Question
(1) STYLE & FASHION (2) LIST OF VARIABLE COSTS Cost per T shirt Manufacturing Variable Costs: Cost of T shirt $3.75 Cost of transfer paper
| (1) | STYLE & FASHION | ||||||||
| (2) | LIST OF VARIABLE COSTS | Cost per T shirt | |||||||
| Manufacturing Variable Costs: | |||||||||
| Cost of T shirt | $3.75 | ||||||||
| Cost of transfer paper for printing | $0.40 | ||||||||
| Cost of inkjet cartridge(manufacturing) | $0.10 | ||||||||
| Direct labor-printing | $0.80 | ||||||||
| Total Manufacuring Variable | $5.05 | ||||||||
| Non Manufacturing Variable Costs: | |||||||||
| Cost of inkjet cartridge(selling &admin) | $0.02 | ||||||||
| Wrapping & Box(Selling & admin) | $0.20 | ||||||||
| Folding & Wrapping(Selling & admin) | $0.40 | ||||||||
| Total Non- Manufacuring Variable | $0.62 | ||||||||
| Total Variable Costs=(5.05+0.62) | $5.67 | ||||||||
| (3) | FIXED COSTS | Total Cost/Year | |||||||
| Manufacturing Fixed costs: | |||||||||
| Rent (Factory) | $27,000 | ||||||||
| T shirt storage | $1,500 | ||||||||
| Cost of design | $13,600 | ||||||||
| Depreciation of computer(manufacturing) | $1,800 | ||||||||
| Depreciation of heatpress machine(factory) | $1,500 | ||||||||
| Total Manufacturing Fixed Costs | $45,400 | ||||||||
| Non Manufacturing Fixed Costs: | |||||||||
| Rent(selling & admin) | $3,000 | ||||||||
| Depreciation of computer(selling&admin) | $200 | ||||||||
| Laser paper(Selling & admin) | $200 | ||||||||
| Selling and administration salaries | $12,000 | ||||||||
| Liability Insurance cost | $3,600 | ||||||||
| Sales promotion cost | $4,000 | ||||||||
| TotalNon-manufacturing Fixed Costs | $23,000 | ||||||||
| Total Fixed Costs(45400+23000) | $68,400 | ||||||||
| (4) | Annual Cost formula : | ||||||||
| Y=a+bX | |||||||||
| Y=annual Cost | |||||||||
| a=Annual Fixed cost=68400 | |||||||||
| b=Variable cost per unit=5.67 | |||||||||
| X=Annula number of T shirts sold | |||||||||
| Y=68400+5.67X | |||||||||
| (5) | Calculation of Profit in the first Year | ||||||||
| Number of T-shirts sold=7800 | |||||||||
| Sales price=$15 each | |||||||||
| Sales Revenue(15*7800) | $117,000 | ||||||||
| Less: Variable Cost(5.67*7800) | $44,226 | ||||||||
| Contribution Margine | $72,774 | ||||||||
| Less: Fixed Costs | $68,400 | ||||||||
| Profit | $4,374 | ||||||||
QUESTIONS
10. Continue Question 9. If the only expense you can cut is the salary paid to yourselves, how much salary should you cut in order to break even? 11. Ignore Question 9 and 10. Assume that you have produced 7,800 t-shirts, but the actual sales for the first year turn out to be 7,000 T-shirts instead of 7,800. I.e. you will have 800 T- shirts left at the end of the first year. Prepare (a) a traditional format income statement and (b) a contribution format income statement. Are the two net operating income figures the same? Why or why not? 12. Continue 11. At what amount would inventory be reported in the balance sheet of 12/31/2020 under (a) the absorption costing and (b) variable costing? Are the two ending inventory figures the same or different? Why?
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Survey of Accounting
Authors: Thomas P. Edmonds, Frances M. McNair, Philip R. Olds, Bor Yi
3rd Edition
978-1259683794, 77490835, 1259683796, 9780077490836, 978-0078110856
