Background – The Business Plan
You have a segmentation analysis of the lifestyle variables for the adult learners market. The results support the need to invigorate and “refuel” with comfort food that is also nourishing. What better choice for adults than pizza? What will fill this need and differentiate “BUZZ-TIME PIZZA” is the caffeinated tomato sauce.
You and a couple of friends will make, bake and deliver made-to-order pizzas, in two sizes. There is room in a garage for refrigeration, preparation tables, and a wood-fired oven. The sales manager will make all deliveries, in their vehicle.
Clearly, this is a long-term investment. The three founders, who will each contribute an equal amount, have agreed not to draw a salary for three years. You have hired a sales manager and a part-time office manager.
Week 5 – These deliverables involve preparing the necessary financial budgets in order to satisfy creditors and control business operations.
The sales manager has provided the following sales estimates and price points for the first quarter of 2020. Input these values in the worksheet labelled “Operating Budget”
January February March
Number of pizzas 40,000 42,500 45,000
Sales price for large $10.50
Sales price for medium $ 8.50
There is much debate as to the probable sales mix between the two sizes. Input a product mix of your choice (make sure these two add-up to 100%).
Direct labor consists of your chef, Pepe, who has agreed to a low wage as long as cigarette and bathroom breaks are included. DO NOT CHANGE THIS LABOR RATE
However, you must calculate the Chef’s efficiency rate. Input how many minutes it will take to make one pizza from order to box.
Ingredient and material costs, based on quotes after an extensive request for proposal (RFP), are good for two years. DO NOT CHANGE THE DIRECT MATERIAL RATES
The only variable selling cost is a sales commission based on a percent of sales revenue. Input the percent you wish to pay your sale manager.
Selling expenses include a fixed component for the sales manager’s salary and car allowance for any company business use of their personal auto. Input the monthly salary you wish to pay for compensation, including the car allowance
Input the monthly salary for your office manager.
Calculate the breakeven sales as well as the sales needed to make $200,000 in net income.
You are to look over this financial plan and make adjustments in the data you have input, in order to obtain the most reasonable and not excessively optimistic results.
The Cash Budget
Once you are satisfied with your operating budget, you must prepare a cash budget based on estimated cash flows from collections on customer receivables and cash payments.
Ensure that the sales revenues for January – March is the same as that on the operating budget.
Using the aging of cash collections, calculate total cash receipts for January – March.
For each month’s cash disbursements, you are to assume that half of the direct material payments are from the current month’s purchases and half are from the prior month’s purchases.
All selling and administrative expenses are paid in the month incurred.
Calculate the forecast direct material cash payments by month.
You are to decide in which month to invest a significant amount of cash in a facility expansion. You are also to decide on the timing and amount of financing that will cover any month in which you do not meet the compensating cash balance requirement.