(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

6. Continue to assume that 7,800 T-shirts will be made and sold during the first year. Calculate your (a) margin of safety and (b) degree of operating leverage (DOL) for your business. What do these figures tell you about how risky your business is? 7. If sales could increase by 1,560 shirts (i.e. a 20% increase), by how much in dollars would net operating income increase? By what percentage would net operating income increase? (Use the quick way, i.e. contribution margin concept and DOL, you have learned in class to answer these questions. Do not recalculate net operating income.) 8. Prepare a contribution format income statement assuming a sales increase by 20% to 9,360 shirts. Compare your new net operating income with your answer in Question 2 and prove mathematically that your answers to the two questions in Question 7 are correct. 9. Ignore Questions 7 and 8. If the cost per plain t-shirt is expected to increase by 20% and sales (in number of T-shirts) are expected to be 5% less, how much is your projected net operating income (or loss)?