Screenshot Tops, Inc. The Business Situation After graduating with a degree in business from Rural College in Campus Town, USA, Michael Woods realized that he wanted to remain in Campus Town and start building a life for himself. After a few unsuccessful attempts at getting a job in his chosen discipline, Michael decided to start his own business. Thinking about his business venture, Michael determined that he had four criteria that were most important to him: He wanted to do something that he would enjoy. He wanted a business that would give back to the community. He wanted a business that could grow and be more successil every year. iii-\"NH Realizing that he was going to have to workvery hard, Michael wanted a business that would generate a minimum net income of at least $2 5,i]i]l] annually. A bit more about Michael: he was president of his fraternity and served as an ofcer in several other student organizations and clubs. During these experiences, he realized that there was no place in Campus Town to have custom shirts made using a silk-screen process. When student organizations wanted shirts for their members to wear or to sell for fundraising on campus, the ofcers had to make a trip to Big liIity, over l miles away, and visit "Shirts and More." Michael grew up in Big City and worked as a part-time employee at Shirts and More while he was in high schooL Back then. he envisioned owning such a shop someday. Michael realized that a shop in Campus Town had the potential to meet all four of his criteria. He set up an appointment with Jayne StolL the owner of Shirts and More, to obtain information useful in getting his shop started. Because Jayne liked Michael and was intrigued by his enterprising spirit, she was happy to answer Michaefs questions and help him. Jayne provided information concerning the equipment Michael would need for his business and its average useful life. Fortunately for Michael, Jayne lmows ofa competitor who is retiring at the end of the year and would like to sell his equipment Michael can purchase the equipment at the beginning of EDZZ, and the retiring owner is willing to give him terms of 5% due upon purchase and S'ii: due at the end of the quarter following the purchase. Michael derided to purchase the following equipment as of January 1. Liabilities and Stockholders' Equity Accounts payable Notes payable interest payable Taxes payable Total liabilities Common stock Retained earnings Total stockholders' equity Total liabilities and stockholders' equity 13. Using the information contained in the case and the previous budgets. a] calculate the estimated contribution margin per unit for 2Com. [Hint Silk-screened labor and the taxes are both xed costs.) b] Calculate the total estimated xed costs for lxx [including interest and taxes]. c] Compute the break-even point in units and dollars for Ether. 14. Michael is very disappointed that the company did not have an income of $25,D for its first year of budgeted operations as he had wanted. How many shirts would the company have had to sell in order to have a pretax prot of $25,D? {Ignore changes in income tax expense] 15. Why does the company's cash balance differ from the net income for the year? 16. Do you think it was a good idea to offer IIIary a salary plus ltlb of sales? Why or why not":I What other thoughts do you have? \fMichaers friends have encouraged him to advertise weekly in the Rural College student newspaper. Upon inquiring, Michael found that a 3" x 3" ad would cost $25 per week Michael also plans to run a weekly ad in the local newspaper that will cost him $15 per week. Michaers goal is to sell a large number of quality shirts at a reasonable price. He estimates the selling price of each customized shirt to be $16.]ayne has suggested that he should ask bulk order customers to pay for MISS of their purchases in the quarter purchased and pay the additional 30% in the following quarter. After talking with the insurance agent and the pro perty valuation administrator in his municipality, Michael estimates that the property taxes and insurance on the machinery will cost $2,24D annually: property tax and insurance on display hlrniture and cash register will total HEIDI annually. Jayne reminded Michael that maintenance of tiie machines is required for the silk-screen process. In addition, Michael realizes that he must consider the cost of utilities to run the shop. The building Michael wants to rent is roughly the same size as the building occupied by Shirts and More. In addition, Shirts and More sells approximately the same number of shirts Michael plans to sell in his store. Therefore, Michael is confident that the maintenance and utility costs for his shop will be comparable to the maintenance and utility costs for Shirts and More, which are as follows within the relevant range of zero to ELDDD shirts per month. Shirts Maintenance Utility Sold [lusts costs [anuary 2,D $1.116 $1.1m) February 2,1 ll] 1,?23 1,153 March 2.6 3'3 1,243 1,1?1 April 3,1 53 1,243 1,193 May 5,333 1,?53 1,2 63 lune 5,333 1,313 1,2 T4 [uly 3,923 1,325 1,2 [15 August 2,333 1,?33 1,11'II'r September 3,D 1,914 1,4DD Dcto bet 6,313 1,363 1,362 November , 1,355 1,34? December 3,D 1,?49 1,193 \fInstructions Answer theioltowinp questions. 1. Do you think it was important for Michael to stipulate his four criteria for the business. including the goal of generating a net income of at least $2 SJJIJU annually?II Why or why not? - Answer in MS Word document. 2. [f the company has sales of$12_ during ]anuary ofthe rst year of business, determine the amount of variable and xed costs associated with a] utilities and b) maintenance using the high-lovur method for each. {Round unitvariable costs to three decimal places TWhere necessary] c} Compute the expected total maintenance and utility cost at $12,[t Sales volume. 3. Using the format below, prepare a sales budget for the year en ding Elboc Screenshot Tops. Inc. Sales Budget For the 'fear Ended December 31, 20x: Quarter 1 3 3 5: Ice: Expected unit sales Unit selling price Budgeted sales revenue 4. Prepare a schedule ofexpected collections from customers. Screensbot Tops, Inc. Schedule of Collections from Customers For the Year Ended December 31, Zxx Quarter 1 E E i \"E Accounts receivable 1 f 1 3' xx -[t- First quarter Second quarter Third quarter Fourth quarter Total collections 5. Michael learned From talking with Iayne that the supplier is so focused on making quality shirts that many times the shirts are not available for several days. She encouraged Michael to maintain an ending inventory ofshirts equal to 25% of the next quarter's sales. Prepare a shirt purchases budget for shirts using the format provided. \f8. Prepare a selling and administrative expenses budget for Screenshot Tops, Inc. for the year ending December 31, 20xx. Screenshot Tops, Inc. Selling and Administrative Expenses Budget For the Year Ended December 31, 20xx Quarter 1 2 3 4 Year Variable expenses: Sales commissions Total variable expenses Fixed expenses: Advertising Rent Sales salaries Office salaries Depreciation Property taxes and insurance Total fixed expenses Total selling and administrative expenses 9. Prepare a silk-screen overhead expenses budget for Screenshot Tops, Inc. for the year ending December 31, 20xx. Screenshot Tops, Inc. Silk-screen Overhead Expenses Budget For the Year Ended December 31, 20xx Quarter 1 2 3 4 Year Variable expenses: Ink Maintenance Utilities Graphics design Total variable expenses Fixed expenses: Rent"Screenshot Tops, inc." case Studv 15!) Points Requirements: 1. Think of this as a presentation to a bank or a supervisor at work. 2. The nal product that vou turn in should be professional: a. All budgets and schedules should be formatted correctly with proper headings. b. Each budget should have its own tab in the excel workbook. c. Schedules and answers should be free from math. spelling, and grammatical errors. d. Final submission should look good and be venlr readable (groupings. oommas. underlines. tables. etc.}l e. We will follow the format discussed in the formatting guidelines included in this document. 3. There are denite solutions to each part of the case studv, ansrs most be EEYEEI- To assist vou. the following check figures are provided. ghgck Figprgs: Total sales 5 300,000 Total collections 5 \"2,400 Total purchases 5 545.0DD Total payments 5 454.0DD Total labor hours Ec Total fixed selling and admin 5 23.230 Total variable overhead 5 46.55D Income before taxes 5 24,5311 Ending cash 5 2,33 Total assets 5 1312311 Your calculationsffinal numbers should match those above. W ingrregt amgpnts. or if vou fail to have the supporting formulas isimplvr keving in the above numbers will not result in awarding of associated points}. 'r'ou should also link 1your schedules to previous schedules where appropriate. 4. 5. 1'. This project must be completed in Excel, with narrative answers {question #1] provided in word. {You cannot use the Apple apps Pages and Numbers or other software programs. Microsoft Ofce 355, which includes Word and Excel is available for free to college students - see the start here section in DEL} Question #1 in the narrative will be answered in MS Word. You will have a separate tab for each question numbers 2-12. You will complete questions 13-15 on a single tab with each question and answer clearly labeled and separated. As noted in Item 3 above, you must use formulas where formulas would logicallyr occu r, as well as correct formats, underlining, etc. in your worksheets. You should link those portions of the worksheet to the previous sections as support and build supporting calculation formulas as needed. Failure to use formulas and proper linkage will result in the loss of points. You mavr work on this in a group or on vour own. If vou work in a group, each group member must fill out a peer evaluation form and vour grade will be based on vour effort put forth bv vou as an individual member according to vour peers. No single team member's grade can exceed the group grade; however, individual grades can be awarded fewer points based on the feedback received. Formatting Guldelines: I The dollar sign should appear only in the first entqlr in each column and not again until the total or subtotal line. Unless the initial number is not in dollars, in which case, when switching from units to dollars the dollar sign should be used. Use commas for numbers over moo. Use horizontal lines to separate headings from column entries and to highlight totals and subtotals {see Chapter 3 exhibits}. Ensure that cells are formatted to the proper size for text to displav f ullv in the cell. Be consistent about vour use of decimal points. Either use them on all numbers in a table or don't use them at all. If vou use decimal points, format to two decimal points. All calculations not included in the budgetfschedule {formula based} should be separated from the schedule clearlv either to the right or below. Calculations {not contained within a formula in a schedule} must be clearlyI labeled and wmmhw