Business Description Working in groups you will assume the role of young entrepreneurs to start a small company Your company will rent a retail cart inside the Stoneridge Mall to buy plain T shirts and imprint them with one of the twelve beautiful pictures exclusively designed for your company by a famous artist who is a friend of yours He has agreed to design twelve super attractive T shirt pictures for you each year at a special discount Your target customers are teenagers and young adults who have your kind of good taste Your business is scheduled to launch on July 1,2021 Cost information 1) Stoneridge charges you $3,500 rent per month, which includes utilities, telephone, cleaning, and maintenance You estimated that 90 of the rent was related to factory operations and 10 was related to selling and administrative activities 2) You will order white, cotton t shirts from a T shirt wholesaler Each T shirt costs (including taxes, shipping, and handling) $3 25 to purchase 3) To store T shirts that were bought, but not yet imprinted, you will rent a storage unit The storage unit costs you $135 per month 4) You agreed to pay your artist friend a $11,000 annual contract fee plus a $325 design fee for each of the 12 T shirt pictures designed This same term is renewable for the next 3 years Each T shirt picture will only be used for one year Therefore, in the second year, 12 new pictures will be designed at $325 each and another $11,000 annual contract fee will be charged 5) You will buy several items before that start of your business a A computer and a printer You will pay $7,000 (including taxes, shipping and handling) to buy a computer and a printer You expect both to last about 3 years without salvage value You will use the straight line method for depreciation You estimate that about 90 of the computer and printer will be used for factory operations and 10 will be for selling and administrative activities b A heat press machine You will pay $4,000 (including taxes, shipping and handling) for a heat press machine The machine is used for imprinting t shirts only and is expected to last 3 years without salvage value c Transfer paper Each case of transfer paper costs $600 and contains 1,200 sheets of 8 511 transfer paper You expect to use one transfer paper to print one T shirt d Ink jet cartridges On average, each cartridge costs $75 and can make 750 prints Each T shirt requires one print You also need to print flyers, etc for selling and administrative purposes For this non manufacturing printing, you will print about one page for every 5 T shirts sold e Laser paper You will buy several reams of laser paper to print promotion flyers, etc Each ream costs $20 and contains 200 sheets of 8 511 laser paper 6) Wrapping paper and box Each T shirt costs about $0 25 to wrap and box Wrapping and boxing are not considered as manufacturing 7) You will hire three fellow students as part time workers They not only help you operate the machine, but also help fold, wrap and box T shirts Sometimes, three of them work at the same time But, sometimes they dont because of their different class schedules On average, printing 10 shirts will take one labor hour Folding and packaging 20 shirts also will take about one labor hour You will pay each of your workers $9 per hour Folding and wrapping are not considered as manufacturing 8) You (the owners) do all the selling and administrative work by yourselves You will pay yourselves a total of $13,500 per year (to be divided among all owners) 9) To protect your business from legal obligation, you will purchase a liability insurance that will cost you $3,000 per year 10) You will hold four end of quarter parties to promote sales of your t shirts Each party costs you about $1,500 Question Cash balance July 1 2021 45'646 66 3) Prepare a cash budget for your companys first year of operations (NOT the first three months or the first 2,500 T shirts ) Continue to assume that the selling price is $21 and that 8,200 t shirts will be made and sold in the first year Assume all sales are cash sales and that all costs and expenses are paid in cash Prepare cash budget for the entire year do not separate the budget into four quarters Your initial cash balance is the amount you reported in Item 2 above You decide to keep a cash balance of $20,000 at June 30, 2022 and use the extra cash, if there is, to pay back part of the loan you borrowed from your parents Thank you

The Answer is in the image, click to view ...

Answered step by step

Verified Expert Solution

Link Copied!

Question

1 Approved Answer

Posted on Oct 03, 2024

Business Description: Working in groups you will assume the role of young entrepreneurs to start a small company. Your company will rent a retail cart

Business Description:

Working in groups you will assume the role of young entrepreneurs to start a small company. Your company will rent a retail cart inside the Stoneridge Mall to buy plain T-shirts and imprint them with one of the twelve beautiful pictures exclusively designed for your company by a famous artist who is a friend of yours. He has agreed to design twelve super attractive T-shirt pictures for you each year at a special discount. Your target customers are teenagers and young adults who have your kind of good taste. Your business is scheduled to launch on July 1,2021.

Cost information:

1) Stoneridge charges you $3,500 rent per month, which includes utilities, telephone, cleaning,

and maintenance. You estimated that 90% of the rent was related to factory operations and 10% was related to selling and administrative activities.
2) You will order white, cotton t-shirts from a T-shirt wholesaler. Each T-shirt costs (including taxes, shipping, and handling) $3.25 to purchase.
3) To store T-shirts that were bought, but not yet imprinted, you will rent a storage unit. The storage unit costs you $135 per month.
4) You agreed to pay your artist friend a $11,000 annual contract fee plus a $325 design fee for each of the 12 T-shirt pictures designed. This same term is renewable for the next 3 years. Each T-shirt picture will only be used for one year. Therefore, in the second year, 12 new pictures will be designed at $325 each and another $11,000 annual contract fee will be charged.
5) You will buy several items before that start of your business: [a] A computer and a printer: You will pay $7,000 (including taxes, shipping and handling)

to buy a computer and a printer. You expect both to last about 3 years without salvage value. You will use the straight-line method for depreciation. You estimate that about 90% of the computer and printer will be used for factory operations and 10% will be for selling and administrative activities.

[b] A heat press machine: You will pay $4,000 (including taxes, shipping and handling) for a heat press machine. The machine is used for imprinting t-shirts only and is expected to last 3 years without salvage value.

[c] Transfer paper: Each case of transfer paper costs $600 and contains 1,200 sheets of 8.511 transfer paper. You expect to use one transfer paper to print one T-shirt.

[d] Ink-jet cartridges: On average, each cartridge costs $75 and can make 750 prints. Each T- shirt requires one print. You also need to print flyers, etc. for selling and administrative purposes. For this non-manufacturing printing, you will print about one page for every 5

T-shirts sold. [e] Laser paper: You will buy several reams of laser paper to print promotion flyers, etc.

Each ream costs $20 and contains 200 sheets of 8.511 laser paper.

6) Wrapping paper and box: Each T-shirt costs about $0.25 to wrap and box. Wrapping and

boxing are not considered as manufacturing.
7) You will hire three fellow students as part-time workers. They not only help you operate the machine, but also help fold, wrap and box T-shirts. Sometimes, three of them work at the same time. But, sometimes they dont because of their different class schedules. On average, printing 10 shirts will take one labor hour. Folding and packaging 20 shirts also will take about one labor hour. You will pay each of your workers $9 per hour. Folding and wrapping are not considered as manufacturing.
8) You (the owners) do all the selling and administrative work by yourselves. You will pay yourselves a total of $13,500 per year (to be divided among all owners).
9) To protect your business from legal obligation, you will purchase a liability insurance that will cost you $3,000 per year.
10) You will hold four end-of-quarter parties to promote sales of your t-shirts. Each party costs you about $1,500.

Question:

Cash balance July 1 2021: 45'646.66

3) Prepare a cash budget for your companys first year of operations. (NOT the first three months or the first 2,500 T-shirts!) Continue to assume that the selling price is $21 and that 8,200 t-shirts will be made and sold in the first year. Assume all sales are cash sales and that all costs and expenses are paid in cash. Prepare cash budget for the entire year; do not separate the budget into four quarters. Your initial cash balance is the amount you reported in Item 2 above. You decide to keep a cash balance of $20,000 at June 30, 2022 and use the extra cash, if there is, to pay back part of the loan you borrowed from your parents.

Thank you!