Assumptions And Accounting 604 Managerial Accounting Frenchi

Assumptionsaccounting 604 Managerial Accountingfrenchies Is A Medium

Frenchies is a medium-sized regional bakery that specializes in providing orders to grocery and convenience stores. Because of the popularity of its brand, it has also opened a small café for walk-in business. The bakery produces only three products: breakfast muffins, fresh bread, and chocolate chip cookies. Due to recent expansion from a new large contract, sales and revenues are projected to increase significantly during 2021, with adjustments in prices, sales volume, and collection patterns. The firm’s sales involve a mix of credit and cash transactions, with specific collection schedules and inventory management strategies to avoid spoilage and shortages. The purpose of this project is to forecast sales, collections, production, and inventory for 2021 based on the provided assumptions and historical data, preparing the necessary financial and operational sheets accordingly.

Paper For Above instruction

Introduction

Frenchies, a notable regional bakery, has experienced a substantial growth trajectory following its recent partnership with a major retail chain. Its operational focus on a limited product range—breakfast muffins, bread, and cookies—supports consistent quality standards and efficient production processes. The expansion has led to significant optimism about financial performance, necessitating detailed forecasting of sales, collections, inventory, and production to guide decision-making and financial planning in 2021.

Sales Forecasting

The sales volumes for 2020 provide a baseline, with 45,000 dozen muffins, 65,000 dozen cookies, and 85,000 loaves of bread sold at respective prices of $5.50, $4.75, and $5.25. For 2021, prices will increase to $6.00, $5.25, and $5.75, respectively. Assuming a 20% initial drop post-holiday sales and a steady quarterly growth of 5%, with the exception of a 20% holiday surge in Q4, the sales volumes are projected to adjust accordingly. Specifically, sales are expected to grow as follows: Q1 and Q2 2021 will see a 5% increase per quarter, while Q4 will experience a substantial 20% jump over Q3 due to holiday effects. These projections incorporate the impact of the price increase on demand elasticity, with price elasticity considered moderate based on industry standards. Overall, these adjustments enable a realistic estimate of future sales revenue across quarters.

Sales Collections and Accounts Receivable

Frenchies’ collection policy involves receiving 30% of payments within the current quarter, 45% in the following quarter, and 25% in the subsequent quarter. These schedules will be applied to the projected sales figures to estimate cash inflows each quarter. The company’s past sales data indicates third and fourth quarter sales of $802,000 and $1,002,500 respectively, which inform the collection pattern estimates for 2021. The collection forecast will include receivables from the previous year’s sales, ensuring an accurate picture of cash flow timing. This schedule explains the lag between sales realization and cash collection, critical for liquidity planning and working capital management.

Inventory Management

Frenchies maintains raw materials inventory equivalent to 15% of the next quarter’s raw material requirements, aiming to avoid stockouts and spoilage given the perishable nature of bakery products. Additionally, inventory of finished goods is kept at approximately two days’ worth of production, ensuring timely delivery and minimal waste. These parameters are factored into the production schedule, with raw material purchases aligned with forecasted production needs. The sales forecast directly impacts production planning to ensure the bakery's capacity meets demand without overstocking or shortages, with inventory levels monitored continuously to optimize turnover and freshness.

Production Budgeting

The forecasted sales volumes in units assist in determining quarterly production needs. Starting with the desired ending inventory levels based on two days of sales, and subtracting beginning inventories (based on last quarter’s actuals), the production requirement is calculated for each quarter. Raw material needs are scheduled considering 15% safety stock of the next quarter’s materials, ensuring operational continuity. The production data will be input into the worksheet, with formulas copying to project the entire year’s output while accounting for seasonal fluctuations like holiday surges.

Conclusion

By integrating sales forecasts, collection schedules, and inventory policies, Frenchies can develop a comprehensive operational plan for 2021. This plan will enable management to anticipate cash flows, optimize inventory levels, and align production with demand. Accurate forecasting supports financial stability, informs pricing strategies, and guides strategic expansion efforts. Continuous review and adjustment of these forecasts are crucial as actual sales and collection data for 2021 become available, ensuring agile management of the bakery’s growing business.

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