Student

BA 100

ACCOUNTING FOR NON ACCOUNTANTS

CASE- MEDIEVAL ADVENTURES COMPANY

Medieval Adventures Company was founded by Aaron Reinholz to produce a game marketed under the name “Castles and Unicorns.” Each “Castles and Unicorns”cost the company P35.00 to produce. In addition to these production costs that varied in direct proportion to volume (so called variable costs ), the company also incurred P10,000.00 monthly being in business costs (so called fixed costs) irrespective of the month’s volume. The company sold its product for P55.00 each.

As of December 31, Reinholz had been producing “Castles and Unicorns “for three months using rented facilities. The balance sheet on that date was as follows:

Medieval Adventures Company

Balance Sheet

As of December 31

Cash 146,250.00

Accounts Receivable 68,750.00

Inventory 35,000.00

Total Assets 250,000.00

Common Stock 250,000.00

Retained Earnings 0.00

Total Equities 250,000.00

Reinholz 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 eliminate the deficit accumulated in October and November. Sales were expected to be 1000 units in January, and Reinholz’s projections showed sales increases of 500 units per month after that. Thus, by May monthly sales were expected to be 3000 units. By September that figure would be 5,000 units.

Reinholz was very conscious of developing good sales channels relationships in order to increase sales, so Castles and Unicorns deliveries were always prompt. This required production schedules 30 days in advance of predicted sales. For example, Medieval Adventures had produced 1,000 Castles and Unicorns in December for January sales and would produce 1,500 in January for February’s demand. The company billed its customers with stated terms of 30 days net,...