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Sales Contract Lesson Biz Stats.com Service Income Projections Formal Wear Income Projections How to use your company template payroll program to make your business contract Sample Payroll Your Company Template Payroll Program Condensed merchandising business projections template Detailed merchandising business projections template Service business projections template	Now we need to calculate our salary expense. This amount is very important since the VEC makes a contract with your company to deposit this amount in your company account each month. This is called the business contract. The contracts are slightly different for a service and merchandising company. For a service business, VE will give you your salary expense or gross pay for all employees.. This is the gross amount of money given to each employee before deductions. For a merchandising business, you will get the salary expense plus cost of good sold. Let's start with the service business. To find the salary expense you can proceed in a number of ways. First we need to determine the yearly rate for each person. If you click on the picture in the upper, left-hand corner, you can see the information that you need. The total for the payroll for the month is $83,328. This is your salary expense. If you look at the income statement for the tuxedo rental service business you will see this amount listed under salary expense. In addition to the salary expense, the tuxedo rental company must calculate payroll taxes expense. The employer must match the FICA and Medicare tax withheld from each employee's paycheck and also pay state and federal unemployment taxes. The FICA rate is .062. Medicare is .0145. FUTA is .008. SUTA is .034 and state employment training is .001. Now let's multiply each of these percentages times the total payroll of 83,328. 135,833 X .062 = 8421.67 135,833 X .0145 = 1,969.58 135,833 X .008 = 1,086.67 135,833 X .034 = 4,618.33 135,833 X .001 = 135.83 Now if we add up these amounts we can determine the payroll taxes expenses that need to go on the income statement. The total is 8,957.70. Now it is time to total up all the expenses. The total of all expenses for the tuxedo rental business is $115,500.82. That means that we will need $115,500.82 in sales just to break even. The sales contract from Virtual Enterprise will be $83,328. We will need to come up with $32,172.81 each month from grand openings, open houses, trade fairs and on-line sales just to cover our expenses. Bromley's Tuxedo Rentals Sales Projections We are projecting the following in sales for our first year. November - Grand opening in November goal $35,000: $1,000 guest checks . A signing bonus can also be added as a sale if desired. The signing bonus is $6,000 per person in the class plus 5% more for cost of goods sold and sales tax is 7.5%. The bonus is not included in the numbers below. December - Bakersfield trade fair goal $60,000. Winter Formal Packages January - Open House $30,000 - Business Partners $1,000 guest checks February -Trade fair San Diego $45,000 March - Trade fair San Francisco $50,000 April - Long Beach Trade Fair $45,000. Senior Prom Packages Let's look at November's Income statement for the tuxedo rental business. We need to calculate the income for November. We know that $83,328 will be coming from Virtual Enterprise. We need to classify this amount as sales. We now need to add the projected amount of sales coming in from our open house of $35,000. This totals $118,328. If you look in the box just to the left of this one, you will see that the sales amount has been added. Our plan is to rent tuxedos for an average of $125.00 each. If we divide our total sales of 118,328 by 125 we get 946 rental each month for our projected sales volume. The tudexo rental business has large expense involved with dry cleaning after each tux is returned. According to our research, dry cleaning costs for both the tudedo and the shirt is $9.00. We plan to rent 946 tuxedos each month at $9.00 to dry clean each, we come up with $8,514 for dry cleaning expense. Now all that is left is to calculate the net income for November. All you need to do for a service business to calculate the net income is to subtract the total expenses from the sales. As you can see the net income for the tudedo rental business is $2,827.18 . To see the projected income for the first, second and third year. Click on the link for "Service Income Projections". The figures for the second and third years represent a 5% increase in sales each month during the second year and a 7% increase for the third year. Expenses will remain the same for all three years with the exception of interest expense. Check your amoritization table for the amounts of monthly interest. Please fill out the income statement form for your own company. Bromley's Formal Wear Calculations If your company carries merchandise there is additional money available to you from the Virtual Enterprise Center since a merchandising business has a very large expense called cost of merchandise sold. This is the amount of money it costs you to buy the merchandise that you sell. For example, in our formal wear business, the company must buy an inventory of tuxedos, men's and women's suits, bridesmaid dresses, bridal gowns, dress shirts, ties, etc. Virtual Enterprise will pay your company salary expense plus a portion of the cost of goods sold. Here is how to calculate the the part of cost of goods sold paid to your company by the Virtual Enterprise Center. Click on the "Bizstats" link on this page. Yopur company is an S Copporation. Select type of industry. For example, if you select retail, then you will see another page, that allows you to select the specific retail industry. After clicking on the one that matches up with your company, look for the cost of sales percentage. This amounts changes a little each year. We will use 58.7% for cost of goods sold. Now multiply .587 times the salary expense of 83,328. You should get 48,913.54. Now add this amount and the salary expense to see what your business contract total should be. 83,328 + 48,913.54 = 132,241.53 Write it down. Cost of goods sold percentages vary greatly from one industry to the next. Make sure when doing your own company's income statement that you select the correct industry. The 132,241.53. becomes part of our sales amount on the income statement. If you look at the income statement in the right-hand scroll box you will see this amount. You also need to spend the $48,913.54 for purchases to replenish your merchandise sold. This is still not enough to cover your sales, so and additional amount of merchandise must be purchased. Your business sales contract will not be enough to cover your expenses. You will need to have an activity each month to generate enough money so that your company makes a profit. If you scroll down to see the total expenses for the formal wear business you will see that we have a little over 104,000 worth of fixed expenses even before we calculate the cost of merchandise sold. We will need to produce revenue or sales each month starting in November and ending in April if our company is to make a profit. If our projected income statement does not show a profit, we will not be able to get a business loan, pay our employee's salaries or other expenses. Let's look at some activities to create sales. If we hold our grand opening in November, go to all the trade fairs and have some open houses, we will be able to meet our goals. See the data below for some projections for Bromley's Formal Wear. If you look at the next lesson on break-even analysis, you will get an idea about how these amounts were determined. November - Grand Opening projected revenue $125,000 December - Bakersfield trade fair projected revenue $150,000 January - Open house projected revenue $120,000 February - San Diego trade fair $125,000 March - San Francisco trade fair $140,000 April - Long Beach trade fair $130,000 Now let's add the 125,000 that we are expecting in November from our grand opening sales. 132,241.53 + 125,000 = 257,241.53. If you look at the income statement for the formal wear company you will see this number listed next to sales and total revenue. Now let's look at cost of goods sold on the income statement for the formal wear business Cost of goods sold is the total original price of all merchandise sold during the fiscal period. Normally cost of goods sold is calculated as follows: Beginning Merchandise Inventory + Purchases = Total cost of merchandise available for sale - ending inventory = cost of goods sold. We know that our beginning inventory is $100,000. Our purchases need to be the .587 times our estimated sales of 257,241.53 or $151,000.77 To find the total cost of merchandise available for sale we add the beginning inventory to the purchases. (100,000 + 151,000.77 = 251,000.77. We do not know what our ending inventory will be yet, but we can calculate what it would be after we figure the cost of goods sold. To find the ending inventory we subtract the cost of goods sold from the total cost of merchandise available for sale, 151,000.77 - 248,065.71 = 97,064.94. If you look at the formal wear income statement you will see this amount. Now we need to calculate gross profit. Gross profit is the amount of money that a company makes after subtracting cost of goods sold from the total revenue or sales. Gross profit = 257,241.53 - 151,000.77 = 106,240.76 Now let's total all of the other expenses. That total is 104,209.82 Net profit is gross profit - expenses ( 106,240.76 - 104,209.82 = 2,030.94). Complete the income statement for your own company. If making year projections, click on the link for formal wear income projections to see how to do this. Remember that your VE contract for cost of goods sold only covers a portion of the true cost of goods sold. You will need to multiply .587 times your projected sales to come up with the amount for purchass each month. The beginning inventory for the next month is the previous month's ending inventory. Expenses will remain the same with the exception of the cost of goods sold and interest expense. The worksheet shows a one year projection. Payroll calculations can be made in a number of ways. If using the payroll program that I wrote, just follow the instructions on how to setup the payroll. The VE web site has information on how to calulate employee deductions and payroll taxes expense. Your payroll could be set up in Microsoft Excel as well, if you know how to create the template. You may choose to go the the "paycheckcity.com" site as well.
Bromley's Tuxedo Rentals Income Statement For the period ending November 30 REVENUE Sales 118,328.00 Other Income Total Revenue 118,328.00 EXPENSES Salary Expense 83,328.00 Rent Expense 3,500.00 Repairs Expense 50.00 Alterations Expense 1,500.00 Dry Cleaning Expense 8,514.00 Advertising Expense 2,000.00 Supplies Expense 150.00 Depreciation Expense 3,268.12 Insurance Expense 750.00 Miscellaneous Expense 100.00 Payroll Taxes Expense 8,957.70 Legal And Accounting Utilities Expense 1,875.00 Bad Debts Expense Interest Expense 1,508.00 Delivery Expense Total Expenses 115,500.82 Net Profit 2,827.18	Bromley's Formal Wear Income Statement For the period ending November 30 REVENUE Sales Contract 132,241.53 Grand Opening 125,000.00 Total Revenue 257,241.53 COST OF MERCHANDISE SOLD Beginning Inventory 100,000.00 Purchases 151,000.77 Mdse Avail for Sale 251,000.77 Less End Inventory 100,000.00 Cost Of Goods Sold (257,241.53 X .587) = 151,000.77 Gross Profit 106,240.76 EXPENSES Salary Expense 83,328.00 Rent Expense 3,500.00 Repairs Expense 50.00 Alterations Expense 1,500.00 Advertising Expense 2,000.00 Supplies Expense 150.00 Depreciation Expense 491.12 Insurance Expense 750.00 Miscellaneous Expense 100.00 Payroll Taxes Expense 8,957.70 Legal And Accounting Utilities Expense 1,875.00 Bad Debts Expense Interest Expense 1,508.00 Delivery Expense Total Expenses 104,209.82 Net Profit 2,030.94
1. According to our salary chart, what is monthly salary of a sales assistant? $7,000 $3,750 $5,416	2. In a service business, what makes up the business contract with the Virtual Enterprise Center?. Net Pay Gross Pay Cost of goods sold
3. In a merchandising business, if your salary expense is $85,000 and your cost of goods sold percentage is 53.7%, what is the business contract amount? $85,000 $45,645 $130,645	4. Sales are $150,000 and cost of goods sold are $75,000. What is the gross profit? $225,000 $95,000 $75,000