Part II In this part, you will apply the cost-volume-profit analysis in Chapter 18 to your company.
Question:
Part II In this part, you will apply the cost-volume-profit analysis in Chapter 18 to your company. Assume that all the numbers are budgeted for next year, 2020.4. Determine the price of your product for 2021 and indicate how the price is determined (15 points). I encourage you to search information beyond the textbook. Refer to the following link for some methods of pricing your product. https://sumo.com/stories/how-to-price-a-productMust have the explanation about how the price is determined, such as the methods you used and the sources you searched. Your prediction should have a reason, not based on complete imagination.5. Determine the budgeted variable costs per unit of your product in 2021 (15 points). Write down how you determine or estimate the variable costs of your product. I encourage you to search information beyond the textbook. You can search online or elsewhere to get the price of the materials you need. You can use the minimum wage rate set by the government as direct labor costs or add some amount based on the minimum wage rate if you want to be a good boss. You can design other costs, such as sales commission for each unit sold. Put information in the following table. Students can specify name(s) of other variable costs based on imagination.Variable Cost per unitCostDirect materialsXXDirect labor costsxxOther variable costs xxMust have the explanation about how the unit variable costs are determined, such as the methods you used and the sources you searched. Your prediction should have a reason, not based on complete imagination.6. Determine the budgeted fixed costs of different departments of your company in 2021 (15 points). You can make up the numbers because it is not easy to find the information. You can use the following table to present the information. Put names of the departments in your company in the Department name column. The second column and the third column are for the names and dollar amounts of fixed costs. Department namesNames of fixed costsFixed costs amount1xx2xx3xx7. Based on the numbers in sections 4-6, use what you learned in chapter 18 to calculate break-even point in units and break-even point in dollars. (10 points) 8. What is your target operating income next year? Based on the numbers in sections 4-7, use what you learned in chapter 18 to calculate the sales in units (also called unit sales) and sales in dollars (also called dollar sales) to achieve your target operating income. (15 points)9. Prepare a forecasted income statement of your company (20 points). You can refer to income statement format on page 709 on our textbook (Exhibit 18.21). Assume that the income tax rate is 25%.
PART 2:
4. Price of Sunchronize’s sun reflective apparel in 2021:
Before pricing Sunchronize’s sun reflective apparel, we must understand our products manufacturing process. With some research, we found that the wellknown and widely trusted brand, Patagonia, employs clean, well-lit factories with the absence of child labor and with the Fair Trade stamp. Employing one of these factories would certainly be the money move to save production cost with manufacturing in the USA. Our company would look to use Virgin polyester in our clothing, similar to the material Nike uses for much of their UPF styled clothing. The price per metric ton of polyester in China is $5,920, as of September of 2020. China’s minimum wage in a Fair-Trade factory is $3.60/hour. There was limited information on the estimated amount of clothing that 1 ton (2000 pounds) of polyester could make, but a bale of cotton (495 pounds) can make an estimated 215 pairs of jeans. Based on this, a ton of material could make just over 900 articles of clothing or dropped down to 750 to take into account for extra material used on jackets, etc. If we were to ask a fair-trade company to produce 750 articles of UPF clothing from the ton of polyester we were to purchase, assuming say 35 workers would work 10 hour days for 4 days straight, that would be $5,040 in wages. So now we are up to $10,960 in expenses. If your order is more than 500 kg, which ours would be, we would use Air freight to ship our items. This would come out to an estimated $5.50/kg so that times an estimated ton of items would be an additional $4,989.50.
The total cost of materials, manufacturer wages and air freight brings us to a total of $15,949.50. This number divided by 750 items of clothing comes out to about $21.26 per item. If we use cost-based pricing, and mark our item up by 75%, the average price of an item of our clothing would be $37.20, raised to $39.99 for the “charm pricing” tactic.
All US imports from China are subject to a Merchandising Process Fee (MPF). The ad valorem fee is 0.3464% of Sunchronize’s commercial value, and does not exceed a maximum fee of $528.33, as of November 2, 2020. 0.3464% of Sunchronize’s commercial value of 750 clothing articles is priced at $39.99 is $10,389.40. This exceeds the maximum MPF, and so Sunchronize will pay $528.33, which brings our total annual costs to $16,477.83.
5. Determine the budgeted variable costs per unit of your product in 2021 (15 points). Write down how you determine or estimate the variable costs of your product. I encourage you to search for information beyond the textbook. You can search online or elsewhere to get the price of the materials you need. You can use the minimum wage rate set by the government as direct labor costs or add some amount based on the minimum wage rate if you want to be a good boss. You can design other costs, such as sales commission for each unit sold. Put information in the following table. Students can specify name(s) of other variable costs based on imagination.
Variable Cost | Cost |
Direct materials | $6316.00 |
Direct labor costs | 5,040.00 |
Indirect costs | 5,517.83 |
$16,873.83
Variable Cost per Unit: | Cost: |
Direct Materials | $6316.00 |
Direct Labor | $5,040.00 |
Indirect Costs | (utilities) (MPF) (freight out) |
Sunchronize’s boutique is located in Northern California, which is an optimal location, considering our target market is anyone that spends time outdoors under the sun. This will drastically reduce Sunchronize’s shipping expenses. We predict that 35% of Sunchronize apparel will be purchased online as opposed to bought in store. This accounts for our customers in Southern CA who share our same values of health, quality, and sustainability.
To maintain Sunchronize’s core value of sustainability, we use cardboard boxes to ship our products, rather than plastic. It costs an average of $1.46 per 18’’x14’’x12’’ cardboard box, and so if we were to assume that the 35% of Sunchronize’s online customers will buy one clothing article per order, we will need to have a minimum of 263 boxes, which is 35% of 750
clothing articles. The cost of 263 shipping boxes is $384. The cost of packing tape must also be taken into consideration. If 72’’ of packing tape is required to tape one 18’’x14’’x12’’ box, then 1 roll of tape will account for 55 boxes. Sunchronize needs 5 rolls of packing tape, and so we will spend $12.49 on 6 rolls of packing tape which will allow for packaging errors and/or returns. The total cost of fabric and packaging materials bring our direct materials cost to a total of $6,316.
The cost of importing Sunchronize’s merchandise from China must also be included in determining our variable costs. The freight cost of importing our merchandise is $4989.50 and the Merchandise Purchasing Fee is $528.33. The indirect variable costs are $5,517.83. The total direct labor costs are $5,040. We expect that the majority of our costs will be labor costs, not utility costs. Utilities are most expensive near San Diego, since PG&E has a lot of hydroelectric energy assets in Northern CA, so our location will save a small percentage of utility costs.
6. Determine the budgeted fixed costs of different departments of your company in 2021 (15 points). You can make up the numbers because it is not easy to find the information. You can use the following table to present the information. Put names of the departments in your company in the Department name column. The second column and the third column are for the names and dollar amounts of fixed costs.
Department names | Name of fixed cost | Fixed cost amount |
Marketing Department |
| (39.99-21.26) = (($18.73)*750)= (($14047.50)* 0.05) = 702.37 (5% of revenue spent on marketing) |
Production Department |
| |
Finance Department |
| (CA minimum wage = $13/hour) Avg cost/sf/month of warehouse = $0.85; 3000 sq. ft. business (3000 * 0.85) = ($2550 * 12 mo.) = $30,600 annual rent |
7. Based on the numbers in sections 4-6, use what you learned in chapter 18 to calculate break-even point in units and break-even point in dollars. (10 points)
Break-even point in units = ( Fixed costs / Contribution margin per unit ) =
Fixed costs =
Contribution margin per unit = Unit revenue (39.99) - Unit variable cost (16,873.83 / 750 units = 22.50) = $ 17.50
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8. What is your target operating income next year? Based on the numbers in sections 4-7, use what you learned in chapter 18 to calculate the sales in units (also called unit sales) and sales in dollars (also called dollar sales) to achieve your target operating income. (15 points)
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9. Prepare a forecasted income statement of your company (20 points). You can refer to the income statement format on page 709 in our textbook (Exhibit 18.21). Assume that the income tax rate is 25%.
Statistics for Business and Economics
ISBN: 978-0132930192
8th edition
Authors: Paul Newbold, William Carlson, Betty Thorne