ACCT 621 Take-Home Midterm: Trina's Software Mini-Case

Trina is thinking of quitting her job as a software engineer (annual salary of $75,000 per year) and

starting her own programming service business. Due to her vast social network, she knows 20 to 25

small business owners who have already expressed strong interest in obtaining custom-built software

programs which would make their businesses much more efficient. Trina believes, she can earn average

revenues of $2,000 per client in her first year.

However, she believes that word of mouth and a marketing budget of $3,000 per year will get her to 30

clients in year two, with an average annual revenue of $2,500 per client. In addition to marketing, Trina

will have an average monthly supplies expense of $200 in her first year. There will also be equipment

depreciation.

Trina is conservatively projecting a 10% increase in revenues from year two to year three and a 15%

increase in all expenses except depreciation (which will stay the same). She expects growth of both

revenues and expenses to level off after year three. Trina is interested in trend analysis on her

projections and is wondering if this career move would be a good one for her, both short-term and long-

term.

As someone who is well aware of the importance of cyber-security, Trina is wondering about how to

keep cash secure. She plans on using cash, cheques, and debit cards to make payments to suppliers. She

plans on accepting cash and cheques as payments for her services. Trina expects to host customers

regularly in her home office as she presents her work and exchanges ideas. She is aware that her

attention won't always be fully on the customer, with phone calls and other things happening. She may

also have an employee or two in her workspace in the future.

Trina will be providing her customers with an operating manual with each major purchase. Currently,

she can buy fifty blank books for $300. She expects the price of these books to fluctuate on a regular

basis, as they have historically. She wonders how these price changes of the blank books could impact

her cost per customer order completed. She has heard of different inventory costing methods and

wonders how implementing one method over another could impact her numbers. She wants

recommendation of a specific method and advice on how to implement it well.

Trina is wondering if she should move out of her home office after three years. She estimates that

setting up a store would cost $50,000 which she would finance via a long-term bank loan (estimated

annual interest rate of 3%). Having a store would allow her to sell computer equipment in addition to

her software. The store would keep her software income as is, but annual product revenues would

amount to $25,000 per year (inventory is marked up 40%). There would also be a monthly rent expense

of $1,500 per month. Trina is excited to start her own business- she feels that her job doesn't really offer any upside in the

future. However, she is does place some value in getting a steady paycheck. Please advise Trina on

starting her new business versus continuing as an employee. Also, provide any business

recommendations you can, with detailed analysis/rationale.