Using the operating budget for the quarter, prepare the relevant costs for in-house production. Given avoidable costs, calculate whether the outsourcing decision will save costs in total.

Managing Your Frozen Pizza Business

Our exercise simulates the types of decisions all managers will make in their planning and controlling functions. Although there are formulas and templates to facilitate the process, ultimately it is the manager’s judgement that interprets the data. Effective decision making often relies on doing the correct analysis in order to support instinct.

In this Course Project, we will complete these interrelated activities.

1. Develop an operating budget using the contribution margin format.
2. Prepare a cash budget based on projected cash receipts, disbursements, investing, and financing activities.
3. Conduct variance analysis between the budget and actual results.
4. Decide whether or not to outsource production.
5. Conduct a discounted cash flow analysis in order to select the best project investment.

Background

You own a frozen pizza manufacturing and distribution business. Our premium product, Buzz All Natural Pizza appeals to the adult learners at DeVry University. A marketing survey revealed a time-starved segment that is always in need of energy at the end of the day or week in order to do their schoolwork. Also being poor time managers, this homogenous group requires a more direct form of intervention in order to reach peak academic performance. In order to meet this need, your pizza has caffeinated tomato sauce.

Details and Instructions

Download this Course Project Spreadsheet (Links to an external site.). You are responsible for entering data in each of the spreadsheets (see tabs at the bottom of the file). Each spreadsheet represents a deliverable. Data entry is required in the yellow highlighted cells. After you have input into the prescribed formulas, you are to explain the calculated answers.

There are instructions in each of the five worksheets. The worksheets are submitted in the weeks, as indicated below. This is a summary of the requirements.

Deliverable #1

The Operating Budget (Week 3)

1. Input the sales volume, as projected by your Field Sales managers.
2. Input your forecast product mix, as provided by the Marketing department.
3. Input the efficiency rate for your direct labor, as projected by the VP of Manufacturing.
4. Input the sales commission, as provided by the VP of Sales and the department’s fixed costs.
5. Input the administrative fixed costs as provided by the CFO.
6. Calculate and comment on the break-even point.
7. Calculate the sales volume needed to reach a target profit and comments.

The Cash Budget (Week 3)

1. If needed, copy the sales from the first quarter operating budget.
2. Using an aging of the collection period, as provided by the credit manager, forecast cash receipts by month.
3. Calculate the cash disbursements by month.
4. Determine the timing of a capital expenditure.
5. Determine the timing and amount of financing.

To see details of this assignment, go to the Week 3 Course Project: Deliverable #1 Overview page. Submit your deliverable(s) to the Week 3 Course Project: Deliverable #1 Submission page.

Deliverable #2

Performance Evaluation (Week 5)

1. Given actual results and the operating budgeted rates, prepare a flexible budget for 1 month.
2. Explain deviations from plan.

Incremental Analysis: Do We Outsource? (Week 5)

1. Using the operating budget for the quarter, prepare the relevant costs for in-house production.
2. Given avoidable costs, calculate whether the outsourcing decision will save costs in total.

To see details of this assignment, go to the Week 5 Course Project: Deliverable #2 Overview page. Submit your deliverable(s) to the Week 5 Course Project: Deliverable #2 Submission page.

Deliverable #3

Course Project Justification (Week 7)

1. Input the positive cash flows due to production cost savings.
2. Expenditure for the major maintenance should occur in Year 7.
3. Using Excel functions, given a hurdle rate, calculate the project’s Net Present Value (=NPV) and the Internal Rate of Return (=IRR).
4. Calculate the payback period and profitability index.
5. Provide a recommendation as to whether this project is acceptable.
6. To see details of this assignment, go to the Week 7 Course Project: Deliverable #3 Overview page. Submit your deliverable(s) to the Week 7 Course Project: Deliverable #3 Submission page.