Michel Momo" is a new startup by fresh graduates from Queens college who home deliver Momo across New York. They make dim sums using locally produced flour, yeast, chicken and all the other fresh ingredients of finest quality. They have two types of MOMOs: the standard one Steamed Chicken momo and the customized one named Fried momo. The standard momos are prepared with antibiotic-free chicken along with other ingredients and the customized momos add number of options that are customized as per customer demand and are deep-fried.

For the second quarter of 2021, estimated sales in units for each product line are as follows:

Month           Standard (in plates)                          Customized (in plates)

April                     1,000                                                                  350

May                     1,150                                                                   400

June                     1,200                                                                   450

July                       1,560                                                                   500

August                  1,800                                                                  550

The CEO of the “Michel MOMO” provided you with the following additional information:

Sales: The actual sales for February and the forecasted sales for March were $1,050,000 and $1,200,000 respectively for the standard units. The relevant numbers for the customized ones are $500,000 in February and $650,000 in March. Michel prices the standard momo at $400 per plate of 8 pcs and $800 per plate of 8 pcs for customized.

Inventory Policy: The Company believes in customer satisfaction and therefore doesn’t store any ready products. Rather they’re using lean production process where they’re producing on demand.

Production requirements: The standard momos require 250 gm of chicken per plate and the customized ones require 350 gm of chicken. Chicken costs $380 per Kg. The cost of all other material is $120 per plate for standard units and $200 for the customized units. The standard unit requires 0.50 direct labor hours per unit and the customized ones require 0.75 hours of labor time. Labor cost per hour is $200. Fixed Manufacturing Overhead is expected to be $60,000 per month, of which $22,000 for non-cash depreciation. Michel applies manufacturing overhead to units based on direct labor hours and the variable manufacturing overhead rate is $25 per direct labor hours.

Inventory policy-raw materials: Chicken is the main ingredient of momos. With regard to the chicken used in production, Michel likes to keep safety stock of 50% of its need of chicken for the next month’s anticipated production. Michel ended March, 2021 with 186 Kg of meat in stock.

Payables Policy: Michel signed an MOU with NY Meat Company where NY Meat agrees to supply all the meat needs on credit. According to the credit policy of NY meat for Michel, half of the monthly purchase is due on the month of purchase and the rest of the due is settled in following month of purchase. Accounts payable for materials and other items were expected to be $105,000 on March 31, 2021. Costs of all other materials are purchased on a cash basis during the month of purchase according to the monthly production need.

Collection policy: Michel MOMO mainly delivers their products to corporate offices, hence offering credit term to attract corporates. For both the standard and customized units, 40 percent of any month’s sales are for cash. 10 percent of the credit sales are collected in the month of sale, 70 percent of credit sales are collected the following month and the rest of the dues are collected in the second month following the month of sales.

Sales and Administration costs: Monthly manufacturing expenses consist of the following:

Salaries and wages: $75,000

Commissions: 6% of revenue

Rent: $50,000

Utilities: 4% of revenue

Cash and financing: Michel momo expects to maintain a minimum cash balance of $300,000. Borrowing can make up any anticipated cash shortage at 10% annual interest. Bank will only lend (and accept repayments) in $1000 increments. Cash balance to start the quarter is $350,000

Other information: Michel momo will make a payment of $ 400,000 during May for equipment purchased on credit on April. The company also plans to pay dividends of $250,000 in April.

Required:

Prepare the cash budget and balance sheet  for Michel MOMO for the months of the second quarter ending June, 2021.

Answer rating: 100% (QA)

1 Manufacturing overhead budget April May June purchase of material Chicken 152095 168150 194275 other material For Standard120 per plate 120000 13800... View the full answer