Trudy's Boutique (A) 1. Case 7. The excitement **How can I help you?" Trudy cheerfully asked as she introduced herself. Trudy Thompson was having fun operating her clothing booth at another fair. Her booth offered an assortment of fashionable goods to meet fair-goers' needs. By now she was a pro, and her popular booth was steadily trafficked. Trudy loved it, as fair season was one of her favorite times of the year. On this sunny day, the smell of fried foods and fresh hay filled the Heart of Texas Fair and Rodeo air. The joy-filled day passed quickly as fair-goers moved in and out. As Trudy folded a pair of jeans, a bright-eyed woman approached her, smiling. "'I just wanted to let you know that I really love your booth," she said. "All of your items are so cute! Do you have a store I could order from in the future?" Trudy, while flattered, replied disappointingly, "I actually don't have one. I usually just travel to different events and set up a booth like this one. I'm sorry." The woman smiled, "Well, I think you should definitely open a store. I know I would shop there!" Trudy thanked the woman for her kind words, but as the hours passed, she could not stop thinking about what the customer had said. I've always wanted to run my own store," she thought to herself, and I have been successful with my booths at fairs so far. I enjoy helping my customers. Maybe I can better help them with my own store. I wonder... The seed was planted. Trudy began to dream of opening a retail boutique with a business model centered on creating a feeling of exclusivity by continuing to provide customers with a high level of hands-on service focused on selling unique clothing items typically not found in large retail stores. She would carry a relatively limited inventory of high-quality tops, bottoms, dresses and accessories for women. She concluded a retail boutique fit her business model. I The challenge "Who can help me?" Trudy silently exclaimed in mild exasperation. Trudy had been operating her boutique for a few weeks, and she was running into the many unexpected, messy, real-world implementation challenges that come with trying to tumn a neat idea into reality. She loved her store and was having fun, but starting and running a full-time business required a lot more work and thought. It was almost overwhelming. Trudy had already invested significant amounts of time and cost to handle challenges even before doors opened for business. She had to choose the best location for her store, lease a building, make the many necessary improvements to it, and receive a city inspection all before opening to the publie in November. She also had to determine who to hire, as well as decide how many employees she would need anul how much she should pay them Trudy contemplated many of her new business management challenges. How much inventory should I buy, and how am I supposed to keep track of my Trudy's Boutique (A) inventory?" she thought to herself. And what about keeping track of my purchases, and customer payments, and all of my expenses?" Trudy had invested $3,000 in a computer system after contacting a local CPA firm that recommended she use Quickbooks with a bar-code scanner tied to a computer. The CPA firm helped her purchase and set up a user-friendly system to track all business transactions. Based on Trudy's number of inventory items and Quickbooks' cost-effectiveness, the CPA firm felt confident in their recommended system. Trudy plans to use the straight-line method to depreciate all fixed and intangible assets. Managing her target customers, inventory and business operations were challenging as well. "Should I change what I'm buying? Am I making money? What are the profit margins on my sales? Do I have enough cash? Can I continue to pay my employees and my expenses? How much is the Central National Bank (CNB) loan going to cost me? How would I even know these things?" Trying to keep track of everything was somewhat mentally exhausting. Managing her traveling booth had always been relatively simple. She usually only set up shop at one or two events a month, and she had been doing it for so long. Beginning to run a full-time operation was a different story; she knew she needed help. 1.2 The results Trudy spent the afternoon organizing the boutique's financial information summarized in the table below. Table Trudy's Boutique financial data. years 3 yours Numbers Explanations Initial investment: $25,000.00 Trudy's initial owner investment of her own money into the business Security deposits: $3,000.00 The lease deposit paid for in November when the 36-month lease agreement was signed at the beginning of November $1,000.00 Utility deposit for electricity (November) $500.00 Utility deposit for water and gas (November) Asset information: $12,000.00 10 Amount paid for furniture and fixtures and useful life in years), respectively (Depreciate beginning November 1) 53,000.00 years Cost of computer and useful lito (in years), respectively (Depreciate beginning November 1) 12 months Number of months in a year. The computer was financed interest free over 12 months with 12 even monthly payments $27,000.00 15 Amount spent on to schold improvements and the useful life in yours), respectively (Amortize beginning November !) Central National Bank loan information and borrowing terms: 550,000.00 Amount borrowed from Centrul National Bank (First payment due at the end of November) $990.06 The total monthly loan payment to Central National Bank 796 0.58% Yearly interest rate and monthly intorest rate, respectively 5 60 Number of periods in years and months, respectively Monthly sales $30,000.00 $90,000.00 $40,000.00 The gross sales received from customer for the month of November December, and January, respectively Cost of goods sold, Inventory purchases, and inventory payments information The percentage of monthly gross mules that in Cost of Goods Sold. Cost of Goods Sold is a variable cost Other operating payments' $3,000.00 Monthly rent payment for the 36 monthlesse agreement. Rent is due on the first day of each month S1.000.00 Amount of supplies purchased and used in cach of the first 3 months of operations (paid for at the time of purchase) $2,500.00 51,500.00 51,000.00 Amount spent on advertising in each of the first months of operations November, December and January, respectively $3,500.00 Amount of employee wages paid per month $700.00 The amount of the monthly insurance payment $200.00 550.00 5300.00 The amount of the monthly utilities payments for water and garbage (S200/month), natural y (850/month), and electricity (8300 month), respectively $100.00 The approximate monthly amount paid for misollaneous utilities and other items cach month Notice that all of the other Operatine Payments represented conta 1.1 Trudy's Boutique case questions (Use Excel Spreadsheet) Prepare an income statement for November