Question
You decide to earn some money to finance your education by starting a business that designs Web pages. You will begin business on January 1,
You decide to earn some money to finance your education by starting a business that designs Web pages. You will begin business on January 1, 2018, and run the business for the next 12 months. On your Excel spreadsheet, calculate the number of budgeted hours you will work for clients during the year by adding the last three digits of your student ID numbers of you and your partner, if working with a partner. Use only the last three digits of this sum. If working alone, just use the last three digits of your student ID number. If the number is less than 600, add 600 to the number. (If the last three digits of your ID number happen to be 000, use the first three digits of your ID number instead.) This number will be the expected number of billable hours to be worked in the coming budget year. You are going to prepare a budgeted income statement, cash budget, and budgeted balance sheet for the coming year based on the assumptions listed below.
BUDGET ASSUMPTIONS FOR THE COMING YEAR:
1. Before the business begins, you will take $5,000 cash from your savings account to invest in the business. You will protect yourself by organizing as a corporation, with yourself as the only stockholder.
2. Before the business begins, it will buy a computer, printer, and software package that together cost $7,600. Your parents have agreed to lend the business $7,600 cash so that the business can pay for the equipment and software. The business plans to repay your parents on January 31, 2019. Your parents do not expect any interest but require you to sign a promissory note. The beginning balance sheet for your business is presented on the following page:
Arachne, Inc. Balance Sheet
January 1, 2018
Assets
Current Assets
Cash $5,000
Long-term Assets Equipment 7,600
Less Accumulated Depreciation 0
7,600
Total Assets $12,600
Liabilities and Stockholders Equity
Current Liabilities $0
Long-term Liabilities
Note Payable 7,600
Total Liabilities $7,600
Stockholders Equity Common Stock $5,000
Retained Earnings 0
Total Liabilities $5,000
Total Liabilities and Stockholders Equity $12,600
3. Starting January 1, 2018, the business will charge $45 per hour for design work and bill clients as each job is completed. You expect that by December 31, 2018, the end of the fiscal year, 75% of clients will have paid the business in cash. You expect that the rest will pay by January 31, 2019. 203 x 45 = 9135 Sales x .75 = 6851.25 Cash 2283.75 Accts Rec
4. The business will hire an assistant to help with general office work. The assistant will earn $18 per hour and will work exactly the same hours that you work. The assistant will be paid for each month's work on the fifth day of the month following the month when the work is done. For the sake of simplicity, treat the assistant as an independent contractor rather than an employee. This means that you do not have to worry about withholding or matching payroll taxes. Assume that hours worked in December, 2018 are expected to total 10% (round to nearest whole hour) of the total hours for the year. 203 x 18 = 3654 Wage Expense x .1 = 365.4 Wages Payable 3654 365.4 = 3288.6 Cash
5. The business will purchase office supplies for cash of $2,800 in January, 2018
6. On February 1, the business will pay cash of $2,400 for a one-year liability insurance policy.
7. Since this is a new business, you think that it is important to advertise. The business will buy $400 of newspaper advertising each month. All payments for advertising costs will be made in the following month. (For example, January advertising expense will be paid for in February).
8. A dividend of $2,000 will be declared and paid before year end. Record SUMMARY budgeted transactions for the entire year based on the above assumptions in the T-Accounts below. Round all amounts to the nearest whole dollar. The T-Accounts will not be turned in, but should be completed to assist you in completing the budgeted financial statements.
Part A -You MUST use formulas for subtotals and totals Arachne, Inc Budgeted Income Statemeht For the Year Ended December 3, 2018 Hours To Be Worked from (B) or (C) above, which ever is applicable 203 Per hour Total Revenue Variable expenses Wages Expense Supplies Expense Per hour Total 18 3,654 406 Total variable expenses Contribution margin Fixed expenses Prepaid Insurance Advertising Expense Accumulated Depreciation 20 4,060 25 5,075 200 4,800 Total fixed expenses Operating income 1. How many hours of work will it take to break even? 25 2. What is the margin of safety in hours? 3. What is the percentage increase in total contribution margin if hours worked increase 10%? 4.Calculate the the company's operating leverage factor 5-What is the percentage increase in operating income if hours to be worked increase 10%? Part A -You MUST use formulas for subtotals and totals Arachne, Inc Budgeted Income Statemeht For the Year Ended December 3, 2018 Hours To Be Worked from (B) or (C) above, which ever is applicable 203 Per hour Total Revenue Variable expenses Wages Expense Supplies Expense Per hour Total 18 3,654 406 Total variable expenses Contribution margin Fixed expenses Prepaid Insurance Advertising Expense Accumulated Depreciation 20 4,060 25 5,075 200 4,800 Total fixed expenses Operating income 1. How many hours of work will it take to break even? 25 2. What is the margin of safety in hours? 3. What is the percentage increase in total contribution margin if hours worked increase 10%? 4.Calculate the the company's operating leverage factor 5-What is the percentage increase in operating income if hours to be worked increase 10%Step by Step Solution
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