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azurewildebeest927Lv1

28 Sep 2019

AAA Company makes T-shirtsfor men and sells them to book stores in colleges. The annualcapacity is to make 120,000 shirts. Currently the company makes andsells 90,000 shirts at a selling price of $10.00. The variableproduction cost is $3.00 per unit and variable selling cost is$2.00 per unit. Total fixed cost = $150,000. Wens College hasapproached AAA Company with a special order for 25,000 shirts andis willing to pay $8 per shirt. The college wants its emblem to beimprinted on the shirts. AAA will have to buy a special machine for$12,000 to imprint this emblem.<?xml:namespace prefix = o ns ="urn:schemas-microsoft-com:office:office" />

a. Should the company accept this special order fromWens College? What will be the impact on the company%u2019s incomeif this order is accepted?

b. BONUS (10 POINTS)

Now assume the specialorder is for 40,000 shirts. Wens is willing to pay $8 per shirt andalso needs the imprint of the emblem. However, there will be novariable selling cost paid for this special order. But the companyhas available capacity to produce only 30,000 units. If the specialorder is accepted, company has to fulfill the order for entire40000 units.

Now decide if this specialorder be accepted? Why? Or why not?

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Reid WolffLv2

28 Sep 2019

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Business Description:

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 also needto print flyers, etc. for selling and administrative purposes. Forthis non-manufacturing printing, you will print about one page forevery 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 Two Requirements:

Now you have developed your cost estimates, letâs do someevaluations on this proposed business.

1. Continue to assume that 7,800 t-shirts will be made and soldin the first year. What is your product cost per unit underabsorption costing? What is your product cost per unit undervariable costing?

2. Based on the estimated sales level of 7,800 t-shirts for thefirst year, prepare your companyâs (forecasted) income statementfor the year ended on 12/31/2014 using both (a) the traditionalformat based on the absorption costing and (b) the contributionformat based on the variable costing.

3. Calculate contribution margin per T-shirt and contributionmargin ratio.

4. Calculate how many T-shirts you need to sell in order tobreak-even. Calculate how much sales in dollars you need to make inorder to break-even. (Use break-even formulas.)

5. Calculate how many T-shirts you need to sell in order to make$10,000 target profit for the year.

6. Continue to assume that 7,800 T-shirts will be made and soldduring the first year. Calculate your (a) margin of safety and (b)degree of operating leverage (DOL) for your business. What do thesefigures tell you about how risky your business is?

7. If sales could increase by 1,560 shirts (i.e. a 20%increase), by how much in dollars would net operating incomeincrease? By what percentage would net operating income increase?(Use the âquickâ way, i.e. contribution margin concept and DOL, youhave learned in class to answer these questions. Do not recalculatenet operating income.)

8. Prepare a contribution format income statement assuming asales increase by 20% to 9,360 shirts. Compare your new netoperating income with your answer in Question â2â and provemathematically that your answers to the two questions in Questionâ7â are correct.

9. Ignore Questions â7â and â8â. If the cost per plain t-shirtis expected to increase by 20% and sales (in number of T-shirts)are expected to be 5% less, how much is your projected netoperating income (or loss)?

10. Continue Question â9â. If the only expense you can cut isthe salary paid to yourselves, how much salary should you cut inorder to break even?

11. Ignore Question â9â and â10â. Assume that you have produced7,800 t-shirts, but the actual sales for the first year turn out tobe 7,000 T-shirts instead of 7,800. I.e. you will have 800 T-shirtsleft at the end of the first year. Prepare (a) a traditional formatincome statement and (b) a contribution format income statement.Are the two net operating income figures the same? Why or whynot?

12. Continue â11â. At what amount would inventory be reported inthe balance sheet of 12/31/2014 under (a) the absorption costingand (b) variable costing? Are the two ending inventory figures thesame or different? Why?

greenantelope300

Cost information:

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.

5) You will buy several items before that start of yourbusiness:

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.

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?

indigoplatypus628

Business Description

You will assume the role of an entrepreneur to start a smallcompany. Your company will rent a retail cart inside the Mall ofAmerica to imprint T-shirts with exclusive original designs by afamous artist who has agreed to design these T-shirt pictures foryou each year at a special discount. Your target customers areaffluent teenagers and young adults. Your business is scheduled tolaunch on January 1, 2017.

Cost information:

Mall of America charges you $2,750 rent per month, whichincludes utilities, cleaning, and maintenance.

You will order white, cotton T-shirts from a T-shirt wholesaler.Each T-shirt costs $2.00 to purchase (cost includes taxes,shipping, and handling).

You agreed to pay the artist a $3,000 annual contract fee fortwelve T-shirt designs. 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 foranother $3,000 annual contract fee.

Equipment that will be required to be acquired at the start ofbusiness includes a computer, printer, and direct to garmentprinter. Total cost will be $25,000. The equipment is expected tolast 5 years without salvage value. Straight-line method ofdepreciation should be used.

Production cost per shirt is $5.20 (ink, etc.)

Bags for shirts cost $0.10 each.

Students are hired as part-time workers. On average it takes onelabor hour to print 10 shirts. Each worker is paid $10 perhour.

Sales personnel are required 80 hours per week and are paid $10per hour.

Business insurance is purchased at a cost of $2,000 peryear.

Advertising costs are expected to be $12,000 per year.

Requirements:

1. Name your company (5 points)

2. What and how much are the variable costs? Present each itemin cost per T-shirt basis (5 points).

3. What and how much are the fixed costs? Present each item intotal cost per year (5 points).

4. Write out the annual cost formula in Y = a + bX format (5points).

5. Calculate the total amount of cash that will be needed at thestart of the business in order to buy all necessary equipment andmachines, purchase sufficient materials and supplies for 1,000shirts, and cover the first three months of fixed expenses. Thisamount will be your initial investment in the business. Note thatthe equipment will be paid in full on the first day of business aswell as the first annual payment to the artist. Other expenses willbe paid on a monthly basis (10 points).

6. Develop a price using a target price (what are similarT-shirts selling for) (5 points).

7. Develop a price using cost-based pricing and what you wouldlike to see as a return on your business (i.e. 10%, 15%, 25%) (5points).

8. Calculate contribution margin per T-shirt and contributionmargin ratio based on the price you decided upon (either the pricefrom item 6 or 7 above) (5 points).

9. Based on the price you decided upon, calculate how manyT-shirts need to be sold in order to break-even. Calculate how muchsales in dollars are needed to break-even (10 points).

10. Prepare a cost/volume/profit chart (10 points).

11. Based on the estimated sales level of 12,000 T-shirts forthe first year, prepare the companyâs forecasted functional incomestatement for the year ended on 12/31/2017 (10 points).

12. If sales could increase by 10% (to 13,200 T-shirts), by howmuch in dollars would net operating income increase? By whatpercentage would net operating income increase? (5 points)

13. Prepare a contribution format income statement assuming asales increase of 10%. Compare your new net operating income withyour answer in 11 (10 points).

14. Calculate how many T-shirts need to be sold in order to makea $25,000 target profit for the year (5 points).

15. Based on the assumption that the number of shirts calculatedin item 14 are made and sold during the first year of business,calculate the margin of safety and the operating leverage for thebusiness. What do these figures tell you about how risky thebusiness is? (10 points)

16. Prepare a cash budget for the companyâs first year ofoperations based on the sales calculated in item 14. Assume allsales are cash sales and that all costs and expenses are paid incash. The initial cash balance is the amount calculated in #5. Youdecide to maintain a minimum cash balance of $10,000 at December31, 2017 (15 points).

17. Calculate the first yearâs estimated return on equity basedon the sales calculated in item 14 (note that beginning equity willequal the initial investment in the business calculated in #5). (5points).

18. After reviewing the budgeted income statement and theestimated return on equity for the first year of operations,consider business strategies that will help to improveprofitability. Describe your strategies clearly and justify why youbelieve the strategies will work. Provide the variable cost perT-shirt, total fixed cost, selling price per T-shirt, andcontribution margin per T-shirt under your new strategies. Providethe new cost formula. What is the new break even? (15 points).

19. After your thorough analyses of costs, sales, andprofitability of your T-shirt business throughout this project,what is your overall impression of the future potential of thebusiness? Provide a short assessment (10 points).

*** 1-5 completed below***

Variable Costs:

Purchase cost per T-shirt

Total variable cost perT-shirt

$8.30