Budgeted financial statements for the Ma & Pa Kettle

Solution Summary

Prepare budgeted financial statements for the Ma & Pa Kettle's Chili Company:

1. Ma & Pa Kettle's Chili Company has begun selling a new chili recipe and they want you to help them with next year's budgeted financial statements. Using the Ma & Pa Kettle information complete Ma & Pa's forecast and answer the questions which follow.

Ma & Pa Kettle's Chili Company has begun selling a new chili recipe and they want you to help them with next year's budgeted financial statements. Using the worksheet below, complete Ma & Pa's forecast and answer the question which follows.

Assumptions

To begin with, Ma & Pa are sure sales will grow 50% next year. Assume that is true. Then assume that COGS, Current Assets, and Current Liabilities all vary directly with Sales (that means if sales grows a certain percentage, then the account in question will grow by that same percentage). Assume that fixed expenses will remain unchanged and that $1,000 worth of new Fixed Assets will be obtained next year. Lastly, the current dividend policy will be continued next year.

Ma & Pa Kettle Chili Company, Inc. Financial Forecast for 2010

2009 Est for 2010
Sales $10,000 _______
COGS 4,000 _______
Gross Profit 6,000 _______
Fixed Expenses 3,000 _______
Before-Tax Profit 3,000 _______
Tax @ 33.3333% 1,000 _______
Net Profit $2,000 _______
Dividends $0 _______
Current Assets $25,000 _______
Net Fixed Assets 15,000 _______
Total Assets $40,000 ______
Current Liabilities $17,000 ______
Long-term debt 3,000 ______
Common Stock 7,000 ______
Retained Earnings 13,000 ______
Total Liabs & Eq $40,000 ______

Amount need to balance the balance sheet _____ This is the question. (Projected total assets minus projected total liabilities & equity *)

If this number is positive it means Ma & Pa need additional external funding to finance their projected asset growth. If this number is negative it means Ma & Pa have programmed too much financing for the amount of assets they project.