Tina Rollt (her parents got a little carried away with names, giving her many pr

Question

Tina Rollt (her parents got a little carried away with names, giving her many problems when she was in school) founded her company in late 2002. She had worked as a product designer for a well-known toy company, developing new toys and games in keeping with the fashions of the times. Tina thought she’d like to market some of her better ideas herself, and decided to invest her savings in founding a new company. She converted her savings into common stock, and taking the simple approach, she called the company Only a Game. Their first hit toy was a puzzle called “Sticky Fingers,” a handheld electronic puzzle requiring both dexterity and thinking skills. Each Sticky Fingers costs the company $14 to produce. In addition to these production costs that vary in direct proportion to volume, the company also incurs $4,000 monthly costs just to be in business, irrespective of the month’s volume. Sticky Fingers sells to retailers for $22 each. As of December 31, 2002, Only a Game had been producing Sticky Fingers for three months, using rented facilities. The balance sheet on December 31 looked as follows: Only a Game Company Balance Sheet December 31, 2002 Assets Cash $56,500 Accounts receivable 27,500 Inventory 14,000 Total assets $98,000 Equities Common Stock $100,000 Retained earnings -2000 Total equities $98,000 Rollt was very pleased to be operating at a profit in such a short time. December sales had been 750 units, up from 500 in November, enough to report a profit for the month and to reduce the deficit accumulated in October and November. Sales were projected to be 1,000 units in January, and Rollt’s projections showed sales increases of 500 units per month after that. Thus, by May, monthly sales were expected to be 3,000 units. By September, that figure would be 5,000 units. Rollt was very conscious of the importance of developing good sales channel relationships in order to increase sales, so Sticky Fingers’ deliveries were always prompt. This required production to be scheduled 30 days in advance of predicted sales. For example, Only a Game produced 1,000 Sticky Fingers in December in anticipation of January sales, and planned to produce 1,500 in January for February’s anticipated demand. The company billed its customers with stated terms of 30 days net, but had not spent a lot of effort in enforcing these credit terms, with the result that customers appeared to actually be taking an additional month to pay. All of the company’s costs (production and operating) were paid in cash in the month they were incurred. Tina’s projections were accurate. By March, sales had reached 2,000 Sticky Fingers, and 2,500 were produced in March for April sale. Total profit for the first quarter of the year 2003 (the end of March) had reached $24,000. In order to get a respite from what had been a very hectic 6 months getting her business started, Tina decided to take her family on a much-deserved vacation in early April (see above). Tina had hardly been gone for a week when her cell phone rang. It was her bookkeeper, who was in a panic. The company’s bank balance was nearly at zero, so materials needed for April production could not be purchased. Unless Tina returned immediately to raise more cash, the entire operation would grind to a halt within a few days. Question: Fill in the attached excel tempalate with the above information

O3 Only a Game Inc T Unit information Unit cost Unit selling price Wonthly operating costs Month October November December January February March April May June July August September October November production in units sales in units Month October November December January February March April May June July August September October November Income statements Sales Cost of sales Operating expenses Net operating income Collections budget: Beginning accounts receivable Collections Current sales Ending accounts receivable Production budget Units produced Cash required Cash budget Beginning balance Add collections Less production & aperating costs Excess (deficit) cash to costs Repayments Ending balance

Explanation / Answer

Monthly October November December January February March April May June July August September october November production in Units 1000 1500 2000 2500 3000 3500 4000 4500 5000 5500 6000 6500 Sales in Units 500 750 1000 1500 2000 2500 3000 3500 4000 4500 5000 5500 6000 Month October November December January February March April May June July August September october November INCOME STATEMENT Sales 0 11000 16500 22000 33000 44000 55000 66000 77000 88000 99000 110000 121000 132000 Cost of Sales Variable cost 0 7000 10500 14000 21000 28000 35000 42000 49000 56000 63000 70000 77000 84000 Fixed Cost 4000 4000 4000 4000 4000 4000 4000 4000 4000 4000 4000 4000 4000 4000 Operating Expenses 11000 14500 18000 25000 32000 39000 46000 53000 60000 67000 74000 81000 88000 Net operating income 4000 8000 12000 16000 20000 24000 28000 32000 36000 40000 44000 Collections budget Beginning Accounts receivable 27500 38500 55000 77000 99000 121000 143000 165000 187000 209000 231000 Collections    11000 16500 22000 33000 44000 55000 66000 77000 88000 99000 110000 Current Sales 22000 33000 44000 55000 66000 77000 88000 99000 110000 121000 132000 Closing Accounts receivable 38500 55000 77000 99000 121000 143000 165000 187000 209000 231000 253000 77000 Production Budget Units produced 0 1000 1500 2000 2500 3000 3500 4000 4500 5000 5500 6000 6500 Cash Reuired 18000 25000 32000 39000 46000 53000 60000 67000 74000 81000 88000 95000 Cash Budget Opening Balance 56500 42500 27000 10000 -3000 -12000 -17000 -18000 -15000 -8000 3000 Add : Collections 11000 16500 22000 33000 44000 55000 66000 77000 88000 99000 110000 Less Prod & operating Costs 25000 32000 39000 46000 53000 60000 67000 74000 81000 88000 95000 Borrowings Repayments Ending Balance 42500 27000 10000 -3000 -12000 -17000 -18000 -15000 -8000 3000 18000

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