You are a talented seamstress and designer. After you graduate with a degree in fashion design, you start a small business with some financial help from your parents. Your business has been quite successful and you are now faced with some accounting decisions. Shrtz for Me makes customized embroidered sweatshirts and T-shirts. The shirts are made on the premises and can be customized to suit. Customers can select the colour, fabric, style, and type of decoration for each shirt order. The minimum order is 20 shirts. Production is located in one rental building that has a small retail store at the front and a workshop in the rear. In a typical year, Shrtz for Me will sell about 10,000 shirts at an average selling price of $50. About 50% of its sales revenue comes from on-line sales.
Instructions
(a) What are the likely fixed overhead costs for a business of this type?
(b) How would you allocate your chosen overhead costs to each shirt order?