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1.

Yes, it is important for Michael to stipulate the four criteria amid making arrangements for his
new business.
Michael is astute to set criteria other than basically making a benefit. The initial three objectives
are to a greater extent a statement of purpose while the fourth is a target for the organization. In
any case, the reasons why Michael stipulating the four criteria for the business is important are as
per the following.
To begin with, Michael needs to accomplish something he appreciates. Since he has related
knowledge in a related industry and he has imagined having his own business he will be better
arranged to handle the obligations of this new business.
Second, Michael needs a business that would offer back to the group. Michael's uplifting state of
mind will be reflected in the way he handles representatives and clients. Michael's business will
most likely originate from clients, for example, college gatherings, church bunches, urban
associations, youth athletic clubs, and auxiliary school bunches. Since Michael is putting forth
quality shirts at a humble value, he will, as a result, be adding to the group.
Third, Michael needs a business that would develop and be more fruitful consistently. This
premonition (needing to develop and be more fruitful consistently) will urge him to settle on
choices that will benefit the business in the short keep running, as well as over the long haul.
Fourth, Michael sets the objective of producing a net wage of at any rate $25,000 yearly. It is
great to set an objective of creating a base net pay to quantify the achievement of a business.
The issue is that there are no arrangements. What is he going to do if the organization doesn't
have a base net pay of $25,000 every year? Then again imagine a scenario in which it creates a
base net pay of $25,000 every year except there is insufficient money to support the business.
There should be more goals to consider these sorts of circumstances. There should be an
1

arrangement of activity where objectives change from period to period. Something else, the
business can't succeed.
2.
High-low method: Change in total costs High minus low activity level = Variable cost per unit
The difference in the high and low levels of activity is 6,000 units (= 8,000 units in September
2,000 units in January). The difference in maintenance costs is $198 (=$1,914 in September
$1,716 in January).
Variable cost per unit = $198/ 6,000 = $0.033
Total fixed costs = $1,914 - ($0.033 X 8,000) = $1,914 - $264 = $1,650
Therefore, estimated variable cost per unit relating to maintenance is $0.033 and total fixed
costs relating to maintenance are $1,650.
The difference in the high and low levels of activity is 6,000 units (= 8,000 units in September
2,000 units in January). The difference in utility costs is $300 (= $1,400 in September $1,100
in January).
Variable cost per unit = $300 /6,000 = $0.05
Total fixed costs = $1,400 - ($0.05 X 8,000) = $1,400 - $400 = $1,000
Therefore, estimated variable cost per unit relating to utilities is $0.05 and total fixed costs
relating to utilities are $1,000.
Michael has sales of $12,000:
The units sold total = $12,000/ $16 = 750 units.
Variable maintenance costs = 750 shirts X $0.033 = $24.75
Variable utility costs = 750 shirts X $0.05 = $37.50
Therefore, the total variable costs relating to utilities and maintenance for 750 shirts would be
$62.25 (= $37.50 + $24.75), and the total fixed costs would be $2,650 (=$1,000 + $1,650).

3.

SWEATS GALORE

Sales Budget
For the Year Ending December 31, 2008
4 YearQuarter

Expected unit sales


2 3

8,000

10,000

20,000

12,000

50,000

$16

$16

$16

$16

$16

$128,000

$160,000

$320,000

$192,000

Unit selling price


*Budgeted sales
revenue

$800,000

*Budget sales revenue = Expected unit sales X Unit selling price


4.

SWEATS GALORE
Schedule of Expected Collections from Customers
For the Year Ending December 31, 2008
4Quarter
*Accounts receivable
1/1/08 2 3

1
0

$38,400

$48,000

$96,000

$89,600

$38,400

Second quarter

$112,000

$48,000

Third quarter

$224,000

$96,000

Fourth quarter

$134,400

$89,600

$150,400

$272,000

$230,400

First quarter

Total collections

Calculations:
Michael asks customers to pay for 70% of their purchases in the quarter purchased and pay the
additional 30% in the quarter following the purchases.
Amount customer paid for their purchases in current quarter
= Revenue in current quarter X 70%
Amount customer paid for their purchases in first quarter, 2008 = $128,000 X 70% = $89,600
Amount customer paid for their purchases in second quarter, 2008 = $160,000 X 70%
= $112,000
Amount customer paid for their purchases in third quarter, 2008 = $320,000 X 70% = $224,000
Amount customer paid for their purchases in fourth quarter, 2008 = $192,000 X 70% = $134,400
*Accounts receivable in current quarter = Total revenue in last quarter X 30%
Accounts receivable in second quarter, 2008 = $128,000 X 30% = $ 38,400
Accounts receivable in third quarter, 2008 = $160,000 X 30% = $ 48,000
Accounts receivable in fourth quarter, 2008 = $320,000 X 30% = $96,000

5.

SWEATS GALORE
Shirt Purchases Budget
For the Year Ending December 31, 2008
4 YearQuarter
Shirts to be silk-screened
2
3
Plus: *Desired ending
inventory
Total shirts required
Less: Beginning inventory
Total shirts needed

1
8,000

10,000

20,000

12,000

50,000

2,500

5,000

3,000

4,500

15,000

10,500

15,000

23,000

16,500

65,000

2,500

5,000

3,000

10,500

10,500

12,500

18,000

13,500

54500

Shirt Purchases Budget


For the Year Ending December 31, 2008
4 YearQuarter

Shirts to be silk-screened
2
3
Cost per shirt
**Total cost of shirt
purchases

8,000

10,000

20,000

12,000

50,000

$10

$10

$10

$10

$10

$105,000 $125,000

$180,000

$135,000 $545,000

Calculations:
*Desired ending inventory in current quarter = Sales in next quarter X 25%
Desired ending inventory in first quarter, 2008 = 10,000 X 25% = 2,500 units
Desired ending inventory in second quarter, 2008 = 20,000 X 25% = 5,000 units
Desired ending inventory in third quarter, 2008 = 12,000 X 25% = 3,000 units
Desired ending inventory in fourth quarter, 2008 = 18,000 X 25% = 4,500 units
** Total cost of shirt purchase = Total shirts needed X Cost per shirt

6.

SWEATS GALORE
Schedule of Expected Payments for Purchases
For the Year Ending December 31, 2008
4 Quarter
* Accounts payable
1/1/08 2
3

1
0
5

$63,000

$75,000

$108,000

Schedule of Expected Payments for Purchases


For the Year Ending December 31, 2008
4 Quarter
* Accounts payable
1/1/08 2
3

1
0

$63,000

$75,000

$108,000

Second quarter

$50,000

Third quarter

$72,000

Fourth quarter

$54,000

$42,000

$113,000

$147,000

$162,000

Total payments

Calculations:
Michael asks the sweatshirt supplier for terms of 40% of a quarters purchases to be paid in the
quarter of purchase, with the remaining 60% of the quarters purchases to be paid in the quarter
following the purchase.
Amount paid to supplier for purchases in current quarter
= Cost of shirt purchases in current quarter X 40%
Amount paid to supplier for purchases in first quarter, 2008 = $105,000 X 40% = $42,000
Amount paid to supplier for purchases in second quarter, 2008 = $125,000 X 40% = $50,000
Amount paid to supplier for purchases in third quarter, 2008 = $180,000 X 40% = $72,000
Amount paid to supplier for purchases in first quarter, 2008 = $135,000 X 40% = $54,000
*Accounts payable in current quarter = Total cost of shirt purchases in last quarter X 60%
Accounts payable in second quarter, 2008 = $105,000 X 60% = $63,000
Accounts payable in third quarter, 2008 = $125,000 X 60% = $75,000
Accounts payable in fourth quarter, 2008 = $180,000 X 60% = $108,000

7.
6

SWEATS GALORE
Silk-Screen Labor Budget
For the Year Ending December 31, 2008
4 YearQuarter
Units to be produced
3

1
2
8,000

10.000

20,000

12,000

50,000

*Silk-screen labor hours per


unit

0.12

0.12

0.12

0.12

0.12

***Total required silk-screen


labor hours

960

1,200

2,400

1,440

6,000

**Silk-screen labor cost per


hour

$12

$12

$12

$12

$12

****Total silk-screen labor


cost

$11,520

$14,400

$28,800

$17,280

$72,000

Calculations:
*Silk-screen labor hours per unit = (6 X 20 hrs. X 50) / (8,000 + 10,000 + 20,000 + 12,000)
= 6000 hrs. / 50,000 units
= 0.12 hrs.
** Silk-screen labor hours per unit = $72,000 / (6 X 20 hrs. X 50) = $72,000/ 6000 hrs. = $12
*** Total required silk-screen labor hours
= Units to be produced X Silk-screen labor hours per unit
****Total silk-screen labor cost
= Total required silk-screen labor hours X Silk-screen labor cost per hours