Present your recommendation for best business type for the new business owner.

Toothco has formed a new business unit to produce a very innovative battery-powered toothbrush. The business unit was formed by the transfer of selected assets and obligations from the parent company. The unit’s initial balance sheet on January 1 contained cash ($1,000,000), equipment ($600,000), notes payable to the parent ($1,200,000), and residual equity ($400,000). The company will operate in a leased facility with Annual rent of $120,000. The business unit is expected to repay the note at $60,000 per month, plus all accrued interest at 1/2% per month. Payments are made on the last day of each month. The unit is scheduled to produce enough brushes each month to cover the month’s sales and have an ending inventory equal to 20% on the following month’s sales. Each brush requires one kit of direct materials at $15 each. Raw materials are purchased on account, and paid in the month following the month of purchase. The plant manager has established a goal to end each month with raw materials on hand, sufficient to meet 10% of the following month’s planned production. The unit expects to sell 40,000 brushes in January and increase by 10% per month over the course of the full year. Thus in February, 44,000 are expected to be sold and in March 48,400, and so on each month for the rest of the year. The budgeted selling price is $40 per brush. 40% of the units will be sold for cash, and the other units will be sold on account. 30% of the sales on account will be collected in the month of purchase, and 70% in the following month. Uncollectible accounts are not material. Each brush requires 10 minutes of direct labor to assemble. Labor rates are $20 per hour. Variable factory overhead is applied at $8 per direct labor hour. The fixed factory overhead is $35,000 per month which includes $10,000 rent and equipment depreciation of $10,000. With the exception of depreciation, all overhead is funded as incurred. Selling, general, and administrative costs are funded in cash as incurred, and consist of fixed components (salaries, $100,000; office, $30,000; and advertising, $90,000) and variable components (10% of sales). Assume the company buys new equipment on March 31 for $100,000 cash. Assume the company returns to headquarters $200,000 cash. Prepare the following on an Excel Workbook with one tab for each schedule/statement: 1. A January 1 Balance Sheet and March 31 Budgeted Balance Sheet 2. Income Statement 3. Monthly Sales Budgets for the First Quarter 4. Monthly Production Budgets for First Quarter 5. Monthly Direct Material Purchases and Payments Budget 6. Monthly Direct Labor Budget 7. Monthly Factory Overhead Budget 8. Budget of Ending Inventories and Unit Cost 9. Monthly SG&A Budgets 10. Cash Collections Budget 11. Cash Budget

April 17, 2018