Sweat Galore 3e571p
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SWEAT GALORE ROSELINDAWATI BINTI ZAINAL ABDIN 2010169575
ANSWERS
1. Do you think it was important for Michael to stipulate that he wanted a business that he would enjoy, that would give back to the community, that would grow and be more successful every year, and that would generate a net income of $25,000 annually? Why or why not? It's always important to set goals to measure the success of any business. However, the first three goals are more of a mission statement while the fourth is an objective for the company. The problem is there no plan and one objective. What is he going to do if the company doesn't net the $25,000? Or what if it nets the $25,000 but there is not enough cash to sustain the business? There need to be more objectives to make allowances for these types of situations. There needs to be a plan of action where goals change from period to period. Otherwise, the business cannot succeed.
1
SWEAT GALORE ROSELINDAWATI BINTI ZAINAL ABDIN 2010169575
2. If Michael has sales of $12,000 during January of his first year of business, determine the amount of variable and fixed costs associated with utilities and maintenance using the high-low method for each.
Hi-Lo Maintenance September January Difference Cost/unit
Units 8,000 2,000 6,000
Cost $1,914.00 $1,716.00 $198.00 $0.03
Hi-Lo Utilities September January Difference Cost/Unit
Units 8,000 2000 6,000
Cost $1,400.00 $1,100.00 $300.00 $0.05
January Sales January /unit cost January Units
12000 16 750
Maintenance Cost January
Utilities Cost January
Units Cost/unit Total Variable Costs Units Cost/Unit Total Variable Costs
750 $0.03 $24.75 750 $0.05 $37.50
2
SWEAT GALORE ROSELINDAWATI BINTI ZAINAL ABDIN 2010169575
3. Using the format below, prepare a Sales Budget for the year ending 2008. SWEATS GALORE Sales Budget For the Year Ending December 31, 2008 Quarter
Expected unit sales
1
2
3
4
Year
8 000
10 000
20 000
12 000
50 000
Unit selling price
X
16
16
16
16
16
Budgeted sales revenue
$
128 000
160 000
320 000
192 000
800 000
4. Prepare a Schedule of Expected Collections from Customers
SWEATS GALORE Schedule of Expected Collections from Customers For the Year Ending December 31, 2008 Quarter 1 s Receivable 1/1/06
-0-
First quarter ($ 128 000)
89 600
Second quarter ($ 160 000)
2
3
38 400 112 000
Third quarter ($ 320 000)
48 000 224 000
Fourth quarter ($ 192 000) Total collections
4
96 000 134 000
$ 89 600
$ 150 400
$ 272 000
$ 230 400
3
SWEAT GALORE ROSELINDAWATI BINTI ZAINAL ABDIN 2010169575
5. Michael learned from talking with Jayne that the supplier is so focused on making quality sweatshirts that many times the shirts are not available for several days. She encouraged Michael to maintain an ending inventory of shirts equal to 25 percent of the next quarter’s sales. Prepare a Purchases Budget for shirts using the format provided. SWEATS GALORE Shirt Purchases Budget For the Year Ending December 31, 2008 Quarter 1
2
3
4
Year
Shirts to be silk-screened
8 000
10 000
20 000
12 000
18 000
Plus desired ending inventory
2 500
5 000
3 000
4 500
Total shirts required
10 500
15 000
23 000
16 500
0
2 500
5 000
3 000
10 500
12 500
18 000
13 500
10
10
10
10
Less beginning inventory Total shirts needed Cost per shirt Total cost of shirt purchases
$105 000
$ 125 000 $ 180 000 $ 135 000
4
SWEAT GALORE ROSELINDAWATI BINTI ZAINAL ABDIN 2010169575
6. Prepare a Schedule of Expected Payments for Purchases
SWEATS GALORE Schedule of Expected Payments for Purchases For the Year Ending December 31, 2008 Quarter 1 s Payable 1/1/06
-0-
First quarter ( $ 105 000)
42 000
Second quarter ( $ 125 000)
2
3
63 000 50 000
Third quarter ($ 180 000)
75 000 72 000
Fourth quarter ($ 135 000) Total payments
4
108 000 54 000
$ 42 000
$ 113 000
$ 147 000
81 000
$ 162 000
5
SWEAT GALORE ROSELINDAWATI BINTI ZAINAL ABDIN 2010169575
7. Prepare a Silk-screen Labor Budget. SWEATS GALORE Silk-screen Labor Budget For the Year Ending December 31, 2008 Quarter Units to be produced Silk-screen labor hours per unit Total required silk-screen labor hours Silk-screen labor cost per hour Total silk-screen labor cost
X
X
1
2
3
4
Year
8 000
10 000
20 000
12 000
50 000
0.12
0.12
0.12
0.12
0.12
960
1 200
2 400
1 440
6 000
12
12
12
12
12
$ 11 520
$ 14 400
$ 28 800
$ 17 280
$ 72 000
6
SWEAT GALORE ROSELINDAWATI BINTI ZAINAL ABDIN 2010169575
8. Prepare a Selling and istrative Expense Budget for Sweats Galore for the year ending December 31, 2008. SWEATS GALORE Selling and istrative Expense Budget For the Year Ending December 31, 2008
1
Quarter 2
3
4
Year
Variable expenses Sales commissions (10%)
12 800
16 000
32 000
19 200
80 000
12 800
16 000
32 000
19 200
80 000
1 300
1 300
1 300
1 300
52 000
750
750
750
750
3 000
Sales salaries
1 800
1 800
1 800
1 800
7 200
Office salaries
1 800
1 800
1 800
1 800
7 200
Depreciation
75
75
75
75
300
Property taxes and insurance
95
95
95
95
380
5 820
5 820
5 820
5 820
23 280
$ 18 620
$ 21 820
$ 37 820
$ 25 020
$ 103 280
Total variable expenses Fixed expenses Advertising Rent
Total fixed expenses Total selling and istrative expenses
7
SWEAT GALORE ROSELINDAWATI BINTI ZAINAL ABDIN 2010169575
1 year = 52 weeks 1 Quarter = 52 / 4 = 13 weeks Fixed Expenses Advertising
1) 25+ 75 = 100 2) 100 X 52 = 5200 3) 5 200 ÷ 4 = 1300
Rent
1000 X 0.25 X 3 = 750
Sales salaries
1200 X 0.5 X 3 = 1800
Office salaries
1200 X 0.5 X 3 = 1800
Depreciation
1) 2000 ÷ 10÷ 4 = 50 2) 500÷ 5÷4 = 25 3) 50 + 25 = 75
Property Taxes and Insurance
380÷ 4 = 95
8
SWEAT GALORE ROSELINDAWATI BINTI ZAINAL ABDIN 2010169575
9. Prepare a Silk-screen Overhead Budget for Sweats Galore for the year ending December 31, 2008. Sweats Galore Silk-screen Overhead Expense Budget For the Year Ending December 31, 2008 Quarter 1
2
3
4
Year
6 000
7 500
15 000
9000
37 500
Maintenance
264
330
660
396
1650
Utilities
400
500
1 000
600
2500
Graphics design
800
1 000
2 000
1 200
5000
$7 464
$ 9 330
$ 18 660
$ 11 196
$ 46 650
Rent
2250
2250
2250
2250
2250
Maintenance
4 950
4950
4 950
4 950
19 800
Utilities
3 000
3 000
3 000
3 000
12 000
Graphics design
1 500
1 500
1 500
1 500
6 000
Property taxes and insurance
560
560
560
560
2240
690
690
690
690
2760
12 950
12 950
12 950
12 950
51 800
$ 20 414
$ 22 280
$ 31 610
$ 24 146
$ 98 450
Direct silk-screen hours
960
1 200
2 400
1 440
6000
Overhead rate per silkscreen hour
21.264
18.567
13.171
16.768
16.408
Variable expenses Ink
Total variable expenses Fixed expenses
Depreciation Total fixed expenses Total silk-screen overhead
9
SWEAT GALORE ROSELINDAWATI BINTI ZAINAL ABDIN 2010169575
10. Using the information found in the case and the previous budgets, prepare a Budgeted Income Statement for Sweats Galore for the year ended December 31, 2008.
SWEATS GALORE Budgeted Income Statement For the Year Ending December 31, 2008
Sales Less:
Less:
Cost of goods sold
670 450
Gross profit
129 550
Selling and istrative expenses
103 280
Income from operations Less:
Interest expense Income before income taxes
Less:
$ 800 000
Income tax expense Net income
26 270 1 600 24 670 4 934 $19 763
10
SWEAT GALORE ROSELINDAWATI BINTI ZAINAL ABDIN 2010169575
* Cost Of Goods Sold Material Labor Overheads Cost Of Goods Sold
500 000 72 000 98 450 670 450
* Interest expense 8% X 20 000 = 1600
*Income Tax expense 20% X 24 670 = 4934
11
SWEAT GALORE ROSELINDAWATI BINTI ZAINAL ABDIN 2010169575
11. Using the information found in the case and the previous budgets, prepare a Cash Budget for Sweats Galore for the year ended December 31, 2006. Sweats Galore Cash Budget For the Year Ending December 31, 2008 Quarter 2 3
1 Beginning cash balance
4
0
9136
-19874
7661
Collections from customers
$89,600
$150,400
$272,000
$230,400
Total available cash
$89,600
$159,536
$252,126
$238,061
Payments for shirt purchases
$42,000
$113,000
$147,000
$162,000
Silk-screen labor
$11,520
$14,400
$28,800
$17,280
Silk-screen overhead
$19,724
$21,590
$30,920
$23,456
Selling and istrative expenses
$18,545
$21,745
$37,745
$24,945
$8,675
$8,675
Total disbursements
$100,464
$179,410
$244,465
$227,681
Excess (deficiency) of available cash over disbursements
($10,864)
($19,874)
$7,661
$10,380
($19,874)
$7,661
$10,380
Year
Add: Receipts
Less: Disbursements
Payment for equipment purchase
Financing Borrowings Ending cash balance
$20,000 $9,136
12
SWEAT GALORE ROSELINDAWATI BINTI ZAINAL ABDIN 2010169575
12. Using the information contained in the case and the previous budgets, prepare a Budgeted Balance Sheet for Sweats Galore for the year ended December 31, 2008. Sweats Galore Budgeted Balance Sheet 31-Dec-08 Assets
Cash
10380
s receivable
57600
Sweatshirt Inventory
45000
Equipment
17350
Less: Accumulated depreciation
Total assets
3060 $ 127 270
Liabilities and Owner’s Equity
s payable
81000
Note payable
20000
Interest payable
1600
Taxes payable
4934
Total liabilities
107534
Michael Woods, Capital
19736
13
SWEAT GALORE ROSELINDAWATI BINTI ZAINAL ABDIN 2010169575
Total liabilities and owner’s equity
$ 127 270
13. Using the information contained in the case and the previous budgets, calculate the estimated contribution margin per unit for 2008. Contribution Margin = / =
Sales Revenue Variable Costs Contribution Margin Number of Units Sold CM Per Unit
$800,000 $626,650 $173,350 50,000 $3.47
Calculate the total estimated fixed costs for 2008 (including interest and taxes).
Total Fixed Costs
$153,614
Compute the break-even point in units and dollars for 2008. Break Even + Fixed Costs / Net Income Contribution Margin Ratio Break Even ($) + Fixed Costs / 0 Net Income = Control Margin BE Point Units
$153,614 0 0.2166875 $708,920 $153,614 0 $3.47 44,307
14
SWEAT GALORE ROSELINDAWATI BINTI ZAINAL ABDIN 2010169575
14. Michael is very disappointed that he did not have an income of $25,000 for his first year of budgeted operations as he had wanted. How many shirts would Michael have to sell in order to have a profit of $25,000? Amount of shirts needed to Net $25000 goal.
+ / =
Fixed Cost Target Income CM Per Unit Number of Units
$153,614 $25,000 $3.47 51.52
Why does Michael’s net income differ from his ending cash balance?
The cash is not the same as the net income because the net income doesn't take into any payments made to loans or for equipment bought on credit but does take into depreciation. Depreciation is not counted as part of the cash flow because it is a capital expenditure but is ed for in the net income.
15
SWEAT GALORE ROSELINDAWATI BINTI ZAINAL ABDIN 2010169575
15. Do you think it was a good idea to offer Cary Sue a salary plus 10 percent of sales? Why or why not? We believe it's not a good idea to pay Sue a salary plus 10% commission. She is making $94,400 a year. The net income for the business is less than $20,000 a year. If Michael wants to hit his $25,000 annually, he should pay Sue less of a commission or not pay a salary for when she conducts sales or both. Plus, the other employees much harder than Sue and get paid a much smaller wage than her which can cause resentment among the co-workers.
ADDITIONAL CALCULATIONS Additional Calculations *Silk Screen Labor Hours
# of workers
# hours/week
# weeks
#Hours
6
20
50
6000
/week
/year
/qtr
Student Paper
25
1250
312.5
Local Paper
75
3750
937.5
Total Cost
100
5200
1300
*Rent
Rent/month
Rent/qtr
Sales
250
750
Production
750
2250
Fixed/month
Fixed/qtr
Sales
$600
$1,800.00
.
$600
$1,800.00
*Advertising Cost
*S & A Salaries
16
SWEAT GALORE ROSELINDAWATI BINTI ZAINAL ABDIN 2010169575
*Graphic Design
Fixed/month
fixed/qut
500
1500
*Depreciation Depreciation Equipment
Initial Price
In Years
Cost/Year
Cost/Qtr
Hand-operated press that applies ink to the shirt
$7,500
5
$1,500
$375
Light-exposure table
$1,350
10
$135
$34
Dryer conveyer belt that makes ink dry on the shirts
$2,500
10
$250
$63
Computer with graphics software and color printer
$3,500
4
$875
$219
Total Machinery
$14,850
29
$2,760
$690
Display furniture
$2,000
10
$200
$50
$500
5
$100
$25
Total Non-Machinery
$2,500
15
$300
$75
*Total Costs Equipment
$17,350
44
$3,060
$765
Used cash
17
ANSWERS
1. Do you think it was important for Michael to stipulate that he wanted a business that he would enjoy, that would give back to the community, that would grow and be more successful every year, and that would generate a net income of $25,000 annually? Why or why not? It's always important to set goals to measure the success of any business. However, the first three goals are more of a mission statement while the fourth is an objective for the company. The problem is there no plan and one objective. What is he going to do if the company doesn't net the $25,000? Or what if it nets the $25,000 but there is not enough cash to sustain the business? There need to be more objectives to make allowances for these types of situations. There needs to be a plan of action where goals change from period to period. Otherwise, the business cannot succeed.
1
SWEAT GALORE ROSELINDAWATI BINTI ZAINAL ABDIN 2010169575
2. If Michael has sales of $12,000 during January of his first year of business, determine the amount of variable and fixed costs associated with utilities and maintenance using the high-low method for each.
Hi-Lo Maintenance September January Difference Cost/unit
Units 8,000 2,000 6,000
Cost $1,914.00 $1,716.00 $198.00 $0.03
Hi-Lo Utilities September January Difference Cost/Unit
Units 8,000 2000 6,000
Cost $1,400.00 $1,100.00 $300.00 $0.05
January Sales January /unit cost January Units
12000 16 750
Maintenance Cost January
Utilities Cost January
Units Cost/unit Total Variable Costs Units Cost/Unit Total Variable Costs
750 $0.03 $24.75 750 $0.05 $37.50
2
SWEAT GALORE ROSELINDAWATI BINTI ZAINAL ABDIN 2010169575
3. Using the format below, prepare a Sales Budget for the year ending 2008. SWEATS GALORE Sales Budget For the Year Ending December 31, 2008 Quarter
Expected unit sales
1
2
3
4
Year
8 000
10 000
20 000
12 000
50 000
Unit selling price
X
16
16
16
16
16
Budgeted sales revenue
$
128 000
160 000
320 000
192 000
800 000
4. Prepare a Schedule of Expected Collections from Customers
SWEATS GALORE Schedule of Expected Collections from Customers For the Year Ending December 31, 2008 Quarter 1 s Receivable 1/1/06
-0-
First quarter ($ 128 000)
89 600
Second quarter ($ 160 000)
2
3
38 400 112 000
Third quarter ($ 320 000)
48 000 224 000
Fourth quarter ($ 192 000) Total collections
4
96 000 134 000
$ 89 600
$ 150 400
$ 272 000
$ 230 400
3
SWEAT GALORE ROSELINDAWATI BINTI ZAINAL ABDIN 2010169575
5. Michael learned from talking with Jayne that the supplier is so focused on making quality sweatshirts that many times the shirts are not available for several days. She encouraged Michael to maintain an ending inventory of shirts equal to 25 percent of the next quarter’s sales. Prepare a Purchases Budget for shirts using the format provided. SWEATS GALORE Shirt Purchases Budget For the Year Ending December 31, 2008 Quarter 1
2
3
4
Year
Shirts to be silk-screened
8 000
10 000
20 000
12 000
18 000
Plus desired ending inventory
2 500
5 000
3 000
4 500
Total shirts required
10 500
15 000
23 000
16 500
0
2 500
5 000
3 000
10 500
12 500
18 000
13 500
10
10
10
10
Less beginning inventory Total shirts needed Cost per shirt Total cost of shirt purchases
$105 000
$ 125 000 $ 180 000 $ 135 000
4
SWEAT GALORE ROSELINDAWATI BINTI ZAINAL ABDIN 2010169575
6. Prepare a Schedule of Expected Payments for Purchases
SWEATS GALORE Schedule of Expected Payments for Purchases For the Year Ending December 31, 2008 Quarter 1 s Payable 1/1/06
-0-
First quarter ( $ 105 000)
42 000
Second quarter ( $ 125 000)
2
3
63 000 50 000
Third quarter ($ 180 000)
75 000 72 000
Fourth quarter ($ 135 000) Total payments
4
108 000 54 000
$ 42 000
$ 113 000
$ 147 000
81 000
$ 162 000
5
SWEAT GALORE ROSELINDAWATI BINTI ZAINAL ABDIN 2010169575
7. Prepare a Silk-screen Labor Budget. SWEATS GALORE Silk-screen Labor Budget For the Year Ending December 31, 2008 Quarter Units to be produced Silk-screen labor hours per unit Total required silk-screen labor hours Silk-screen labor cost per hour Total silk-screen labor cost
X
X
1
2
3
4
Year
8 000
10 000
20 000
12 000
50 000
0.12
0.12
0.12
0.12
0.12
960
1 200
2 400
1 440
6 000
12
12
12
12
12
$ 11 520
$ 14 400
$ 28 800
$ 17 280
$ 72 000
6
SWEAT GALORE ROSELINDAWATI BINTI ZAINAL ABDIN 2010169575
8. Prepare a Selling and istrative Expense Budget for Sweats Galore for the year ending December 31, 2008. SWEATS GALORE Selling and istrative Expense Budget For the Year Ending December 31, 2008
1
Quarter 2
3
4
Year
Variable expenses Sales commissions (10%)
12 800
16 000
32 000
19 200
80 000
12 800
16 000
32 000
19 200
80 000
1 300
1 300
1 300
1 300
52 000
750
750
750
750
3 000
Sales salaries
1 800
1 800
1 800
1 800
7 200
Office salaries
1 800
1 800
1 800
1 800
7 200
Depreciation
75
75
75
75
300
Property taxes and insurance
95
95
95
95
380
5 820
5 820
5 820
5 820
23 280
$ 18 620
$ 21 820
$ 37 820
$ 25 020
$ 103 280
Total variable expenses Fixed expenses Advertising Rent
Total fixed expenses Total selling and istrative expenses
7
SWEAT GALORE ROSELINDAWATI BINTI ZAINAL ABDIN 2010169575
1 year = 52 weeks 1 Quarter = 52 / 4 = 13 weeks Fixed Expenses Advertising
1) 25+ 75 = 100 2) 100 X 52 = 5200 3) 5 200 ÷ 4 = 1300
Rent
1000 X 0.25 X 3 = 750
Sales salaries
1200 X 0.5 X 3 = 1800
Office salaries
1200 X 0.5 X 3 = 1800
Depreciation
1) 2000 ÷ 10÷ 4 = 50 2) 500÷ 5÷4 = 25 3) 50 + 25 = 75
Property Taxes and Insurance
380÷ 4 = 95
8
SWEAT GALORE ROSELINDAWATI BINTI ZAINAL ABDIN 2010169575
9. Prepare a Silk-screen Overhead Budget for Sweats Galore for the year ending December 31, 2008. Sweats Galore Silk-screen Overhead Expense Budget For the Year Ending December 31, 2008 Quarter 1
2
3
4
Year
6 000
7 500
15 000
9000
37 500
Maintenance
264
330
660
396
1650
Utilities
400
500
1 000
600
2500
Graphics design
800
1 000
2 000
1 200
5000
$7 464
$ 9 330
$ 18 660
$ 11 196
$ 46 650
Rent
2250
2250
2250
2250
2250
Maintenance
4 950
4950
4 950
4 950
19 800
Utilities
3 000
3 000
3 000
3 000
12 000
Graphics design
1 500
1 500
1 500
1 500
6 000
Property taxes and insurance
560
560
560
560
2240
690
690
690
690
2760
12 950
12 950
12 950
12 950
51 800
$ 20 414
$ 22 280
$ 31 610
$ 24 146
$ 98 450
Direct silk-screen hours
960
1 200
2 400
1 440
6000
Overhead rate per silkscreen hour
21.264
18.567
13.171
16.768
16.408
Variable expenses Ink
Total variable expenses Fixed expenses
Depreciation Total fixed expenses Total silk-screen overhead
9
SWEAT GALORE ROSELINDAWATI BINTI ZAINAL ABDIN 2010169575
10. Using the information found in the case and the previous budgets, prepare a Budgeted Income Statement for Sweats Galore for the year ended December 31, 2008.
SWEATS GALORE Budgeted Income Statement For the Year Ending December 31, 2008
Sales Less:
Less:
Cost of goods sold
670 450
Gross profit
129 550
Selling and istrative expenses
103 280
Income from operations Less:
Interest expense Income before income taxes
Less:
$ 800 000
Income tax expense Net income
26 270 1 600 24 670 4 934 $19 763
10
SWEAT GALORE ROSELINDAWATI BINTI ZAINAL ABDIN 2010169575
* Cost Of Goods Sold Material Labor Overheads Cost Of Goods Sold
500 000 72 000 98 450 670 450
* Interest expense 8% X 20 000 = 1600
*Income Tax expense 20% X 24 670 = 4934
11
SWEAT GALORE ROSELINDAWATI BINTI ZAINAL ABDIN 2010169575
11. Using the information found in the case and the previous budgets, prepare a Cash Budget for Sweats Galore for the year ended December 31, 2006. Sweats Galore Cash Budget For the Year Ending December 31, 2008 Quarter 2 3
1 Beginning cash balance
4
0
9136
-19874
7661
Collections from customers
$89,600
$150,400
$272,000
$230,400
Total available cash
$89,600
$159,536
$252,126
$238,061
Payments for shirt purchases
$42,000
$113,000
$147,000
$162,000
Silk-screen labor
$11,520
$14,400
$28,800
$17,280
Silk-screen overhead
$19,724
$21,590
$30,920
$23,456
Selling and istrative expenses
$18,545
$21,745
$37,745
$24,945
$8,675
$8,675
Total disbursements
$100,464
$179,410
$244,465
$227,681
Excess (deficiency) of available cash over disbursements
($10,864)
($19,874)
$7,661
$10,380
($19,874)
$7,661
$10,380
Year
Add: Receipts
Less: Disbursements
Payment for equipment purchase
Financing Borrowings Ending cash balance
$20,000 $9,136
12
SWEAT GALORE ROSELINDAWATI BINTI ZAINAL ABDIN 2010169575
12. Using the information contained in the case and the previous budgets, prepare a Budgeted Balance Sheet for Sweats Galore for the year ended December 31, 2008. Sweats Galore Budgeted Balance Sheet 31-Dec-08 Assets
Cash
10380
s receivable
57600
Sweatshirt Inventory
45000
Equipment
17350
Less: Accumulated depreciation
Total assets
3060 $ 127 270
Liabilities and Owner’s Equity
s payable
81000
Note payable
20000
Interest payable
1600
Taxes payable
4934
Total liabilities
107534
Michael Woods, Capital
19736
13
SWEAT GALORE ROSELINDAWATI BINTI ZAINAL ABDIN 2010169575
Total liabilities and owner’s equity
$ 127 270
13. Using the information contained in the case and the previous budgets, calculate the estimated contribution margin per unit for 2008. Contribution Margin = / =
Sales Revenue Variable Costs Contribution Margin Number of Units Sold CM Per Unit
$800,000 $626,650 $173,350 50,000 $3.47
Calculate the total estimated fixed costs for 2008 (including interest and taxes).
Total Fixed Costs
$153,614
Compute the break-even point in units and dollars for 2008. Break Even + Fixed Costs / Net Income Contribution Margin Ratio Break Even ($) + Fixed Costs / 0 Net Income = Control Margin BE Point Units
$153,614 0 0.2166875 $708,920 $153,614 0 $3.47 44,307
14
SWEAT GALORE ROSELINDAWATI BINTI ZAINAL ABDIN 2010169575
14. Michael is very disappointed that he did not have an income of $25,000 for his first year of budgeted operations as he had wanted. How many shirts would Michael have to sell in order to have a profit of $25,000? Amount of shirts needed to Net $25000 goal.
+ / =
Fixed Cost Target Income CM Per Unit Number of Units
$153,614 $25,000 $3.47 51.52
Why does Michael’s net income differ from his ending cash balance?
The cash is not the same as the net income because the net income doesn't take into any payments made to loans or for equipment bought on credit but does take into depreciation. Depreciation is not counted as part of the cash flow because it is a capital expenditure but is ed for in the net income.
15
SWEAT GALORE ROSELINDAWATI BINTI ZAINAL ABDIN 2010169575
15. Do you think it was a good idea to offer Cary Sue a salary plus 10 percent of sales? Why or why not? We believe it's not a good idea to pay Sue a salary plus 10% commission. She is making $94,400 a year. The net income for the business is less than $20,000 a year. If Michael wants to hit his $25,000 annually, he should pay Sue less of a commission or not pay a salary for when she conducts sales or both. Plus, the other employees much harder than Sue and get paid a much smaller wage than her which can cause resentment among the co-workers.
ADDITIONAL CALCULATIONS Additional Calculations *Silk Screen Labor Hours
# of workers
# hours/week
# weeks
#Hours
6
20
50
6000
/week
/year
/qtr
Student Paper
25
1250
312.5
Local Paper
75
3750
937.5
Total Cost
100
5200
1300
*Rent
Rent/month
Rent/qtr
Sales
250
750
Production
750
2250
Fixed/month
Fixed/qtr
Sales
$600
$1,800.00
.
$600
$1,800.00
*Advertising Cost
*S & A Salaries
16
SWEAT GALORE ROSELINDAWATI BINTI ZAINAL ABDIN 2010169575
*Graphic Design
Fixed/month
fixed/qut
500
1500
*Depreciation Depreciation Equipment
Initial Price
In Years
Cost/Year
Cost/Qtr
Hand-operated press that applies ink to the shirt
$7,500
5
$1,500
$375
Light-exposure table
$1,350
10
$135
$34
Dryer conveyer belt that makes ink dry on the shirts
$2,500
10
$250
$63
Computer with graphics software and color printer
$3,500
4
$875
$219
Total Machinery
$14,850
29
$2,760
$690
Display furniture
$2,000
10
$200
$50
$500
5
$100
$25
Total Non-Machinery
$2,500
15
$300
$75
*Total Costs Equipment
$17,350
44
$3,060
$765
Used cash
17
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