Artisans Shirtcraft manufactures and sells hand- painted shirts of original design. The company was founded in 1999 by three sisters: Cathy, Linda, and Valerie Montgomery. Shirtcraft started out as a means of financing a hobby; profits from shirt sales were used to pay the cost of supplies. However, word of the sisters’ appealing products spread quickly, eventually creating strong and widespread demand for Shirtcraft shirts. By 2003, the year of Shirtcraft’s incorporation, the company no longer relied on selling at the occasional crafts fair. It now earned almost all of its revenues through sales to upscale boutiques and department stores. Shirtcraft had grown into a legitimate business, but the hobby mentality remained. The company retained a simple approach that had served it well: Buy quality materials when available at a bargain price and produce them into shirts. At this time, the sisters had a ready market for whatever they could produce.
a. Considering only costs, prepare budgeted annual and monthly financial statements for purchasing and production. ( Assume that production is not responsible for any costs already assigned to purchasing.) Prepare an annual budgeted income statement for Artisans Shirtcraft for the period September 2010 through August 2011. Annual costs for income statement purposes consist of the following:
Cost of goods sold
All salaries and overhead for purchasing and production are treated as product costs and assigned to individual units. Therefore, these costs should be included in Shirtcraft’s an-nual income statement under cost of goods sold.
b. In general terms, consider the changes in Shirtcraft due to growth. How is the company different from an organizational standpoint? What role do budgeting and cost centers have in attempting to meet the challenges presented by this growth?