Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

British Columbia does not have a company that makes locally sourced, environmentally friendly umbrellas for those rainy days that occur quite often in our fall

British Columbia does not have a company that makes locally sourced, environmentally friendly umbrellas for those rainy days that occur quite often in our fall and winter. Our plan is to build a factory that designs and manufactures umbrellas that are made of recycled plastics and locally sourced hemp fibre. The designs would have a west coast theme and feature joint contracts with First Nations including artistic designs plus donations to charities that promote equal opportunity and health improvement initiatives. We call our Umbrellas "Wet Coast" but would consider other names.

We are setting up our factory in an existing steel frame building right here in Victoria. We have secured purchase agreements with a number of buyers including The Bay, Roots, Thrifty Foods and Loblaws. Our buyers have committed to total purchases of 10,000 units in the first year and they will evaluate the success of our product for the 2nd and 3rd year but they feel that a doubling of sales volume is likely in those years. We can go after other customers as well. But how?

We have an assistance agreement with the Federal and Provincial governments that will subsidize our labour costs which will include at least a 50% First Nations worker component. This is being negotiated but will be either $250,000 or $500,000 per year. We have decided to begin operations in February 2023.

Here is a breakdown of our costs and revenues.

Fixed Cost breakdown: Rent: $10,000 per month, Insurance: $12,000 per year, Salaries: $200,000 per year, Licensing and Copyrights: $70,000 per year, Machinery and Equipment: $12,000 per month.

Variable Costs per unit of production: Wages: $15.00, Materials: $12.00, Packaging: $2.00, Transportation: $5.00, Charitable Contribution: $5.00

Price per unit (average): $75.00 (to our contracted retailers)

We are selling at a premium price point but we feel that we have some very strong competitive advantages that allow us to charge a premium price.

Questions:

Calculate the Break Even volume at the two levels of government assistance ($250,000 and $500,000). Assume a Tax Rate of 20%.

Figure out the ROI and Payback for the two scenarios described in the 1st question Assume Investment is $800,000. Assume production is 10000 units.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Management Accounting For Decision Makers

Authors: Dr Peter Atrill, Eddie McLaney

6th Edition

0273731521, 9780273731528

More Books

Students also viewed these Accounting questions