Students in fall 2014 section of Financial Analysis for Marketing Strategy at George Brown decided, upon graduation,

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Question:

Students in fall 2014 section of Financial Analysis for Marketing Strategy at George Brown decided, upon graduation, that they would all undertake a new business venture together which would supply hockey helmets to the Canadian market. The company would be called FAMS Hockey Helmets (FAMS HH). Several management meeting were held to determine the strategic direction of the new company and it was decided that FAMS helmets would be branded as high quality yet placed in the market at a very price competitive point to help promote young kids to play the game. The selling price is listed at $55.00 per unit. There were two existing competitors in the market both selling their helmets at $59. Per unit. One of the prime initial questions that needed to be answered was if FAMS HH should set-up a manufacturing facility domestically and produce the helmets or if the helmets should be sourced from off shore locations. In either case the helmets would be customized with FAMS HH name, logo and specifications.

FAMS HH approached the town of Parry Sound, Ontario and found a perfect manufacturing facility which the township owned due to the previous owners non-payment of property taxes. FAMS HH could have the building for free if they paid the back taxes totalling $25,000. The building was appraised at a value of $100,000. More research was undertaken to determine manufacturing costs and it was discovered that making helmets required specialized equipment which would cost $75,000. Output would be 10,000 units per annum and production would only take place once orders were place. No inventory would be held. A $75,000 loan would be granted form a local bank to pay for the specialized machenery at a fixed rate of $300. Per month to pay interest and a fixed monthly payment of $250.would go towards principal. There would also be a one-time charge for deliver and set-up of the machine of $5,000. Cost of raw material is fixed at $25.00 per unit at a production rate of 10,000 unites. Once helmets were produced they would need to package the units at a cost of $5. Per unit and deliver them to stores. Advertising expense for the year was estimated to be $24,000., or $2,000 per month. Wages would be fixed at $90,000. Per year for 3 employees and office staff would be fixed at 2 people at a cost of $80,000. Per year. What is the break-even point for FAMS HH?

FAMS HH has spoken with the supplier of raw materials and discovered that the larger the quantity of raw materials purchased the lower the per unit costs becomes. For any order over 15,000 units the cost of raw materials lowers to $22.00 per unit. Please calculate the break-even at 15,000 units. All other costs remain the same as stated above.

FAMS HH was recently at a sports trade show and found a supplier out of Sweden who can custom manufacture the same helmet at a cost of $35.00 per unit. This would eliminate the need for all production machinery but delivery costs would stay the same as the helmets would still need to be delivered to stores. There would only need to be one employee in the factory in addition to the 2 office staff.

Each of the graduating students, which totaled 40 students in all, committed to contribute $3,000. Cash each to the new venture. After several meeting with the Marketing Department at George Brown College they too decided to contribute $30,000. But remain a silent, non-voting partner. The funds were deposited to a Canadian chartered bank. The students felt with all their newly acquired knowledge and strong financial analysis skill they would be a sure success. Please calculate the following: