The question is on the last picture that filled information to chart.

Phil grabbed a piece of paper. "We pay the mixers $7.50 an hour, the bakers $8.00 an hour, and the packers $6.50 an hour." "Perfect. Then I just have one more question." "Let me guess. You want a breakdown of ingredients for each item we bake." "You must be psychic, Phil." "No, I just remember being bugged about this by the last controller." He handed Nicole a piece of paper with a table on it. "Here they all are. Just make sure you don't let it out of the building! I don't want my secret recipes to get out." "Don't worry. I'll be careful." Nicole glanced down at the price sheet. "Wow. I wish I could buy my groceries at these prices." Phil chuckled. "So do I. You have to remember, though, that we buy in bulk, lots and lots of bulk. That lets us get some great deals from our local vendors." 1 guess that makes sense. Thanks for taking time to see me." "Just make sure you don't leave without taking a cookie or two." Phil held out a plate loaded with perfect, if two-day old, cookies. "If we don't eat them, they go into the trash!" "My pleasure!" Nicole hurried back to her own office. She had a staff meeting in 15 minutes. She should be able to get most of the information she still needed from Sarah, since she wrote the checks. Even though Sarah only worked part-time, she'd been with the Boulangerie from the beginning and seemed to know just about everything about the accounting system. Anything Sarah didn't know, Bob, their new summer intem, would have found out for her by now. He was very good at digging up information once he was pointed in the right direction. "We thought you were going to stand us up," Sarah said as Nicole hurried into the office. "Actually, we hoped you were," Bob quipped. "We don't want to get stuck doing the budget, so we hoped that you would forget to come." "Don't worry," Nicole said with a sigh. "Andy wants me to take care of it personally. He seems to think it would be good for me to get to know the company or something. So, have you gathered all the information that I asked for?" "Of course," Sarah said. "Where do you want us to start?" "Let's start with our accounts payable." "That's me," Bob said. "Most of our vendors require that we pay for everything within 30 days of making our purchase. That means that 85 percent of our purchases are paid for within the quarter they are made. And, before you ask, we ordered $210,984 worth of inventory during the last quarter last year, so we still owe 15 percent of that, or $31,648." "Thanks, Bob, but I actually knew that last part. After all, it's right there in the balance sheet." "Oh, yeah," Bob said turning pink. "I forgot about that." Sarah laughed. "So, you calculated it by hand?" "Well, yeah. I wanted to be prepared for the meeting today." All right, you two," said Nicole, jumping in before Sarah could pick on the young man any more. "Let's move on to our overhead assumptions." "Sure," Sarah said. "Last year we allocated variable overhead at $1.50 for each direct labor hour. This year, I think that we're going to need to increase that to $2.00 to cover increases in security fees, utility rates, and energy prices. We also spend about $160,000 a quarter in fixed overhead. Also, don't forget that we usually use total direct labor hours to calculate a predetermined overhead rate when calculating the unit cost." "Unit cost? asked Bob. "Oh, wait," he said nodding, "I remember. We have to include direct materials, direct labor, and manufacturing overhead to get the cost of producing each unit. Direct materials are calculated from the recipe and direct labor cost from the employee information that Phil gave you. But we need to multiply the number of hours it takes to make each product by the predetermined overhead rate so that we can figure a per-unit applied overhead amount. Sorry to interrupt." "No problem." Nicole nodded approvingly at the young intern while finishing up her notes. "Just one last question, Sarah. How much of that overhead is from depreciation?" "Eight percent of the fixed amount." Page 4 "Bob, tell me about our sales costs." "Well, we don't really have that much in variable sales costs. We give a one percent commission to our sales staff." "Is that based on profit or sales price?" Sarah asked. "Total sales price. Sorry, I forgot to mention that. The commission is paid both for business sales and sales in the caf. Also, here's the table of fixed selling and administrative expenses." Nicole took the paper. "Thanks. Okay, Sarah, tell me about our debt." Exhibit 2 Exhibit 3 List of Selling and Administrative Expenses Frenchies Balance Sheet S&A Expense Cost / quarter As of December 31, 2018 Advertising $40,000 Cleaning supplies 1,000 Assets Janitorial service 6,000 Current Assets Office staff salaries 25,000 Cash $40.000 Office supplies 3,000 Accounts Receivable 312,025 Rent - Office 9,000 Raw Materials laventory 21.098 Sales salaries 35,000 Finished Goods Inventory 13,831 Top management salar 80,000 $686.954 Total Current Assets Utilities - Office 1,800 Total $200,800 Property. Plant, and Equipment Land $76,000 Building 567.000 "Well, at the end of last year, we secured a Equipment 750.000 $1,109,969 mortgage at 6 percent interest. Our Accumulated Depr - Equipment 190,000) payment each quarter is $20,000. Since it's a Total PPE 1.303,000 mortgage, the calculations are kind of fun. Each payment requires us to pay a bunch of interest Total Assets $2.189.954 and a little bit of principal. To break up the $20,000 into the two parts, we have to multiply the current mortgage value by 6 percent and Liabilities and Stockholders' Equity divide by 4..." Liabilities Divide by 4?" asked Bob. "Well, yeah, 6 percent is the annual rate. Since Accounts Payable $31,648 we make quarterly payments, we divide the Mortgage Payable 1.109.969 annual rate by 4." Total Liabilities $1,141,617 "Oh," Bob said sheepishly. "I should have remembered that." Stockholders' Equity "Yes, you should have," Nicole said with a Common Stock (no par value; smile. She was very pleased with how well Bob 150.000 shares outstanding) $150.000 was progressing during his summer with the firm. Retained Earnings 898 337 Hiring an intern had been one of her first Total Stockholders' Equity 1.048.337 changes, and it seemed to be working out well. If the company continued to grow, maybe he could Total Liabilities and Stockholders' Equit $2,189.954 be hired full-time once he graduated in a couple of years. "Go ahead, Sarah." "Right. So, our first payment will be made at the end of the upcoming quarter. We'll end up paying $16,650 as interest and $3,350 in principal. This means that the value of the mortgage in the second quarter will be $1,106,619. That's the original $1,109,969 minus the $3,350, Bob." Page 5 "Thanks, Sarah. I appreciate the help," Bob retorted, rolling his eyes. "I appreciate it, too," Nicole said. "If I remember right, we have to pay the $20,000 each quarter. Our contract prohibits us from paying any additional principal for the first three years." Sarah nodded. "Yep, kind of a bummer, but that was the only way we could get that 6 percent interest rate." "Okay," Nicole said. "The last thing is a recap of how we handle income taxes. I think that has pretty much stayed the same?" "It sure has," Bob responded, rifling through a tax folder. "Our corporate tax rate is 30 percent and a portion of our estimated taxes must be paid each quarter to avoid late fees. Our policy is to pay 110 percent of the taxes that we owed last year over the course of the current year. Since we paid $15,000 last year, we will need to pay $16,500 this year." "And we'll pay that equally over the four quarters?" "Right. At the end of the year, we calculate our actual taxes owed as 30 percent of net income. Any difference between the cash we paid for taxes over the year and actual income tax expense on the income statement is put into income taxes payable if we haven't paid enough and into deferred tax assets if we paid too much." "Right," Nicole said. "I think that's about it." "Don't forget the balance sheet from last year," Bob said, handing her a sheet of paper. "Thanks. I'm starting to lose track of everything. I must be getting old." "Oh, I wouldn't say that," Bob quipped, then added with a grin, "at least, not as long as you're my boss." MEETING WITH THE CEO "So, how goes the battle, Nicole?" Andy asked as she came into his office. "Oh, it's going. Actually, I think we're just about there. I just need to check some numbers with you, and I'll be all set. Then it's just a matter of actually creating the budget. That's the fun part, you know." Andy laughed. "Right. That's why you're the accountant and I'm not. So, what do you need?" "First, I just want to confirm a couple of things from some earlier meetings. You told me a couple of weeks ago that the board of directors now wants us to have $40,000 worth of cash on hand at all times and to pay $25,000 in dividends each quarter. Is that still the plan?" the expansion, though, we are going to have to issue another 50,000 shares of common stock to the venture capital firm in the first week of the third quarter. We won't plan on changing our dividend payment schedule this year, but we will probably have to increase the amount we pay in future years. For now, though, the big factor is the capital infusion of $400,000 we'll get from selling our stock." "In the third quarter? Why are they waiting that long?" Andy shrugged. "Because that's when they will have the money to make the investment. They're waiting for another deal to go through." "Okay, so increase common stock issued by 50,000 shares and paid-in-capital by $400,000 in the third quarter, got it. My next question is about the expansion to our PPE that you just mentioned. I estimate that we will need to buy $75,000 worth of new equipment in the first quarter, $100,000 in the second, $50,000 in the third, and $35,000 in the fourth. Since many of our long-term assets have already been fully depreciated, this new expansion shouldn't significantly change my depreciation estimates. Does that sound about right to you?" "Assuming we get this arrangement settled, it sounds perfect." "Can you give me a few more details about what else we're hoping to get from these new investors? I'll need to include those estimates." "Sure. What we are really hoping for, other than the purchase of 50,000 shares of stock of course, is a $1 million revolving line of credit. Basically, if we need additional funding we can pull on the line of credit. The interest rate on the new credit line will be 8 percent and they will require that we pay off any accumulated interest before we repay any principal." "Well, I think that gives me everything I need. Just so you know, I am going to use simple interest calculations for the interest estimates. It's not 100 percent accurate, but it is typical for creating a master budget. It also simplifies things considerably and ensures that information flows through the budget easily. I'll also assume that any additional debt from the line of credit is taken out on the first day of the quarter and any payments are made at the end of the quarter. That ensures that the interest estimates should be Page 6 Frenchies Start - Microsoft Excel go; ] POWERPIVOT ? - px Arial , | BIU 10 -A A = == A,,$ %, - ||| , 11 2 , As 09 ,, , : xy & | Q18 A B |D | E Sales Budget | F | G | H | J K | L | M N | o | P | Q| R | Q1 Q2 Quarter Q3 Q4 | Total 2020 Muffins Budgeted Sales Selling price per dozen Total Sales Revenue from Muffins | 10 Cookies Budgeted Sales Selling price per dozen Total Sales Revenue for Cookies | 16 | 15 Bread Budgeted Sales 17 Selling price per loaf | 18 Total Sales Revenue for Bread 19 20 Total Sales Revenue 21 22 ? - , X f , | Frenchies Start - Microsoft Excel | POWERPIWOT Arial -10 , a s = == , , , **BIU, H, A, , $ % ; ,,, , F Q18 .xy B DE F G H I J K L 2 Schedule of Cash Collections Collections in Quarter Total 25 Q1020304 2020 26 Collections from last year 27 Q1 Sales 28 Q2 Sales 29 Q3 Sales 30 04 Sales 131 Total Cash Collections 0 50 $0 0 0 M N O P Q R 24 Assumptions Sales Budget Production Budget EC - - -+ 100% 22 PMI 11/2020 2 - Phil grabbed a piece of paper. "We pay the mixers $7.50 an hour, the bakers $8.00 an hour, and the packers $6.50 an hour." "Perfect. Then I just have one more question." "Let me guess. You want a breakdown of ingredients for each item we bake." "You must be psychic, Phil." "No, I just remember being bugged about this by the last controller." He handed Nicole a piece of paper with a table on it. "Here they all are. Just make sure you don't let it out of the building! I don't want my secret recipes to get out." "Don't worry. I'll be careful." Nicole glanced down at the price sheet. "Wow. I wish I could buy my groceries at these prices." Phil chuckled. "So do I. You have to remember, though, that we buy in bulk, lots and lots of bulk. That lets us get some great deals from our local vendors." 1 guess that makes sense. Thanks for taking time to see me." "Just make sure you don't leave without taking a cookie or two." Phil held out a plate loaded with perfect, if two-day old, cookies. "If we don't eat them, they go into the trash!" "My pleasure!" Nicole hurried back to her own office. She had a staff meeting in 15 minutes. She should be able to get most of the information she still needed from Sarah, since she wrote the checks. Even though Sarah only worked part-time, she'd been with the Boulangerie from the beginning and seemed to know just about everything about the accounting system. Anything Sarah didn't know, Bob, their new summer intem, would have found out for her by now. He was very good at digging up information once he was pointed in the right direction. "We thought you were going to stand us up," Sarah said as Nicole hurried into the office. "Actually, we hoped you were," Bob quipped. "We don't want to get stuck doing the budget, so we hoped that you would forget to come." "Don't worry," Nicole said with a sigh. "Andy wants me to take care of it personally. He seems to think it would be good for me to get to know the company or something. So, have you gathered all the information that I asked for?" "Of course," Sarah said. "Where do you want us to start?" "Let's start with our accounts payable." "That's me," Bob said. "Most of our vendors require that we pay for everything within 30 days of making our purchase. That means that 85 percent of our purchases are paid for within the quarter they are made. And, before you ask, we ordered $210,984 worth of inventory during the last quarter last year, so we still owe 15 percent of that, or $31,648." "Thanks, Bob, but I actually knew that last part. After all, it's right there in the balance sheet." "Oh, yeah," Bob said turning pink. "I forgot about that." Sarah laughed. "So, you calculated it by hand?" "Well, yeah. I wanted to be prepared for the meeting today." All right, you two," said Nicole, jumping in before Sarah could pick on the young man any more. "Let's move on to our overhead assumptions." "Sure," Sarah said. "Last year we allocated variable overhead at $1.50 for each direct labor hour. This year, I think that we're going to need to increase that to $2.00 to cover increases in security fees, utility rates, and energy prices. We also spend about $160,000 a quarter in fixed overhead. Also, don't forget that we usually use total direct labor hours to calculate a predetermined overhead rate when calculating the unit cost." "Unit cost? asked Bob. "Oh, wait," he said nodding, "I remember. We have to include direct materials, direct labor, and manufacturing overhead to get the cost of producing each unit. Direct materials are calculated from the recipe and direct labor cost from the employee information that Phil gave you. But we need to multiply the number of hours it takes to make each product by the predetermined overhead rate so that we can figure a per-unit applied overhead amount. Sorry to interrupt." "No problem." Nicole nodded approvingly at the young intern while finishing up her notes. "Just one last question, Sarah. How much of that overhead is from depreciation?" "Eight percent of the fixed amount." Page 4 "Bob, tell me about our sales costs." "Well, we don't really have that much in variable sales costs. We give a one percent commission to our sales staff." "Is that based on profit or sales price?" Sarah asked. "Total sales price. Sorry, I forgot to mention that. The commission is paid both for business sales and sales in the caf. Also, here's the table of fixed selling and administrative expenses." Nicole took the paper. "Thanks. Okay, Sarah, tell me about our debt." Exhibit 2 Exhibit 3 List of Selling and Administrative Expenses Frenchies Balance Sheet S&A Expense Cost / quarter As of December 31, 2018 Advertising $40,000 Cleaning supplies 1,000 Assets Janitorial service 6,000 Current Assets Office staff salaries 25,000 Cash $40.000 Office supplies 3,000 Accounts Receivable 312,025 Rent - Office 9,000 Raw Materials laventory 21.098 Sales salaries 35,000 Finished Goods Inventory 13,831 Top management salar 80,000 $686.954 Total Current Assets Utilities - Office 1,800 Total $200,800 Property. Plant, and Equipment Land $76,000 Building 567.000 "Well, at the end of last year, we secured a Equipment 750.000 $1,109,969 mortgage at 6 percent interest. Our Accumulated Depr - Equipment 190,000) payment each quarter is $20,000. Since it's a Total PPE 1.303,000 mortgage, the calculations are kind of fun. Each payment requires us to pay a bunch of interest Total Assets $2.189.954 and a little bit of principal. To break up the $20,000 into the two parts, we have to multiply the current mortgage value by 6 percent and Liabilities and Stockholders' Equity divide by 4..." Liabilities Divide by 4?" asked Bob. "Well, yeah, 6 percent is the annual rate. Since Accounts Payable $31,648 we make quarterly payments, we divide the Mortgage Payable 1.109.969 annual rate by 4." Total Liabilities $1,141,617 "Oh," Bob said sheepishly. "I should have remembered that." Stockholders' Equity "Yes, you should have," Nicole said with a Common Stock (no par value; smile. She was very pleased with how well Bob 150.000 shares outstanding) $150.000 was progressing during his summer with the firm. Retained Earnings 898 337 Hiring an intern had been one of her first Total Stockholders' Equity 1.048.337 changes, and it seemed to be working out well. If the company continued to grow, maybe he could Total Liabilities and Stockholders' Equit $2,189.954 be hired full-time once he graduated in a couple of years. "Go ahead, Sarah." "Right. So, our first payment will be made at the end of the upcoming quarter. We'll end up paying $16,650 as interest and $3,350 in principal. This means that the value of the mortgage in the second quarter will be $1,106,619. That's the original $1,109,969 minus the $3,350, Bob." Page 5 "Thanks, Sarah. I appreciate the help," Bob retorted, rolling his eyes. "I appreciate it, too," Nicole said. "If I remember right, we have to pay the $20,000 each quarter. Our contract prohibits us from paying any additional principal for the first three years." Sarah nodded. "Yep, kind of a bummer, but that was the only way we could get that 6 percent interest rate." "Okay," Nicole said. "The last thing is a recap of how we handle income taxes. I think that has pretty much stayed the same?" "It sure has," Bob responded, rifling through a tax folder. "Our corporate tax rate is 30 percent and a portion of our estimated taxes must be paid each quarter to avoid late fees. Our policy is to pay 110 percent of the taxes that we owed last year over the course of the current year. Since we paid $15,000 last year, we will need to pay $16,500 this year." "And we'll pay that equally over the four quarters?" "Right. At the end of the year, we calculate our actual taxes owed as 30 percent of net income. Any difference between the cash we paid for taxes over the year and actual income tax expense on the income statement is put into income taxes payable if we haven't paid enough and into deferred tax assets if we paid too much." "Right," Nicole said. "I think that's about it." "Don't forget the balance sheet from last year," Bob said, handing her a sheet of paper. "Thanks. I'm starting to lose track of everything. I must be getting old." "Oh, I wouldn't say that," Bob quipped, then added with a grin, "at least, not as long as you're my boss." MEETING WITH THE CEO "So, how goes the battle, Nicole?" Andy asked as she came into his office. "Oh, it's going. Actually, I think we're just about there. I just need to check some numbers with you, and I'll be all set. Then it's just a matter of actually creating the budget. That's the fun part, you know." Andy laughed. "Right. That's why you're the accountant and I'm not. So, what do you need?" "First, I just want to confirm a couple of things from some earlier meetings. You told me a couple of weeks ago that the board of directors now wants us to have $40,000 worth of cash on hand at all times and to pay $25,000 in dividends each quarter. Is that still the plan?" the expansion, though, we are going to have to issue another 50,000 shares of common stock to the venture capital firm in the first week of the third quarter. We won't plan on changing our dividend payment schedule this year, but we will probably have to increase the amount we pay in future years. For now, though, the big factor is the capital infusion of $400,000 we'll get from selling our stock." "In the third quarter? Why are they waiting that long?" Andy shrugged. "Because that's when they will have the money to make the investment. They're waiting for another deal to go through." "Okay, so increase common stock issued by 50,000 shares and paid-in-capital by $400,000 in the third quarter, got it. My next question is about the expansion to our PPE that you just mentioned. I estimate that we will need to buy $75,000 worth of new equipment in the first quarter, $100,000 in the second, $50,000 in the third, and $35,000 in the fourth. Since many of our long-term assets have already been fully depreciated, this new expansion shouldn't significantly change my depreciation estimates. Does that sound about right to you?" "Assuming we get this arrangement settled, it sounds perfect." "Can you give me a few more details about what else we're hoping to get from these new investors? I'll need to include those estimates." "Sure. What we are really hoping for, other than the purchase of 50,000 shares of stock of course, is a $1 million revolving line of credit. Basically, if we need additional funding we can pull on the line of credit. The interest rate on the new credit line will be 8 percent and they will require that we pay off any accumulated interest before we repay any principal." "Well, I think that gives me everything I need. Just so you know, I am going to use simple interest calculations for the interest estimates. It's not 100 percent accurate, but it is typical for creating a master budget. It also simplifies things considerably and ensures that information flows through the budget easily. I'll also assume that any additional debt from the line of credit is taken out on the first day of the quarter and any payments are made at the end of the quarter. That ensures that the interest estimates should be Page 6 Frenchies Start - Microsoft Excel go; ] POWERPIVOT ? - px Arial , | BIU 10 -A A = == A,,$ %, - ||| , 11 2 , As 09 ,, , : xy & | Q18 A B |D | E Sales Budget | F | G | H | J K | L | M N | o | P | Q| R | Q1 Q2 Quarter Q3 Q4 | Total 2020 Muffins Budgeted Sales Selling price per dozen Total Sales Revenue from Muffins | 10 Cookies Budgeted Sales Selling price per dozen Total Sales Revenue for Cookies | 16 | 15 Bread Budgeted Sales 17 Selling price per loaf | 18 Total Sales Revenue for Bread 19 20 Total Sales Revenue 21 22 ? - , X f , | Frenchies Start - Microsoft Excel | POWERPIWOT Arial -10 , a s = == , , , **BIU, H, A, , $ % ; ,,, , F Q18 .xy B DE F G H I J K L 2 Schedule of Cash Collections Collections in Quarter Total 25 Q1020304 2020 26 Collections from last year 27 Q1 Sales 28 Q2 Sales 29 Q3 Sales 30 04 Sales 131 Total Cash Collections 0 50 $0 0 0 M N O P Q R 24 Assumptions Sales Budget Production Budget EC - - -+ 100% 22 PMI 11/2020 2