I. Master Budget

Pedros Pizza makes frozen pizza dough. The company just finished its first year of operation (12 months, Jan-Dec). The following is its traditional income statement and Balance Sheet

Sales (15,000 units) $ 300,000

CGS 180,000

Gross Profit $ 120,000

Sales Commissions $ 30,000

Salaries 30,000

Depreciation expense 6,000

Net Income $ 54,000

Cash $5,000 AP $3,000

AR 5,000 Credit Line 7,000

Inventory Raw Mat 9,000

Inventory Finished Goods 3,000 Common Stock 12,000

Equipment 60,000 Retained Earn 54,000

Acc Depreciation ( 6,000)

Total Assets $76,000 Total L & Eq $76,000

VCP wants to prepare a cash budget for the first 3 months of the next year.

Use the following estimates:

- The quantity sold is projected to increase 4% for the year. Price will increase 5%. Sales are spread evenly throughout the year. CGS should be calculated on a FIFO basis.

- 25% of sales is collected in the month of sale; the remainder is collected the next month.

- Inventory:

o Last years Finished Goods and Cost of Goods Sold had a constant cost per unit.

o All raw materials is purchased on credit ($1.50 per lb) and is the same price as last year. Each product requires 2.5 lbs).

o Ending inventory for both should be 40% of next months activity (activity is constant).

o Beginning and ending WIP is zero

- 20% of purchases are paid in the month of purchase, 80% in the following. All other expenses are paid with cash.

- Direct Labor is 0.2 hours per product at $30 per hour. Variable Overhead is $2.25 per product. Fixed Overhead is zero.

- The credit line is used for cash shortfalls. Excess cash will pay down this line. Interest is 1% per month of last months balance.

- Projections are to buy $6000 of new equipment at the end of January. Equipment is depreciated straight-line to zero salvage over 5 years. All of this is used in administration.

- Sales commission rate will remain the same. Salaries will increase by 4%.

- VCP wants to maintain a minimum cash balance of at least $5,000. Excess to repay credit line.

a. Sales A/R Collections

	Jan	Feb	Mar
New Price
Sales (units)
Sales ($s)

AR Beg Bal
Sales ($s)
Collections
AR End Balance

b. Finished Goods/Production (Patties)

	Jan	Feb	Mar
Beginning Unit Cost
Beg Inv (units)
Sales (units)
Req ending Bal (units)
Production (units)
Actual Ending Finished goods Balance (units)

c. DM/RM (Beef) Inventory/Purchases

	Jan	Feb	Mar
Beginning Raw materials (units)
Needed for Production (units)
Minimum Required Inventory (units)
Purchases (units)
Purchases ($)
Actual Ending Inventory Balance (units)
Ending Balance ($)

d. Capital Purchases

	Jan	Feb	Mar
Capital Purchases
Equip Balance
Depreciation
Acc. Depreciation

e. Cost of Goods Manufactured

	Jan	Feb	Mar
DM used (units)
DM used ($s)
DL
VOH
FOH
Total
Cost per unit