Sweat Galore

SWEAT GALORE
ROSELINDAWATI BINTI ZAINAL ABDIN 2010169575
ANSWERS
1. Do you think it was important for Michael to stipulate that he wanted a business that he
would enjoy, that would give back to the community, that would grow and be more
successful every year, and that would generate a net income of $25,000 annually? Why
or why not?
It's always important to set goals to measure the success of any business. However, the
first three goals are more of a mission statement while the fourth is an objective for the
company. The problem is there no plan and one objective. What is he going to do if the
company doesn't net the $25,000? Or what if it nets the $25,000 but there is not
enough cash to sustain the business? There need to be more objectives to make
allowances for these types of situations. There needs to be a plan of action where goals
change from period to period. Otherwise, the business cannot succeed.
1
SWEAT GALORE
2. If Michael has sales of $12,000 during January of his first year of business, determine the
amount of variable and fixed costs associated with utilities and maintenance using the
high-low method for each.
Hi-Lo Maintenance Units Cost

September 8,000 $1,914.00
January 2,000 $1,716.00
Difference 6,000 $198.00
Cost/unit $0.03
Hi-Lo Utilities Units Cost

September 8,000 $1,400.00
January 2000 $1,100.00
Difference 6,000 $300.00
Cost/Unit $0.05
January Sales 12000

January /unit cost 16
January Units 750
Maintenance Cost January Units 750

Cost/unit $0.03
Total Variable
Costs $24.75
Utilities Cost January Units 750

Cost/Unit $0.05
Total Variable
Costs $37.50
2
SWEAT GALORE
3. Using the format below, prepare a Sales Budget for the year ending 2008.
SWEATS GALORE
Sales Budget
For the Year Ending December 31, 2008
Quarter
1 2 3 4 Year
Expected unit sales 8 000 10 000 20 000 12 000 50 000
Unit selling price X 16 16 16 16 16
Budgeted sales
$ 128 000 160 000 320 000 192 000 800 000
revenue
4. Prepare a Schedule of Expected Collections from Customers
SWEATS GALORE
Schedule of Expected Collections from Customers
Quarter
1 2 3 4
Accounts Receivable 1/1/06 -0-
First quarter ($ 128 000) 89 600 38 400
Second quarter ($ 160 000) 112 000 48 000
Third quarter ($ 320 000) 224 000 96 000
Fourth quarter ($ 192 000) 134 000
Total collections $ 89 600 $ 150 400 $ 272 000 $ 230 400
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SWEAT GALORE
5. Michael learned from talking with Jayne that the supplier is so focused on making
quality sweatshirts that many times the shirts are not available for several days. She
encouraged Michael to maintain an ending inventory of shirts equal to 25 percent of the
next quarter’s sales.
Prepare a Purchases Budget for shirts using the format provided.
SWEATS GALORE
Shirt Purchases Budget
Quarter
1 2 3 4 Year
Shirts to be silk-screened 8 000 10 000 20 000 12 000 18 000
Plus desired ending inventory 2 500 5 000 3 000 4 500
Total shirts required 10 500 15 000 23 000 16 500
Less beginning inventory 0 2 500 5 000 3 000
Total shirts needed 10 500 12 500 18 000 13 500
Cost per shirt 10 10 10 10
Total cost of shirt purchases $105 000 $ 125 000 $ 180 000 $ 135 000
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SWEAT GALORE
6. Prepare a Schedule of Expected Payments for Purchases
SWEATS GALORE
Schedule of Expected Payments for Purchases
Quarter
1 2 3 4
Accounts Payable 1/1/06 -0-
First quarter ( $ 105 000) 42 000 63 000
Second quarter ( $ 125 000) 50 000 75 000
Third quarter ($ 180 000) 72 000 108 000
Fourth quarter ($ 135 000) 54 000 81 000
Total payments $ 42 000 $ 113 000 $ 147 000 $ 162 000
5
SWEAT GALORE
7. Prepare a Silk-screen Labor Budget.
SWEATS GALORE
Silk-screen Labor Budget
Quarter
1 2 3 4 Year
Units to be produced 8 000 10 000 20 000 12 000 50 000
Silk-screen labor hours per

X 0.12 0.12 0.12 0.12 0.12
unit
Total required silk-screen
960 1 200 2 400 1 440 6 000
labor hours
Silk-screen labor cost per
X 12 12 12 12 12
hour
Total silk-screen labor cost $ 11 520 $ 14 400 $ 28 800 $ 17 280 $ 72 000
6
SWEAT GALORE
8. Prepare a Selling and Administrative Expense Budget for Sweats Galore for the year
ending December 31, 2008.
SWEATS GALORE
Selling and Administrative Expense Budget
Quarter
1 2 3 4 Year
Variable expenses
Sales commissions (10%) 12 800 16 000 32 000 19 200 80 000
Total variable expenses 12 800 16 000 32 000 19 200 80 000
Fixed expenses
Advertising 1 300 1 300 1 300 1 300 52 000
Rent 750 750 750 750 3 000
Sales salaries 1 800 1 800 1 800 1 800 7 200
Office salaries 1 800 1 800 1 800 1 800 7 200
Depreciation 75 75 75 75 300
Property taxes and insurance 95 95 95 95 380
Total fixed expenses 5 820 5 820 5 820 5 820 23 280
Total selling and administrative

$ 18 620 $ 21 820 $ 37 820 $ 25 020 $ 103 280
expenses
7
SWEAT GALORE
 1 year = 52 weeks
 1 Quarter = 52 / 4
= 13 weeks
Fixed Expenses
Advertising 1) 25+ 75 = 100
2) 100 X 52 = 5200
3) 5 200 ÷ 4 = 1300
Rent 1000 X 0.25 X 3 = 750
Sales salaries 1200 X 0.5 X 3 = 1800
Office salaries 1200 X 0.5 X 3 = 1800
Depreciation 1) 2000 ÷ 10÷ 4 = 50

2) 500÷ 5÷4 = 25
3) 50 + 25 = 75
Property Taxes and Insurance 380÷ 4 = 95
8
SWEAT GALORE
9. Prepare a Silk-screen Overhead Budget for Sweats Galore for the year ending December
31, 2008.
Sweats Galore
Silk-screen Overhead Expense Budget
Quarter
1 2 3 4 Year
Variable expenses
Ink 6 000 7 500 15 000 9000 37 500
Maintenance 264 330 660 396 1650
Utilities 400 500 1 000 600 2500
Graphics design 800 1 000 2 000 1 200 5000
Total variable expenses $7 464 $ 9 330 $ 18 660 $ 11 196 $ 46 650
Fixed expenses
Rent 2250 2250 2250 2250 2250
Maintenance 4 950 4950 4 950 4 950 19 800
Utilities 3 000 3 000 3 000 3 000 12 000
Graphics design 1 500 1 500 1 500 1 500 6 000

Property taxes and
560 560 560 560 2240
insurance
Depreciation 690 690 690 690 2760
Total fixed expenses 12 950 12 950 12 950 12 950 51 800

Total silk-screen
$ 20 414 $ 22 280 $ 31 610 $ 24 146 $ 98 450
overhead
Direct silk-screen hours 960 1 200 2 400 1 440 6000
Overhead rate per silk-

21.264 18.567 13.171 16.768 16.408
screen hour
9
SWEAT GALORE
10. Using the information found in the case and the previous budgets, prepare a Budgeted
Income Statement for Sweats Galore for the year ended December 31, 2008.
SWEATS GALORE
Budgeted Income Statement
Sales $ 800 000
Less: Cost of goods sold 670 450
Gross profit 129 550
Less: Selling and administrative expenses 103 280
Income from operations 26 270
Less: Interest expense 1 600
Income before income taxes 24 670
Less: Income tax expense 4 934
Net income $19 763
10
SWEAT GALORE
* Cost Of Goods Sold

Material 500 000
Labor 72 000
Overheads 98 450
Cost Of Goods Sold 670 450
* Interest expense 8% X 20 000 = 1600
*Income Tax expense 20% X 24 670 = 4934
11
SWEAT GALORE
11. Using the information found in the case and the previous budgets, prepare a Cash Budget
for Sweats Galore for the year ended December 31, 2006.
Sweats Galore
Cash Budget
Quarter
1 2 3 4 Year
Beginning cash balance 0 9136 -19874 7661
Add: Receipts
Collections from customers $89,600 $150,400 $272,000 $230,400
Total available cash $89,600 $159,536 $252,126 $238,061
Less: Disbursements
Payments for shirt purchases $42,000 $113,000 $147,000 $162,000
Silk-screen labor $11,520 $14,400 $28,800 $17,280
Silk-screen overhead $19,724 $21,590 $30,920 $23,456
Selling and administrative

$18,545 $21,745 $37,745 $24,945
expenses
Payment for equipment purchase $8,675 $8,675
Total disbursements $100,464 $179,410 $244,465 $227,681
Excess (deficiency) of available

($10,864) ($19,874) $7,661 $10,380
cash over disbursements
Financing
Borrowings $20,000
Ending cash balance $9,136 ($19,874) $7,661 $10,380
12
SWEAT GALORE
12. Using the information contained in the case and the previous budgets, prepare a
Budgeted Balance Sheet for Sweats Galore for the year ended December 31, 2008.
Sweats Galore
Budgeted Balance Sheet
31-Dec-08
Assets
Cash 10380
Accounts receivable 57600
Sweatshirt Inventory 45000
Equipment 17350
Less: Accumulated depreciation 3060
Total assets $ 127 270
Liabilities and Owner’s Equity
Accounts payable 81000
Note payable 20000
Interest payable 1600
Taxes payable 4934
Total liabilities 107534
Michael Woods, Capital 19736
13
SWEAT GALORE
Total liabilities and owner’s equity $ 127 270
13. Using the information contained in the case and the previous budgets, calculate the
estimated contribution margin per unit for 2008.
Contribution Margin
- Sales Revenue $800,000

= Variable Costs $626,650
/ Contribution Margin $173,350
= Number of Units Sold 50,000
CM Per Unit $3.47
Calculate the total estimated fixed costs for 2008 (including interest and taxes).
Total Fixed Costs $153,614
Compute the break-even point in units and dollars for 2008.
Break Even
+ Fixed Costs $153,614

/ Net Income 0
Contribution Margin
Ratio 0.2166875
Break Even ($) $708,920
+ Fixed Costs $153,614

/ 0 Net Income 0
= Control Margin $3.47
BE Point Units 44,307
14
SWEAT GALORE
14. Michael is very disappointed that he did not have an income of $25,000 for his first year
of budgeted operations as he had wanted. How many shirts would Michael have to sell
in order to have a profit of $25,000?
Amount of shirts needed to Net $25000 goal.
Fixed Cost $153,614

+ Target Income $25,000
/ CM Per Unit $3.47
=
Number of Units 51.52
Why does Michael’s net income differ from his ending cash balance?
The cash is not the same as the net income because the net income doesn't take into
account any payments made to loans or for equipment bought on credit but does take
into account depreciation. Depreciation is not counted as part of the cash flow because
it is a capital expenditure but is accounted for in the net income.
15
SWEAT GALORE
15. Do you think it was a good idea to offer Cary Sue a salary plus 10 percent of sales? Why
or why not?
We believe it's not a good idea to pay Sue a salary plus 10% commission. She is making
$94,400 a year. The net income for the business is less than $20,000 a year. If Michael
wants to hit his $25,000 annually, he should pay Sue less of a commission or not pay a
salary for when she conducts sales or both. Plus, the other employees much harder
than Sue and get paid a much smaller wage than her which can cause resentment
among the co-workers.
ADDITIONAL
CALCULATIONS
Additional Calculations
*Silk Screen Labor Hours # of workers # hours/week # weeks #Hours
6 20 50 6000
*Advertising Cost /week /year /qtr

Student Paper 25 1250 312.5
Local Paper 75 3750 937.5
Total Cost 100 5200 1300
*Rent Rent/month Rent/qtr

Sales 250 750
Production 750 2250
*S & A Salaries Fixed/month Fixed/qtr

Sales $600 $1,800.00
Admin. $600 $1,800.00
16
SWEAT GALORE
*Graphic Design Fixed/month fixed/qut

500 1500
*Depreciation
Depreciation
Equipment Initial Price In Years Cost/Year Cost/Qtr
Hand-operated press that

applies ink to the shirt $7,500 5 $1,500 $375
Light-exposure table $1,350 10 $135 $34
Dryer conveyer belt that

makes ink dry on the shirts $2,500 10 $250 $63
Computer with graphics

software and color printer $3,500 4 $875 $219
Total Machinery $14,850 29 $2,760 $690
Display furniture $2,000 10 $200 $50
Used cash register $500 5 $100 $25
Total Non-Machinery $2,500 15 $300 $75
*Total Costs Equipment $17,350 44 $3,060 $765
17

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What are the key steps in preparing a sales budget?

What are the key steps in preparing a sales budget?

What are the key steps in preparing a purchases budget?

What are the key steps in preparing a purchases budget?

SWEAT GALORE

ROSELINDAWATI BINTI ZAINAL ABDIN 2010169575

Hi-Lo Maintenance Units Cost

Hi-Lo Utilities Units Cost

January Sales 12000

Maintenance Cost January Units 750

Utilities Cost January Units 750

Expected unit sales 8 000 10 000 20 000 12 000 50 000

Unit selling price X 16 16 16 16 16

4. Prepare a Schedule of Expected Collections from Customers

Accounts Receivable 1/1/06 -0-

First quarter ($ 128 000) 89 600 38 400

Second quarter ($ 160 000) 112 000 48 000

Third quarter ($ 320 000) 224 000 96 000

Fourth quarter ($ 192 000) 134 000

Total collections $ 89 600 $ 150 400 $ 272 000 $ 230 400

Prepare a Purchases Budget for shirts using the format provided.

Shirts to be silk-screened 8 000 10 000 20 000 12 000 18 000

Plus desired ending inventory 2 500 5 000 3 000 4 500

Total shirts required 10 500 15 000 23 000 16 500

Less beginning inventory 0 2 500 5 000 3 000

Total shirts needed 10 500 12 500 18 000 13 500

Cost per shirt 10 10 10 10

6. Prepare a Schedule of Expected Payments for Purchases

Accounts Payable 1/1/06 -0-

First quarter ( $ 105 000) 42 000 63 000

Second quarter ( $ 125 000) 50 000 75 000

Third quarter ($ 180 000) 72 000 108 000

Fourth quarter ($ 135 000) 54 000 81 000

Total payments $ 42 000 $ 113 000 $ 147 000 $ 162 000

7. Prepare a Silk-screen Labor Budget.

Units to be produced 8 000 10 000 20 000 12 000 50 000

Silk-screen labor hours per

Total silk-screen labor cost $ 11 520 $ 14 400 $ 28 800 $ 17 280 $ 72 000

Sales commissions (10%) 12 800 16 000 32 000 19 200 80 000

Total variable expenses 12 800 16 000 32 000 19 200 80 000

Advertising 1 300 1 300 1 300 1 300 52 000

Rent 750 750 750 750 3 000

Sales salaries 1 800 1 800 1 800 1 800 7 200

Office salaries 1 800 1 800 1 800 1 800 7 200

Property taxes and insurance 95 95 95 95 380

Total fixed expenses 5 820 5 820 5 820 5 820 23 280

Total selling and administrative

Rent 1000 X 0.25 X 3 = 750

Sales salaries 1200 X 0.5 X 3 = 1800

Office salaries 1200 X 0.5 X 3 = 1800

Depreciation 1) 2000 ÷ 10÷ 4 = 50

Property Taxes and Insurance 380÷ 4 = 95

Ink 6 000 7 500 15 000 9000 37 500

Maintenance 264 330 660 396 1650

Utilities 400 500 1 000 600 2500

Graphics design 800 1 000 2 000 1 200 5000

Total variable expenses $7 464 $ 9 330 $ 18 660 $ 11 196 $ 46 650

Rent 2250 2250 2250 2250 2250

Maintenance 4 950 4950 4 950 4 950 19 800