Rizzo's has been in business since January of the current year. The company buys frozen pizza crusts and resells them to large supermarket chains in five states. The following information pertains to Rizzo's first four months of operations.

PurchasesSales

January$40000$62000

Feb3200049000

March4400065000

April2400042000

Rizzo's expects to open several new sales territories in May. In anticipation of increased volume, management forecasts May sales at $72,000. To meet this demand, purchases in May are budgeted at $42,000. The company maintains a gross profit margin of approximately 40 percent.

All of Rizzo's sales are on account. Due to strict credit policies, the company has no bad debt expense. The following collection performance is anticipated for the remainder of the year.

Percent collected in month of sales30%

Percent collected following month od sales60%

Percent collected in the second month following sale10%

Rizzo's normally pays for 80 percent of its purchases in the month that the purchases are made. The remaining amount is paid in the following month. The company's fixed selling and administrative expenses average $12,000 per month. Of this amount, $4,000 is depreciation expense. Variable selling and administrative expenses are budgeted at 5 percent of sales. The company pays all of its selling and administrative expenses in the month that they are incurred.

Rizzo's debt service is $5,000 per month. Of this amount, approximately $4,500 represents interest expense, and $500 is payment on the principal. The company's tax rate is approximately 35 percent. Quarterly tax payments are made at the end of March, June, September, and December.

Required:

a.What is Rizzo's budgeted income statement for May.

b.What is Rizzo's cash budget for May. Assume that the company's cash balance on May 1 is $25,000.