Answered step by step
Verified Expert Solution
Question
...
1 Approved Answer
Calculate the total amount of cash you will need to have before opening your business, in order to buy all necessary equipment and machines, to
- Calculate the total amount of cash you will need to have before opening your business, in order to buy all necessary equipment and machines, to purchase all materials and supplies needed for the first three months of operations, and to pay your employees first three months wages. Assume that your parents have agreed to loan you this amount and only charge you 5% interest each year. The following information regarding cash payment needs for your variable and fixed costs are below:
- Variable costs: For every variable cost item, you decide to buy sufficient quantity for making the first 2,000 t-shirts. You also want to prepare sufficient amount of cash to pay for the labor costs needed for making the first 2,000 t-shirts. Assume you can pay your workers for a fraction of an hour but you cannot purchase a fraction of an ink-jet cartridge or a partial case/ream of paper.
- Fixed costs: Your initial amount of cash should be sufficient to pay for the first quarters cash needs for your fixed costs. For your fixed cost items, payments will be made according to below:
- Rent to the mall will be paid monthly
- Full payment to the artist, full payment for the computer and printer, and full payment for heat press machine will need to be made before you open for business.
- You will not pay yourself until the end of the first year of operations.
- Prepare a cash budget for your company for the first year of operations. Assume that the selling price is $15/t-shirt and that 7,800 t-shirts will be made and sold in the first year. Assume all sales are cash sales and that all costs are paid in cash. Your cash balance on January 1 is the amount you are borrowing from your parents (amount calculated in step 1 above). Remember when calculating your manufacturing and selling & administrative expenses, that monthly depreciation on your equipment (i.e. computer & printer and heating press) is not a cash payment. You decide to keep a cash balance of $5,000 at the end of the year. You will use the extra cash to back the loan from your parents including the interest that is owed.
Based on the estimated sales level of 7,800 t-shirts for the first year, prepare your companys budgeted income statement for the first year of operations. Remember when calculating your cost of goods sold and selling & administrative amounts, that monthly depreciation on your equipment (i.e. computer & printer and heating press) is an expense to the company.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-text-image.webp)
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-subtext-image.webp)
Step: 3
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-subtext-image.webp)
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started