The Krusty Krab is a fast$-$food restaurant. It is owned by Mr$.$ Krab and has only two full$-$

time employees: The fry cook, SpongeBob, and the cashier Squidward. This restaurant serves a

popular burger, Krabby Patty. It is Sponge Bob$$s favorite food. At the beginning of each quarter,

Mr$.$ Krab makes budgets for his restaurant.

Required:

$1.$ Give a brief overview of the restaurant $($e$.$g$.,$ business advantage, main competitors$).$ Identify its

direct materials, direct labor, manufacturing overhead, and selling & administrative costs.

$2.$ Please help Mr$.$ Krab make a master budget for the quarter ending June $30$th$,2023.$ The master

budget should include the sales budget, the expected cash collections budget, the production

budget, the raw materials purchase budget, the expected cash disbursements for materials budget,

the direct labor budget, the manufacturing overhead budget, the ending finished goods inventory

budget, the selling & administrative budget, the cash budget, and any other budgets you want to

add. Please also help Mr$.$ Krab prepare the budgeted financial statements including budgeted

income statement and budgets balance sheet. I provide a list of assumptions for you to prepare for

these budgets. $[$Hint: You may use Excel to prepare budgets and then report them in a Word or

PDF file.$]$

$3.$ Redo the budgeted income statement using the contribution format. Please calculate the margin

of safety and operating leverage. Please also calculate the number of Krabby Patty that Krusty

Krab must sell each quarter to break even. Now think about the break$-$even quantities you just

calculated. Do you think this number is realistic or attainable? Support your answer.

Academic Integrity

Copying report from another student or receiving unauthorized assistance is a violation of

academic integrity policy. You can discuss the project with other students, but must each develop

your own report.

$2$

Assumptions:

$1.$ Krusty Krab sells Krabby Patty only. The selling price of Krabby Patty is $$4\mathrm{.}50.$

$2.$ Krusty Krab has $153$ customers per day on average. Each customer purchases one Krabby Patty per

visit. Krusty Krab has Food Truck Festival every June which increases its regular sales by $50\%$ per day.

$3.90\%$ of sales are paid by cash. $10\%$ is collected in the month following sale. The March $31$st accounts

receivable balance of $$600$ will be collected in full in April.

$4.$ Krusty Krab stores frozen Krabby Patty so they can sell them during the busy days in the following

month. In general, Mr$.$ Krab wants ending inventory of Krabby Patty to be equal to $10\%$ of the following

month$$s budgeted sales in units. On March $31$st$,474$ units of Krabby Patty were on hand.

$5.$ At Krusty Krab, two pounds of material are required per unit of product. Mr$.$ Krab wants materials on

hand at the end of each month equal to $5\%$ of the following month$$s production. On March $31,229\mathrm{.}5$

pounds of material are on hand. Material cost is $$0\mathrm{.}10$ per pound. One$-$half of a month$$s purchases is paid

for in the month of purchase; the other half is paid in the following month. The March $31$ accounts

payable balance is $$900.$

$6.$ At Krusty Krab, each Krabby Patty requires $0\mathrm{.}025$ hours $(1\mathrm{.}5$ minutes$)$ of direct labor. Mr$.$ Krab pays

Sponge Bob at the rate of $$12$ per hour.

$7.$ At Krusty Krab, the variable manufacturing overhead rate is $$0\mathrm{.}1$ per Krabby Patty. Fixed

manufacturing overhead is $$2,703$ per month, which includes $$500$ of noncash costs $($primarily

depreciation of plant assets$).$

$8.$ At Krusty Krab, the variable selling and administrative expenses are $$0\mathrm{.}05$ per unit sold. Fixed selling

and administrative expenses are $$3,500$ per month $($including the salary to the Cashier $82$ hours per week

at the rate of $$12$ per hour$).$ The fixed selling and administrative expenses include $$1,000$ in costs $$

primarily depreciation $$ that are not cash outflows of the current month.

$9.$ Krusty Krab purchases a new equipment in May and pays $$10,000.$ Krusty Krab also pays a cash

dividend of $5,000$ in April.

$10.$ Krusty Krab maintains a minimum cash balance of $$50,000.$ It maintains a $12\%$ open line of credit for

$$75,000.$ It borrows on the first day of the month and repays loans on the last day of the month.

$11.$ Krusty Krab has an April $1$ cash balance of $$40,000.$ On April $1,$ retained earnings has a balance of

$$94,745.$ On April $1,$ additional Budgeted Balance Sheet Information: Krusty Krab reported the following

account balances prior to preparing its budgeted financial statements:

$$ Land $-$ $$10,000$

$$ Equipment $-$ $$20,000$

$$ Building $-$ $$50,000$

$$ Common stock $-$ $$30,000$