Managerial Accounting for a Gaming App

Topics: Variable cost, Costs, Fixed cost Pages: 12 (3143 words) Published: July 14, 2012
Managerial Accounting Project
Todd Simmons St. Edward’s University March 5, 2010 ACCT6218: Managerial Accounting

Case Scenario Description
Three partners decide to start a video game company called Minibox Games whose goal is to develop software for the Apple iPhone and iPod Touch. In its first year of existence, the company plans to develop and release one game, along with a number of add-ons for that game. The game will involve users interacting with graffiti art on the touchscreen, and tapping on specific points along with a musical beat. Due to the relative simplicity of iPhone games, this project will be completed with a small staff of 6 people. The staff will include the 3 founders doing administrative jobs (producer, marketing, and operations) and each being paid a monthly salary of $3000. There will also be a programmer, artist, and game designer, each being paid a monthly salary of $6000 (only in March through October when the game is in active development). Like most video game development, the largest expense of the business will be labor. There will also be miscellaneous monthly costs such as renting an office, utilities, and insurance. In the first several months, there will be startup costs such as purchasing computers and software, paying legal fees, buying supplies, and installing network equipment. In addition, the game will use licensed songs and graffiti art, so there will be licensing fees. And near the game’s release, there will be advertising costs. The company will have several sources of revenue. The only way to sell iPhone games to consumers is via Apple’s App Store. Apple provides the logistical and technical infrastructure to facilitate download of the applications and in exchange, they take 30% of each sale. Therefore, the largest source of revenue will be sales of the game from the App Store. Each copy of the game will sell for $2, and the company will receive $1.40 after Apple takes their 30%. Another source of revenue will be sales of game add-ons through the App Store. Purchasing an add-on will give a user access to an additional level in the game. Each add-on will sell for $1 and Apple again takes 30%. Finally, the game will feature in-game advertisements, showing products related to street culture and hip-hop (to tie in with the graffiti theme). These advertisement slots will be sold to various companies prior to the game’s release for a flat fee (per ad). To help cover startup costs, the three founders decide to get a small business loan for $350,000 at 5% annual interest. The principal of the loan must be paid back at the end of year 3. Also, the founders decide to start the company as an LLC with no stock or dividends.

Cost Breakdown
Variable Costs: App store sales fees (30% of sale price) Fixed Costs: Rent = $15000 / 6 mo Utilities = $300 / month (fixed amount paid to the office building owner) Insurance = $1200 / 6 mo Web Hosting = $360 / year Admin salaries = 3 x $3000 / mo Production salaries = 3 x $6000 / mo Payroll taxes Music licensing = $2000 / track Graffiti licensing = $2000 / piece Advertising = $14000 / mo

Product Costs: – Direct Materials – App store sales fees – Direct Labor – Production salaries – Production payroll taxes – Overhead – Rent – Utilities – Depreciation – Insurance – Misc office supplies – Indirect Labor – Admin salaries – Admin payroll taxes – Indirect Materials – Licensed music – Licensed graffiti Period Costs: Advertising = $14000 / mo Rent = $15000 / 6 mo Utilities = $300 / month (fixed amount paid to the office building owner) Depreciation = $510 / month Insurance = $1200 / 6 mo Web Hosting = $360 / year Legal fees = $1000 / Q1 Web design fees = $4500 / Q1 Misc office supplies = $75 / mo

Revenue Budget
Minibox Games 2010 Revenue Budget Q2 Q3 $2 0 $0 $1 0 $0 $2 0 $0 $1 0 $0 $2 0 $0 $1 0 $0

Q1 Price of full game Number of downloads Full game income Price of game add-ons Number of downloads Add-on income Price per in-game advertisement...
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