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 Manufacuring Variable= $5.05

Non-Manufacturing Variable Costs:

Cost of Inkjet Cartridge= $0.02

Wrapping - Box= $0.20

Folding - wrapping= $0.40

Total Non- Manufacuring 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

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)? 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?