Master Budget, Cash Budget and Budgeted Income Statement After two years study at UCW, you finally graduate and start a job as Junior accountant at Rizza Pizza Inc. Your manager is responsible for the nationwide distribution of pre package frozen pizza. Because of the pandemic spread and economic recession, the company has rapidly increased its revenue, and the prompt growth forces the management team to improve their efficiency and manage their production effectively to capitalize this opportunity. You have just been given responsibility for all planning and budgeting of the entire production division in BC. Today is your first day, you have just given an assignment to prepare master budget for the manager, who needs to present the budget and discuss the financial objectives with the shareholders tomorrow. During your job interview, you clearly stated that you gained managerial accounting knowledge and hand on experience during your MBA study. Your first assignment is to prepare a master budget for the next fiscal year, starting April 1, 2021. Your co-workers have left a pile of files on your desk including the past sale records, product information, manufacture schedule and supplier pricing list. Now, you realized that you should have pay more attention during the lecture. Now, you do not know where to start. Fortunately, you remember that you kept a spreadsheet template of the master budget in your computer from accounting course last year. Operating Budget The marketing department has forwarded you with forecasted sales volumes for the next 12 months see below:

Date Units Date Units APR, 2021 500,000 OCT, 2021 500,000 MAY, 2021 520,000 NOV, 2021 515,000 JUNE, 2021 515,000 DEC, 2022 530,000 JULY, 2021 520,000 JAN, 2022 520,000 AUG, 2021 500,000 FEB, 2022 530,000 SEP, 2021 520,000 MAR, 2022 540,000

*APR, 2022 sales volume is expected to be 530,000 units To meet its monthly sales, the company has mandated that monthly ending finished goods inventories are supposed to be equal to 25% of the next months sales in units. Rizza Pizza Inc currently does its own assembly production in house. Each pizza consists of 2 pounds of flour and the cost of each pound is $0.10. Each unit needs 0.10 labour hour from raw material preparation to finished package. The hourly pay rate to the assembling workers is $12 per hour. The production manager also required desired direct material ending inventory, which is enough for 30% of the next month production. The production units in April 2022 are estimated to be 780,000 units. The Rizza Pizzas are sold to retailers for $3 each.

Also, the cost accountant provided you with Manufacture Overhead Cost and Selling and Administrative Expenses sheet as well. See below

Manufacture Overhead Variable Costs: Indirect Labour $ 0.10 per hour Indirect Materials $ 0.20 per hour Fixed Costs Salaries $ 22,000 Utility $ 10,000 Insurance $ 1,200 Depreciation $ 2,000 Selling and Administrative Variable Expenses: Shipping $ 0.50 per unit Fixed Expenses: Wages $ 25,000 Utilities $ 14,000 Insurance $ 2,000 Depreciation $ 1,500 Miscellaneous $ 5,000

Cash Budget After a meeting with your current controller and treasurer, you have informed that the company desires a minimum ending cash balance each month on $1,000,000. The controller stated that only 60% of a months sales are collected by the end of the month and the remaining 40% are collected in the following month. Bad debts have been negligible, supporting the credit terms as favorable. In April 2021, Rizza Pizza will sell its short term investment for $200,000 and the company has no plan to reinvest. All purchases are paid for in the following manner: 50% in the month of the purchase and the remaining 50% paid in the month following the purchase. All sales to the distributors are made on credit terms with no discount (for now), and payable within 15 days. Labour, Manufacture Overhead, and Selling and Administrative expenses are all paid during the month, in cash, except for depreciation (of course). Rizza Pizza will make a purchase of a parcel of land during the month of May 2020 for $1,000,000 in cash. Rizza Pizzas balance sheet at the end of the March 2021 is shown below

Assets Cash $ 600,000 Accounts Receivable $ 560,000 Uncollectable credit sales in March Liabilities Accounts Payable $ 85,000 Unpaid in March

An agreement with First Capital Bank allows Rizza Pizza to borrow up to a total loan amount of $750,000. The interest rate on these loans is 12% annually (high considering market rates). Rizza Pizza is estimating its income tax as 35% of its taxable income. Required: Prepare a master budget for twelve months from April 1, 2021 to March 31st, 2022. Include the following budget schedules and financial statements: 1) Master Budget 2) Cash Budget. 3) Budgeted Income statement