Prepare the master budget

The master budget consists of:

a sales budget for the quarter.

a purchases budget for the quarter.

a selling and administrative budget for the quarter.

a cash budget for the quarter.

a proforma income statement for the quarter ending Dec. 31, 2015.

a proforma balance sheet as of December 31, 2015.

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 $4.00 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 $1.50 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 $.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 2005; the terms of the loan was 10% per year, with interest paid yearly and the principal due December 31, 2017. 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, 2015 is as follows:

	Food Service Company, Inc.
	Balance Sheet
	September 30, 2015
	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