Your project group will assume the role of young entrepreneursto start a small company. Your company will rent a retail cartinside the Stonebridge Mall to buy plain T-shirts and imprint themwith one of the twelve beautiful pictures exclusively designed foryour company by a famous artist who is a friend of yours. He hasagreed to design twelve super attractive T-shirt pictures for youeach year at a special discount. Your target customers areteenagers and young adults who have your kind of good taste. Yourbusiness is scheduled to launch on January 1, 2014.
Cost information:
1) Stonebridge charges you $2,500 rent per month, which includesutilities, telephone, cleaning, and maintenance. You estimated that90% of the rent was related to factory operations and 10% wasrelated to selling and administrative activities.
2) You will order white, cotton t-shirts from a T-shirtwholesaler. Each T-shirt will cost (including taxes, shipping, andhandling) $3.75 to purchase.
3) To store T-shirts that were bought, but not yet imprinted,you will rent a storage unit. The storage unit costs you $125 permonth.
4) You agreed to pay your artist friend a $10,000 annualcontract fee plus a $300 design fee for each of the 12 T-shirtpictures designed. This same term is renewable for the next 3years. Each T-shirt picture will only be used for one year.Therefore, in the second year, 12 new pictures will be designed at$300 each and another $10,000 annual contract fee will becharged.
5) You will buy several items before that start of yourbusiness:
a) A computer and a printer: You will pay $6,000 (includingtaxes, shipping and handling) to buy a computer and a printer. Youexpect both to last about 3 years without salvage value. You willuse the straight-line method for depreciation. You estimate thatabout 90% of the computer and printer will be used for factoryoperations and 10% will be for selling and administrativeactivities.
b) A heat press machine: You will pay $4,500 (including taxes,shipping and handling) for a heat press machine. The machine isused for imprinting t-shirts only and is expected to last 3 yearswithout salvage value.
c) Transfer paper: Each case of transfer paper costs $400 andcontains 1,000 sheets of 8.5Ã11 transfer paper. You expect to useone transfer paper to print one T-shirt.
d) Ink-jet cartridges: On average, each cartridge costs $50 andcan make 500 prints. Each T- shirt requires one print. You alsoneed to print flyers, etc. for selling and administrative purposes.For this non-manufacturing printing, you will print about one pagefor every 5 T-shirts sold.
e) Laser paper: You will buy several reams of laser paper toprint promotion flyers, etc. Each ream costs $20 and contains 200sheets of 8.5Ã11 laser paper.
6) Wrapping paper and box: Each T-shirt costs about $0.20 towrap and box. Wrapping and boxing are not considered asmanufacturing.
7) You will hire three fellow students as part-time workers.They not only help you operate the machine, but also help fold,wrap and box T-shirts. Sometimes, three of them work at the sametime. But, sometimes they donât because of their different classschedules. On average, printing 10 shirts will take one labor hour.Folding and packaging 20 shirts also will take about one laborhour. You will pay each of your workers $8 per hour. Folding andwrapping are not considered as manufacturing.
8) You (the owners) do all the selling and administrative workby yourselves. You will pay yourselves a total of $12,000 per year(to be divided among all owners).
9) To protect your business from legal obligation, you willpurchase a liability insurance that will cost you $3,600 peryear.
10) You will hold four end-of-quarter parties to promote salesof your t-shirts. Each party costs you about $1,000.
Section One Requirements:
What and how much of your costs are variable costs? List yourmanufacturing and non-manufacturing variable cost items and presenteach of them in cost per T-shirt basis.
What and how much of your costs are fixed costs? List yourmanufacturing and non-manufacturing fixed cost items and presenteach of them in total cost per year.
(Write out your yearly cost formula in Y = a + bX format. Besure to include bothmanufacturing costs and non-manufacturing costsin the cost formula.
Assume that you make and sell 7,800 t-shirts in the first year.Use your cost formula to calculate your first yearâs total cost. Ifyou sell these t-shirts at $15 each, how much would net profit bein the first year?
Your project group will assume the role of young entrepreneursto start a small company. Your company will rent a retail cartinside the Stonebridge Mall to buy plain T-shirts and imprint themwith one of the twelve beautiful pictures exclusively designed foryour company by a famous artist who is a friend of yours. He hasagreed to design twelve super attractive T-shirt pictures for youeach year at a special discount. Your target customers areteenagers and young adults who have your kind of good taste. Yourbusiness is scheduled to launch on January 1, 2014.
Cost information:
1) Stonebridge charges you $2,500 rent per month, which includesutilities, telephone, cleaning, and maintenance. You estimated that90% of the rent was related to factory operations and 10% wasrelated to selling and administrative activities.
2) You will order white, cotton t-shirts from a T-shirtwholesaler. Each T-shirt will cost (including taxes, shipping, andhandling) $3.75 to purchase.
3) To store T-shirts that were bought, but not yet imprinted,you will rent a storage unit. The storage unit costs you $125 permonth.
4) You agreed to pay your artist friend a $10,000 annualcontract fee plus a $300 design fee for each of the 12 T-shirtpictures designed. This same term is renewable for the next 3years. Each T-shirt picture will only be used for one year.Therefore, in the second year, 12 new pictures will be designed at$300 each and another $10,000 annual contract fee will becharged.
5) You will buy several items before that start of yourbusiness:
a) A computer and a printer: You will pay $6,000 (includingtaxes, shipping and handling) to buy a computer and a printer. Youexpect both to last about 3 years without salvage value. You willuse the straight-line method for depreciation. You estimate thatabout 90% of the computer and printer will be used for factoryoperations and 10% will be for selling and administrativeactivities.
b) A heat press machine: You will pay $4,500 (including taxes,shipping and handling) for a heat press machine. The machine isused for imprinting t-shirts only and is expected to last 3 yearswithout salvage value.
c) Transfer paper: Each case of transfer paper costs $400 andcontains 1,000 sheets of 8.5Ã11 transfer paper. You expect to useone transfer paper to print one T-shirt.
d) Ink-jet cartridges: On average, each cartridge costs $50 andcan make 500 prints. Each T- shirt requires one print. You alsoneed to print flyers, etc. for selling and administrative purposes.For this non-manufacturing printing, you will print about one pagefor every 5 T-shirts sold.
e) Laser paper: You will buy several reams of laser paper toprint promotion flyers, etc. Each ream costs $20 and contains 200sheets of 8.5Ã11 laser paper.
6) Wrapping paper and box: Each T-shirt costs about $0.20 towrap and box. Wrapping and boxing are not considered asmanufacturing.
7) You will hire three fellow students as part-time workers.They not only help you operate the machine, but also help fold,wrap and box T-shirts. Sometimes, three of them work at the sametime. But, sometimes they donât because of their different classschedules. On average, printing 10 shirts will take one labor hour.Folding and packaging 20 shirts also will take about one laborhour. You will pay each of your workers $8 per hour. Folding andwrapping are not considered as manufacturing.
8) You (the owners) do all the selling and administrative workby yourselves. You will pay yourselves a total of $12,000 per year(to be divided among all owners).
9) To protect your business from legal obligation, you willpurchase a liability insurance that will cost you $3,600 peryear.
10) You will hold four end-of-quarter parties to promote salesof your t-shirts. Each party costs you about $1,000.
Section One Requirements:
What and how much of your costs are variable costs? List yourmanufacturing and non-manufacturing variable cost items and presenteach of them in cost per T-shirt basis.
What and how much of your costs are fixed costs? List yourmanufacturing and non-manufacturing fixed cost items and presenteach of them in total cost per year.
(Write out your yearly cost formula in Y = a + bX format. Besure to include bothmanufacturing costs and non-manufacturing costsin the cost formula.
Assume that you make and sell 7,800 t-shirts in the first year.Use your cost formula to calculate your first yearâs total cost. Ifyou sell these t-shirts at $15 each, how much would net profit bein the first year?
