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Revenues First Month of Operations: 10,000 units sold at $10 per unit. Second Month of Operations: 20,000 units sold. The first 10,000 at $10 per unit, and the second 10,000 at $8 per unit. Third Month of Operations: 40,000 units sold at $6 per unit. Cash Flow characteristics: Goods are shipped at the end of the month are paid to the Company at the end of the following month by the customer. Cost of Goods Soldis made up of three components: Direct Materials – -$2 per unit Direct Labor—$3 per unit, renegotiated to $2 in the third month with new pricing Fixed Machinery and Mfg.machinery and space rental costs—$10,000 per month, $15,000 with new labor price in month 3 Cash flow characteristics: Mfg. is outsourced to a different organization and all costs are paid the next month following the month they are produced – i.e. paid the next month after the month they are received. Operating Expenses: the remainder of the company’s expenses includes the following: Salaries for office staff and the Owner are fixed at $120,000 per year or $10,000 per month. $50,000 of the total goes to the owner Advertising is a fixed rate contract with an internet services firm which provides the company with secure servers, web analytics and Search Engine Optimization services for $3000 per month. Office Rental is a fixed yearly rental contract for the administrative offices which costs the company $4500 per month. Insurance is a fixed rate contract for insurance on the plant property and equipment is $1000 per month. Cash flow characteristics: All operating expenses are paid during the month that they are incurred. Ownership and Taxation: The Company is owned by a single individual who is paid a salary of $50,000 per year. The following tax rates are in affect for the purposes of calculating tax on taxable income: Corporate Tax Rate: 30% Individual Tax Rate: 40% Dividend Tax Rate: 15% Appendix Continued: Opening First Month Second Month Balance Sheet Income Statement Cash Flow Balance Sheet Income Statement Cash Flow Balance Sheet Cash 75,000 Revenues 100,000 0 56,500 Accounts Receivable Direct materials 100,000 Direct Labor Total Assets 75,000 A Machinery rent 156,500 Accounts Payable = Cost of Goods Sold (60,000) 0 60,000 (60,000) L Salary Owners’ Equity + Advertising Owners Capital 75,000 Office Rental 75,000 Retained Earnings Insurance 21,500 Total Owners Equity 75,000 OE Operating expenses (18,500) (18,500) 96,500 Net Pre-tax Profit 21,500 156,500 Third Month Income Statement Cash Flow Balance Sheet Cash Revenues Accounts Receivable Direct materials Direct Labor Total Assets A Machinery rent Accounts Payable = Cost of Goods Sold L Salary Owners’ Equity + Advertising Owners Capital Office Rental Retained Earnings Insurance Total Owners Equity OE Operating expenses Net Pre-tax Profit Calculate for the Third Month: Current Assets Current Liabilities Current Ratio Owners’ Equity Cost of Goods Sold Gross Profit Margin

Revenues

First Month of Operations: 10,000 units sold at $10 per unit.

Second Month of Operations: 20,000 units sold. The first 10,000 at $10 per unit, and the second 10,000 at $8 per unit.

Third Month of Operations: 40,000 units sold at $6 per unit.

Cash Flow characteristics: Goods are shipped at the end of the month are paid to the Company at the end of the following month by the customer.

Cost of Goods Soldis made up of three components:

Direct Materials – -$2 per unit

Direct Labor—$3 per unit, renegotiated to $2 in the third month with new pricing

Fixed Machinery and Mfg.machinery and space rental costs—$10,000 per month, $15,000 with new labor price in month 3

Cash flow characteristics: Mfg. is outsourced to a different organization and all costs are paid the next month following the month they are produced – i.e. paid the next month after the month they are received.

Operating Expenses: the remainder of the company’s expenses includes the following:

Salaries for office staff and the Owner are fixed at $120,000 per year or $10,000 per month. $50,000 of the total goes to the owner

Advertising is a fixed rate contract with an internet services firm which provides the company with secure servers, web analytics and Search Engine Optimization services for $3000 per month.

Office Rental is a fixed yearly rental contract for the administrative offices which costs the company $4500 per month.

Insurance is a fixed rate contract for insurance on the plant property and equipment is $1000 per month.

Cash flow characteristics: All operating expenses are paid during the month that they are incurred.

Ownership and Taxation: The Company is owned by a single individual who is paid a salary of $50,000 per year. The following tax rates are in affect for the purposes of calculating tax on taxable income:

Corporate Tax Rate: 30%

Individual Tax Rate: 40%

Dividend Tax Rate: 15%

Appendix Continued:

Opening

First Month Second Month

Balance Sheet

Income Statement Cash Flow Balance Sheet Income Statement Cash Flow Balance Sheet
Cash 75,000 Revenues 100,000 0 56,500
Accounts Receivable Direct materials 100,000
Direct Labor
Total Assets 75,000

A

Machinery rent 156,500
Accounts Payable

=

Cost of Goods Sold (60,000) 0 60,000 (60,000)

L

Salary
Owners’ Equity

+

Advertising
Owners Capital 75,000 Office Rental 75,000
Retained Earnings Insurance 21,500
Total Owners Equity 75,000

OE

Operating expenses (18,500) (18,500) 96,500
Net Pre-tax Profit 21,500 156,500
Third Month
Income Statement Cash Flow Balance Sheet
Cash Revenues
Accounts Receivable Direct materials
Direct Labor
Total Assets

A

Machinery rent
Accounts Payable

=

Cost of Goods Sold

L

Salary
Owners’ Equity

+

Advertising
Owners Capital Office Rental
Retained Earnings Insurance
Total Owners Equity

OE

Operating expenses
Net Pre-tax Profit

Calculate for the Third Month:

Current Assets

Current Liabilities

Current Ratio

Owners’ Equity

Cost of Goods Sold

Gross Profit Margin

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