DAA T-SHIRTS

Manufacturing Variable Costs – Cost of Each T-Shirt:

Cost of T-shirt= $3.75

Cost of Transfer Paper for Printing= $0.40

Cost of Inkjet Cartridge= $0.10

Direct Labor-Printing= $0.80

Total Manufacturing Variable= $5.05

Non-Manufacturing Variable Costs:

Cost of Inkjet Cartridge= $0.02

Wrapping - Box= $0.20

Folding - wrapping= $0.40

Total Non- Manufacturing Variable= $0.62

Total Variable Costs= (5.05+0.62) = $5.67

Fixed Costs– Cost Year:

Rent= $27,000

T -Shirt Storage= $1,500

Cost of Design= $13,600

Depreciation of Computer= $1,800

Depreciation of Heat Press Machine= $1,500

Total Manufacturing Fixed Costs= $45,400

Non-Manufacturing Fixed Costs:

Rent= $3,000

Depreciation of Computer= $200

Laser Paper= $200

Selling Administration Salaries= $12,000

Liability Insurance Cost= $3,600

Sales Promotion Cost= $4,000

Total Non-manufacturing Fixed Costs= $23,000

Total Fixed Costs= (45400+23000) = $68,400

Annual Cost Formula:

Y= a+bX

Y= Annual Cost

a= Annual Fixed Cost= $68,400

B= Variable Cost Per Unit= $5.67

X= Annula Number of T-shirts Sold

Y= $68, 400+5.67X

Calculation of Profit in The First Year:

Number of T-shirts sold= $7,800

Sale Price of Each =$15

Sales Revenue= (15*7800) = $117,000

Variable Cost= (5.67*7800) = $44,226

Contribution Margine= $72,774

Fixed Costs= $68,400

Profit= $4,374

QUESTIONS

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 and prove mathematically that your answers to the two questions in Question “7” are correct.
9. 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)?