graded? In addition to the spreadsheet tabs, you are expected to provide a narrative recommendation for improving performance. This recommendation will be the last tab in your Excel file. Use Word Wrapping, Alignment, and punctuation for readability. The following spreadsheet tabs will be graded: Assumptions Sales Collections o Production General Impressions/Recommendations Draft: A draft of this assignment is due by Wednesday of the third week by 11:59 PM Pacific Time. Upload your Excel workbook to the via the Draft Signature Assignment link in Week 3. The instructor will review your draft budget and provide feedback. While the draft will not be graded, the feedback will have a positive impact on your project grade. Use the following file name format: Last name Signature Draft. Final Submission: Submittal of the final version of this assignment is due on Friday of the fourth week by 11:59 PM Pacific Time. Upload your Excel workbook to the Final Signature Assignment link in Week 4. Use the following file name format: Last name Signature Final. H21 G H K Total 2020 04 D E F 13 Total Sales Revenue for Cookies 14 15 Bread 16 Budgeted Sales 17 Selling price per loat 18 Total Sales Revenue for Bread 19 20 Total Sales Revenue 21 22 23 Schedule of Cash Collections 24 Collections in Quarter 25 Q1 Q2 Q3 26 Collections from last year 27 Q1 Sales 28 Q2 Sales 29 Q3 Sales 30 04 Sales 31 Total Cash Collections $0 $ SO 32 33 34 35 36 37 38 39 40 41 42 50 $ 50 $0 Share File Home Insert Draw Page Layout Formulas Data Review View Help PROTECTED VIEW Be careful_files from the Internet can contain viruses. Unless you need to edit, it's safer to stay in Protected View Enable Editing 120 f A B D H KL M N 0 E Case Data 1 Estimated Growth 5% Estimated Additional Holiday Increase 15% Meso Cookies Bread 04 65,000 85000 5525 $575 2 3 Sales Information: 4 Estimated % drop 20% 5 6 Sales Muffins 7 8 Last Year 9 45,000 10 11 Current Yeni 12 01 13 02 14 Q3 15 04 16 Next Year 17 Q1 18 Q2 19 20 Sales Pricoltom $6.00 21 22 23 Collection Information: 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 Manufacturing Information: 40 Next quarter inventory days H11 AB Production Budget 01 02 03 04 Total 2 3 Muffins Sales 5 Add ending inventory Less beginning inventory 7 Required production 3 . 4 D 1 Assumptions Sales Budget Production Budaet Frenchies: Creating and using a Master Budget BACKGROUND Frenchies is a medium-sized regional bakery that specializes in providing orders to grocery and convenience stores. Because of the popularity of its brand, it has also opened a small cafe for walk-in business In order to maintain its high quality standard, Frenchies produces only three products: breakfast muffins, fresh bread, and chocolate chip cookies. Although business has been good in the past few years, a lucky contact with a large chain has recently allowed it to expand its brand out of the local region. Growth has been high since the new contract went into effect. Andy Griff, the chief executive officer (CEO) and founder, has arranged a meeting with a venture capital firm next week. Hopefully the meeting will result in the sale of some of Frenchies stock and an opportunity to establish a significant line of credit with the venture capital firm. These extra funds, if Andy can secure them, should provide sufficient money to meet Frenchies growth targets for the next few years. The venture capital firm's assessment team has asked Andy to provide a quarterly master budget for the year that just began, complete with pro forma financial statements, at the meeting. They have expressed special interest in Frenchies earnings per share (EPS), cash flow from operations, and profit margins, indicating that good numbers in these areas will be essential for final approval. In typical managerial style, Andy immediately assigned the task of creating the budget to Nicole Quarterman, who has just been hired as Frenchies controller. Since this project is her first assignment, Nicole started by making appointments with each of the divisional managers to gather information for the budget and also to learn more about the company. PARTI: CREATING THE BUDGET MEETINGS WITH DIVISIONAL MANAGERS MEETING WITH THE SALES DEPARTMENT Walking down the hallway towards the office of Jeff Barza, the sales manager, Nicole read the results for last quarter which ended on December 31, 2018 Frenchies sold 45.000 one-dozen packages of muffins for $5.50 each, 65,000 one-dozen packages of cookies for $4.75 each, and 85,000 one dozen loaves of bread for $5.25 each. When Nicole got to Jeff's office, he motioned her in to have a seat. "Is it time for our meeting already?" he asked. "Where does the day go? "Who knows? It seems like one minute I'm having my morning muffin and the next I'm saying good- bye to everyone." Nicole said with a sigh. There's never time to get everything done. And now I get to do the budget." Jeff started to laugh. "Thanks," she muttered. "I knew I could count on your support." I'm sorry, I just have to laugh at the amount of time you are going to put into something that isn't really used anyway, except for setting bonuses, of course. "Not really used? I don't know how it's been around here in the past, but this year, at least, the budget will prove to be a valuable tool." Nicole waved away Jeff's retort. Anyway, one way or another have to create one and, as you know, the process always starts with projected sales. Do you have a copy of last quarter's results " "Yes, right here somewhere." Jeff said, shuffling papers around on his desk. "Got it" he exclaimed, waving it gently as he pulled it from under a stack of other papers. "Now, what do you want to know exactly?" "Well, Andy thinks that since we have established a strong following both locally and in our new markets, we can raise our prices slightly next year without a sharp drop in sales. He was thinking $6.00 for muffins, $5.25 for cookies, and $5.75 for bread. What do you think? "I agree," Jeff said eagerly. "I've been pushing that for years. Of course, I think that sales will drop some in the first quarter of next year. They always drop off a bit after the holidays anyway, but with the increase In sales price... I'd say a 20 percent drop from the fourth quarter results we have here." He looked up questioningly and raised an eyebrow. Nicole frowned, "That sounds kind of high. Based on what I saw in the dairy industry: I was thinking the drop would only be about 10 percent." Jeff looked a little uncomfortable and shuffled around in his chair. "Well, it's a little different for a specialty bakery. Our price is a little more elastic than dairy products. Besides, 20 percent is a more conservative estimate and in the past we wanted no surprises." He looked at her and challenged, "Are you going to change that?" "Yeah, but we'll be using this master budget to create a cash flow budget and pro forma financial statements to show our new investor. We need to look good, not bad." Nicole frowned. She didn't want to start making changes and enemies in her first few months. "I guess so. But, my bonus is tied to how well I meet my estimates. If we estimate low results and then go up...Seeing the look on her face, he quickly changed direction. Besides, Nicole, we are raising the prices. A 10 percent drop is normal after Christmas, but couple that with the increased prices, and 20 percent is reasonable Nicole frowned, and then sighed. She didn't quite accept his reasoning, but it would be better to have him on her side until she understood the company politics a bit better. "Okay, Jeff. I'll take your word for it. We'll use 20 percent. After all, you're the expert "You've got that right?" Jeff said, trying to hide his relief. He was obviously really counting on that bonus. He looked at a couple of sales reports and market projections on the desk in front of him. After that, I think sales will grow steadily at about 5 percent a quarter with these new prices. Fourth-quarter sales will be high because of the holidays, let's say 20 percent, instead of 5 percent, from the third to the fourth quarter. The first quarter of the following year will continue the 5 percent growth as though the holiday jump didn't occur. And I'm not messing with those estimates. That's really my best guess, given what I've seen in the past." He looked up. "Does that give you all you need? Just a few more questions. Have you made any changes to the credit policy? The information I have from last year says that we make about 10 percent of our sales through our caf and that we don't sell to those customers on credit." Jeff smiled. "Yep, but we do sell on credit to the business customers. If we didn't, they'd definitely go somewhere else. So, we give our business customers a lot of leeway in paying us. It makes it a little hard on us, but it keeps them loyal. Anyway, we collect 30 percent of the credit sales within the current quarter, 45 percent in the following quarter, and 25 percent in the quarter after that. The good news is that we don't have any bad debt. Our customers are mostly large chains with strong sales and even better reputations. Since they are large companies, they take their time paying small companies like us, but we get the money from all of them in the end." "Then I have only two more questions. What were total sales during the third and fourth quarters of last year, and are we still collecting any of that money?" Jeff pulled up a file. "Total sales were $802.000 and $1,002,500, respectively, and we are still collecting quite a bit of that money based on our collection breakdown." "I think that does it, then. If I've forgotten something. I'll come back and bug you later. It's more fun to interrupt you several times anyway. And you owe me one now." MEETING WITH THE PRODUCTION DEPARTMENT Nicole sighed as she headed to her meeting with Phil Mainster, Frenchies head chef. She wasn't sure about that large drop Jeff wanted her to use, but as the new member of the staff she wasn't sure what she should do. Of course, she didn't have much time to think about it now anyway. She had met Phil before, so she knew that it was going to be an interesting meeting As she had suspected, she found Phil in the kitchen instead of his office. "Phil," she called as she hurried towards him, "did you forget our meeting? "Me, forget?" Phil asked in a surprised voice. "I never forget anything!"Nicole had to chuckle at the large streak of flour across his face. "You said you wanted to see our production facility, and I'm ready to show it to you." Nicole shook her head. "No. Phill . I didn't say I wanted to see the production facility: I said I wanted to talk to you about the budget for next year." "Oh, of course you did." Phil's round face had turned a deeper shade of pink. "Then why don't we go to my office and talk?" Page 2 Phil grabbed a piece of paper. "We pay the mixers $7.50 an hour, the bakers $8.00 an hour, and the packers $6.50 an hour." "Perfect. Then I just have one more question." "Let me guess. You want a breakdown of ingredients for each item we bake." "You must be psychic, Phil." "No, I just remember being bugged about this by the last controller." He handed Nicole a piece of paper with a table on it. "Here they all are. Just make sure you don't let it out of the building! I don't want my secret recipes to get out." "Don't worry, I'll be careful." Nicole glanced down at the price sheet. "Wow. I wish I could buy my groceries at these prices." Phil chuckled. "So do I. You have to remember, though, that we buy in bulk, lots and lots of bulk. That lets us get some great deals from our local vendors." *1 guess that makes sense. Thanks for taking time to see me."Just make sure you don't leave without taking a cookie or two." Phil held out a plate loaded with perfect, if two-day old, cookies. "If we don't eat them, they go into the trash!" "My pleasurel" MEETING WITH THE ACCOUNTING DEPARTMENT Nicole hurried back to her own office. She had a staff meeting in 15 minutes. She should be able to get most of the information she still needed from Sarah, since she wrote the checks. Even though Sarah only worked part-time, she'd been with the Boulangerie from the beginning and seemed to know just about everything about the accounting system. Anything Sarah didn't know, Bob, their new summer intern, would have found out for her by now. He was very good at digging up information once he was pointed in the right direction "We thought you were going to stand us up." Sarah said as Nicole hurried into the office. "Actually, we hoped you were. Bob quipped. "We don't want to get stuck doing the budget, so we hoped that you would forget to come." "Don't worry," Nicole said with a sigh. "Andy wants me to take care of it personally. He seems to think it would be good for me to get to know the company or something. So, have you gathered all the information that I asked for? "Of course, Sarah said. "Where do you want us to start?" "Let's start with our accounts payable." "That's me." Bob said. "Most of our vendors require that we pay for everything within 30 days of making our purchase. That means that 85 percent of our purchases are paid for within the quarter they are made. And, before you ask, we ordered $210,984 worth of inventory during the last quarter last year, so we still owe 15 percent of that, or $31,648." "Thanks, Bob, but I actually knew that last part. After all, it's right there in the balance sheet." "Oh, yeah," Bob said turning pink. I forgot about that. Sarah laughed. "So, you calculated it by hand?" Well, yeah. I wanted to be prepared for the meeting today "All right, you two," said Nicole, jumping in before Sarah could pick on the young man any more. "Let's move on to our overhead assumptions." "Sure." Sarah said. "Last year we allocated variable overhead at $1.50 for each direct labor hour. This year, I think that we're going to need to increase that to $2.00 to cover increases in security fees, utility rates, and energy prices. We also spend about $160,000 a quarter in fixed overhead. Also, don't forget that we usually use total direct labor hours to calculate a predetermined overhead rate when calculating the unit cost." "Unit cost?" asked Bob. "Oh, wait," he said nodding, "I remember. We have to include direct materials. direct labor, and manufacturing overhead to get the cost of producing each unit. Direct materials are calculated from the recipe and direct labor cost from the employee information that Phil gave you. But we need to multiply the number of hours it takes to make each product by the predetermined overhead rate so that we can figure a per-unit applied overhead amount. Sorry to interrupt. "No problem." Nicole nodded approvingly at the young intern while finishing up her notes. "Just one last question, Sarah. How much of that overhead is from depreciation? "Eight percent of the fixed amount. Page 4 *Bob, tell me about our sales costs. "Well, we don't really have that much in variable sales costs. We give a one percent commission to our sales staff, "Is that based on profit or sales price?" Sarah asked. *Total sales price. Sorry, I forgot to mention that. The commission is paid both for business sales and sales in the cafe. Also, here's the table of fixed selling and administrative expenses." Nicole took the paper. "Thanks. Okay. Sarah, tell me about our debt." Exhibit 2 Exhibit 3 List of Selling and Administrative Expenses Frenchies Balance Sheet S&A Exponso Cost quarter As of December 31, 2018 Advertising $40,000 Cleaning supplies 1,000 Assets Janitorial service 6.000 Current Assets Office staff salaries 25,000 Cash $40.000 Office supplies 3.000 Accounts Receivable 812025 Rent-Office 9,000 Raw Materals Inventory 21,098 Sales salaries 35.000 13.831 Finished Goods Inventory Top management salar 80,000 Total Current Assets 5886.954 Utilities - Office 1.800 Total $200,000 Property. Plant, and Equipment Land $76,000 Building 567.000 "Well, at the end of last year, we secured a Equipment 750.000 $1.109.969 mortgage at 6 percent interest. Our Accumulated Depr - Equipment (90.000) payment each quarter is $20,000. Since it's a Total PPE 1,303.000 mortgage, the calculations are kind of fun. Each payment requires us to pay a bunch of interest Total Assets $2,189,954 and a little bit of principal. To break up the $20,000 into the two parts, we have to multiply the current mortgage value by 6 percent and Liabilities and Stockholders' Equity divide by 4... Liabilities Divide by 4?" asked Bob. $31,648 "Well, yeah, 6 percent is the annual rate. Since Accounts Payable we make quarterly payments, we divide the Mortgage Payable 1,109,969 annual rate by 4." Total Liabilities $1,141,617 "Oh," Bob said sheepishly. "I should have remembered that." Stockholders' Equity "Yes, you should have," Nicole said with a Common Stock (no par value smile. She was very pleased with how well Bob 150,000 shares outstanding) $150 000 was progressing during his summer with the firm Retained Earnings 898,337 Hiring an intem had been one of her first Total Stockholders' Equity 1,048.337 changes, and it seemed to be working out well. If the company continued to grow, maybe he could be hired full-time once he graduated in a couple Total Liabilities and Stockholders' Equit S2,189,954 of years. "Go ahead, Sarah." Right. So, our first payment will be made at the end of the upcoming quarter. We'll end up paying $16,650 as interest and $3,350 in principal. This means that the value of the mortgage in the second quarter will be $1,106,619. That's the original $1,109,969 minus the $3.350, Bob. Pages Thanks, Sarah. I appreciate the help,"Bob retorted, rolling his eyes. "I appreciate it, too." Nicole said. "If I remember right, we have to pay the $20,000 each quarter. Our contract prohibits us from paying any additional principal for the first three years." Sarah nodded. "Yep, kind of a bummer, but that was the only way we could get that 6 percent interest rate." "Okay." Nicole said. "The last thing is a recap of how we handle income taxes. I think that has pretty much stayed the same?" It sure has," Bob responded, rifling through a tax folder. "Our corporate tax rate is 30 percent and a portion of our estimated taxes must be paid each quarter to avoid late fees. Our policy is to pay 110 percent of the taxes that we owed last year over the course of the current year. Since we paid $15,000 last year, we will need to pay $16,500 this year." "And we'll pay that equally over the four quarters?" "Right. At the end of the year, we calculate our actual taxes owed as 30 percent of net income. Any difference between the cash we paid for taxes over the year and actual income tax expense on the income statement is put into income taxes payable if we haven't paid enough and into deferred tax assets if we paid too much." "Right," Nicole said. "I think that's about it." "Don't forget the balance sheet from last year," Bob said, handing her a sheet of paper. *Thanks. I'm starting to lose track of everything. I must be getting old." "Oh, I wouldn't say that," Bob quipped, then added with a grin, at least, not as long as you're my boss." MEETING WITH THE CEO "So, how goes the battle, Nicole? Andy asked as she came into his office. "Oh, it's going. Actually, I think we're just about there. I just need to check some numbers with you, and I'll be all set. Then it's just a matter of actually creating the budget. That's the fun part, you know. Andy laughed. "Right. That's why you're the accountant and I'm not. So, what do you need?" "First, I just want to confirm a couple of things from some earlier meetings. You told me a couple of weeks ago that the board of directors now wants us to have $40,000 worth of cash on hand at all times and to pay $25,000 in dividends each quarter. Is that still the plan? "Yes it is. I think it's a little restrictive myself, but sometimes we have to do as we're told. Because of the expansion, though, we are going to have to issue another 50.000 shares of common stock to the venture capital firm in the first week of the third quarter. We won't plan on changing our dividend payment schedule this year, but we will probably have to increase the amount we pay in future years. For now, though, the big factor is the capital infusion of $400,000 we'll get from selling our stock in the third quarter? Why are they waiting that long?" Andy shrugged. Because that's when they will have the money to make the investment. They're waiting for another deal to go through "Okay, so increase common stock issued by 50,000 shares and paid-in-capital by $400,000 in the third quarter, got it My next question is about the expansion to our PPE that you just mentioned. I estimate that we will need to buy $75,000 worth of new equipment in the first quarter, $100,000 in the second, $50,000 in the third, and $35,000 in the fourth Since many of our long-term assets have already been fully depreciated, this new expansion shouldn't significantly change my depreciation estimates. Does that sound about right to you?" Assuming we get this arrangement settled, it sounds perfect." "Can you give me a few more details about what else we're hoping to get from these new investors? I'll need to include those estimates. "Sure. What we are really hoping for other than the purchase of 50,000 shares of stock of course, is a $1 million revolving line of credit. Basically, if we need additional funding we can pull on the line of credit. The interest rate on the new credit line will be 8 percent and they will require that we pay off any accumulated interest before we repay any principal." "Well, I think that gives me everything I need. Just so you know, I am going to use simple interest calculations for the interest estimates. It's not 100 percent accurate, but it is typical for creating a master budget. It also simplifies things considerably and ensures that information flows through the budget easily. I'll also assume that any additional debt from the line of credit is taken out on the first day of the quarter and any payments are made at the end of the quarter. That ensures that the interest estimates should be fairly accurate, even with the simple interest calculation." Page "I think you lost me somewhere in there." "Sorry about that. Sometimes I go too fast. To get our interest payments when we repay our line of credit (assuming that we have any to repay and the funds to make a payment). I will multiply the amount I'm repaying times the quarterly interest rate times the number of quarters the money has been outstanding. So, if we draw $1,000 on the line of credit in the second quarter and repay it in the third quarter, I will multiply $1,000 by 2 percent and again by 2 percent for the two quarters that I assume it's been outstanding. Does that help? "Not really, but I think I understand enough that I can explain your assumptions if I have to." "Well, let me try again..." "No, don't worry about it." Andy said quickly. "As long as I know about what you're doing, and I don't have to do it myself, I'm good with just about anything Nicole grimaced. "Thanks. I think 1l estimate my salary up a couple hundred thousand," she said jokingly PART II - USING THE MASTER BUDGET MEETING OF THE SENIOR STAFF (TWO WEEKS LATER) "Alright, everyone, let's settle down and get to work." Everyone took their seats around the table as Andy, Frenchies CEO, shuffled through his papers. "As you know, the venture capital firm we are hoping to work with has indicated that it will not approve the deal unless we can demonstrate a strong projected EPS, cash flow from operations, and profit margin. Since you have all had a chance to review our new master budget and our pro forma financial statements, you know that we're in bit of trouble along those lines. To put it bluntly, the numbers we are currently showing are not good enough for the deal. No deal no funds. No funds, no growth. No growth, no big bonuses. He paused for a moment. "So does anyone have any ideas for ways that we can legitimately improve our numbers?" "What exactly do you mean by legitimately Phil, the head baker, asked. "I mean ways that we can change our policies or procedures." "I guess that means my idea of robbing a bank is out," Phil said dryly. "And my idea of simply randomly changing numbers agreed Sarah, the part-time staff accountant. "Well, Jeff, the head of marketing, said. 1 think I have a legitimate idea. We could increase our sales commissions to 2 percent. That should motivate our sales force to sell more. To say that would increase our sales growth from 5 to 8 percent each quarter. "For my part," Phil jumped in, we could switch to a JIT inventory system, keeping only about 3 percent of our needed raw materials on hand. That would cut down on some of our costs, but it would also require us to pay for our entire inventory in the quarteritis purchased rather than paying 15 percent in the following quarter like we do now Nicole, Frenchies new controller, shook her head. "I think our best bet is to speed up our collections We're too loose with our credit. If we were to add an additional collections specialist to our office staff, we could improve our collections to be 80 percent in the first quarter, 15 percent in the second quarter, and 5 percent in the third quarter. That would certainly improve our cash flows. Given the job market right now, I think we could hire a good collections specialist for $30,000 a year "They might help collections, argued Jeff, but those kinds of tactics could hurt our sales. Our relaxed collections policy is one of the things that set us apart from other vendors. If you decide to try that, Andy, you'd better plan on an additional 3 percent drop in sales the first quarter, The table started to buzz with conversation as the managers discussed the different options that had been presented. In the confusion, Nicole took her chance to lean over to Jeff. "Don't you want to tell them?" "Tell them what?" he said innocently. "That you have us dropping our sales by too much in the first quartert If we changed our current 20 percent estimate to a more realistic drop, it would take care of everything! Based on the research I've been doing in the industry, we could use 10 percent instead of 20. Think about it. Our EPS would be higher and so would our cash flow from operations. Why, even our profit margin would increase because our fixed costs would be allocated over more units." Jeff frowned at her. "It wouldn't improve everything, Nicole. It would totally kill my bonus. Look, the raise Page in price is a good idea with these other changes we are making. I mean, we're going to need the extra cash, but that is going to cost us some sales. I'd much rather be conservative and get a great bonus than give them a rosy number and get fired." Nicole sighed. "Jeff..." she tried again. "Another option," Jeff said loudly, before Nicole could start in on him again, "would be to not raise our prices as drastically. Let's say we only increased our prices to $5.75 for muffins, $5.00 for cookies, and $5.50 for bread. By my calculations, that would lead to only a 12 percent drop in sales in quarter one with 7 percent growth in each of the following quarters." Nicole frowned. Given Jeff's pattern, it would be more like a 2 percent drop, not 12 percent. Then she sighed. She couldn't win this argument with Jeff, especially not in the middle of a meeting with everyone else watching and listening. Besides, if she brought it up now, they would wonder why she hadn't brought it up before. They might even think that she'd been trying to get a bigger bonus for herself. And she would certainly make an enemy out of Jeff. Their relationship was already strained. No, she couldn't say anything here. She'd just have to let it go and hope that one of the other ideas would work out. Besides they really would look better if they pulled off a significant improvement this first year. And if that happened, would it really matter that Jeff had manipulated his way to a nice fat bonus? "Well," she said after a few more minutes, "I think these are all good ideas, but I'm not sure that we'll want to try all of them. If we change too much at one time the assessment team might think that we are just trying to fake our numbers to give them what they want. I would suggest making one or maybe two of these changes for now, then provide them with a written explanation of the other ideas we want to try moving forward." "agree, Nicole," Andy said. "Why don't you run the numbers, including how these changes would affect our use of the line of credit, to see which of the changes will give us the most bang. We'll go ahead and make that change now and add the others to our improvement plan. That way, we can go to t