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# SWEAT GALORE

## ROSELINDAWATI BINTI ZAINAL ABDIN 2010169575

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.

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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 Units Cost

September 8,000 \$1,914.00
January 2,000 \$1,716.00
Difference 6,000 \$198.00
Cost/unit \$0.03

## Hi-Lo Utilities Units Cost

September 8,000 \$1,400.00
January 2000 \$1,100.00
Difference 6,000 \$300.00
Cost/Unit \$0.05

## January Sales 12000

January /unit cost 16
January Units 750

Cost/unit \$0.03
Total Variable
Costs \$24.75

## Utilities Cost January Units 750

Cost/Unit \$0.05
Total Variable
Costs \$37.50

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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
1 2 3 4 Year

## Unit selling price X 16 16 16 16 16

Budgeted sales
\$ 128 000 160 000 320 000 192 000 800 000
revenue

## 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 2 3 4

## Total collections \$ 89 600 \$ 150 400 \$ 272 000 \$ 230 400

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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

## Cost per shirt 10 10 10 10

Total cost of shirt purchases \$105 000 \$ 125 000 \$ 180 000 \$ 135 000

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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 2 3 4

## Total payments \$ 42 000 \$ 113 000 \$ 147 000 \$ 162 000

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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
1 2 3 4 Year

## Silk-screen labor hours per

X 0.12 0.12 0.12 0.12 0.12
unit
Total required silk-screen
960 1 200 2 400 1 440 6 000
labor hours
Silk-screen labor cost per
X 12 12 12 12 12
hour

## Total silk-screen labor cost \$ 11 520 \$ 14 400 \$ 28 800 \$ 17 280 \$ 72 000

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SWEAT GALORE
ROSELINDAWATI BINTI ZAINAL ABDIN 2010169575

8. Prepare a Selling and Administrative Expense Budget for Sweats Galore for the year
ending December 31, 2008.

SWEATS GALORE
For the Year Ending December 31, 2008

Quarter
1 2 3 4 Year

Variable expenses

Fixed expenses

## Office salaries 1 800 1 800 1 800 1 800 7 200

Depreciation 75 75 75 75 300

## Total fixed expenses 5 820 5 820 5 820 5 820 23 280

\$ 18 620 \$ 21 820 \$ 37 820 \$ 25 020 \$ 103 280
expenses

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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

2) 500÷ 5÷4 = 25
3) 50 + 25 = 75

## Property Taxes and Insurance 380÷ 4 = 95

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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
For the Year Ending December 31, 2008

Quarter
1 2 3 4 Year
Variable expenses

Fixed expenses

## Graphics design 1 500 1 500 1 500 1 500 6 000

Property taxes and
560 560 560 560 2240
insurance
Depreciation 690 690 690 690 2760

## Total fixed expenses 12 950 12 950 12 950 12 950 51 800

Total silk-screen
\$ 20 414 \$ 22 280 \$ 31 610 \$ 24 146 \$ 98 450
Direct silk-screen hours 960 1 200 2 400 1 440 6000

21.264 18.567 13.171 16.768 16.408
screen hour

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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

## Net income \$19 763

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SWEAT GALORE
ROSELINDAWATI BINTI ZAINAL ABDIN 2010169575

## * Cost Of Goods Sold

Material 500 000
Labor 72 000
Cost Of Goods Sold 670 450

## *Income Tax expense 20% X 24 670 = 4934

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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
1 2 3 4 Year
Beginning cash balance 0 9136 -19874 7661

## Total available cash \$89,600 \$159,536 \$252,126 \$238,061

Less: Disbursements

## Silk-screen overhead \$19,724 \$21,590 \$30,920 \$23,456

\$18,545 \$21,745 \$37,745 \$24,945
expenses

## Excess (deficiency) of available

(\$10,864) (\$19,874) \$7,661 \$10,380
cash over disbursements

Financing

Borrowings \$20,000

## Ending cash balance \$9,136 (\$19,874) \$7,661 \$10,380

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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

Equipment 17350

## Michael Woods, Capital 19736

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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 \$800,000

= Variable Costs \$626,650
/ Contribution Margin \$173,350
= Number of Units Sold 50,000

## CM Per Unit \$3.47

Calculate the total estimated fixed costs for 2008 (including interest and taxes).

Break Even

## + Fixed Costs \$153,614

/ Net Income 0
Contribution Margin
Ratio 0.2166875

## + Fixed Costs \$153,614

/ 0 Net Income 0
= Control Margin \$3.47

## BE Point Units 44,307

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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?

## Fixed Cost \$153,614

+ Target Income \$25,000
/ CM Per Unit \$3.47
=
Number of Units 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
account any payments made to loans or for equipment bought on credit but does take
into account depreciation. Depreciation is not counted as part of the cash flow because
it is a capital expenditure but is accounted for in the net income.

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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.

CALCULATIONS
*Silk Screen Labor Hours # of workers # hours/week # weeks #Hours
6 20 50 6000

## *Advertising Cost /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

## *S & A Salaries Fixed/month Fixed/qtr

Sales \$600 \$1,800.00

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ROSELINDAWATI BINTI ZAINAL ABDIN 2010169575

500 1500

*Depreciation
Depreciation

## Hand-operated press that

applies ink to the shirt \$7,500 5 \$1,500 \$375

## 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

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