Introduction Exotic Print Tees is a small company started up by a young entrepreneur renting a cart inside the Great Lakes Mall that will sell their own custom printed T-shirts. The print designs on the T-shirts will be designed by a famous local artist who is friends with the owner, and he will create 12 prints each year for the small business at a discounted rate. The company wants to target teenagers and young adults as the primary consumers. They are scheduled to launch January 1, 2020. I will be analyzing their variable and xed costs based on the manufacturing and non-manufacturing items purchased to startup the business and monthly required expenses throughout its rst year running. Case Analysis The manufacturing variable costs include the cost of a T-shirt at $3.?5 per T-shirt, each case of transfer paper costs $400 including 1,000 sheets making each sheet cost $0.40, each Ink- Jet cartridge costs $50 and can produce 500 prints. In contrast, each T-shirt requires only one print at $0.10 per T-shirt, and lastly, labor charges for part-time workers who get $8 an hour and print 10 T-shirts during the hour, costing the owner $0.80 per T-shirt for labor. Based on this data, the total variable manufacturing cost per T-shirt is $5.05. The non-manufacturing variable costs of the business would be printing 1 page per 5 T-shirts sold using the Ink-Jet cartridge costing $0.20 per T-shirt, laser paper purchased at $20 for 200 sheets used for promotion yers costing $0.10 per sheet, wrapping paper, and box costs $0.20 per T-shirt. Lastly, labor charges for folding wrapping 20 shirts per hour would cost $0.40 per T-shirt based on the $8 hourly rate. The total variable non-manufacturing cost per T-shirt is $0.72. After adding up both manufacturing and non-manufacturing variable expenses to get the total variable price of $5.77 per T-shirt. Table 1 below shows the variable cost grouped into manufacturing and non- manufacturing costs, adding up the cost of each item per T-shirt. Table 1 Variable Cost Cost Items Cost per T-Shirt Manufacturing Cost ofT-shirt $ 3.75 $ 3.75 Transfer Paper{400/1000 sheets) S 0.40 Ink-let cartridge($50/500} prints $ 0.10 Labor Charges of part time workers printingu hr*$8)/10shirt S 0.80 Total Variable Manufacturing Cost perTShlrt 5 5.05 Non-Manufacturigg Ink-jet catridge ($50/500}*1 print/5 shirts $ 0.20 Laser paper {$20I200 sheets) $ 0.10 Wrapping paper and box $ 0.20 Labor charges of part time workersli hr*$8)/20 S 0.40 Total Variable Cost per T-Shirt The xed costs of manufacturing expenses include rent paid to Stoneridge at $2,500 per month, and 90% of the rent is related to factory operations costing Exotic Print Tees $27,000 per year. Next is the storage unit that's $125 monthly costing $1,500 per year, the design artist charges a $10,000 annual contract fee plus a $300 design fee every 12 months, and a computer and printer costing $6,000 good for only three years while 90% of this cost is a factory operation costing $1,800 per year. Lastly, a heat press machine is purchased for $4500 and will last three years as well, making the yearly cost $1,500. After adding each manufacturing item, the total xed cost is $42,100 per year. Now, non-manufacturing items include 10% of the monthly rent at $3,000 yearly and 10% of the computer and printer purchase at $200 annually. Only 10% of these two items is calculated as a non-manufacturing xed cost because they considered selling and administrative activities. A yearly amount of $12,000 is paid to the owners themselves for selling and administrative work. The last two expenses are insurance to protect the business costing $3,600 per year and four end-of-quarter promotion parties for $4,000. After adding up all the fixed non-manufacturing expenses, the total cost is $22,800. Combining manufacturing and non-manufacturing costs, the total fixed cost per year is $64,900, as shown below in Table 2. Table 2 Fixed Cost Cost Items Cost per Year Manufacturing Stoneridge charges (2500*12*90%) 27,000.00 Storage units (125*12) 1,500.00 Design charges (10000+300) 10,300.00 Computer and Printer (6000/3)*90% 1,800.00 Heat press machine (4500/3 1,500.00 Total Fixed Manusacturing Cost per Year 42,100.00 Non-Manufacturing Stoneridge charges (2500*12*10%) 3,000.00 Computer and Printer (6000/3)*10% 200.00 Selling and administrative 12,000.00 Insurance 3,600.00 Party Expenses (4*1000) 4,000.00 Total Fixed Non-Manufacturing Cost per Year 22,800.00 Total Fixed Cost per Year S 64,900.00 The yearly cost formula is as follows: y = a + bx where y = total cost a = fixed cost b = variable cost x = number of T-shirts sold Based on the results found in Table 1 and Table 2, the fixed cost is $64,900, and the variable cost is $5.77. Plugging in the numbers for fixed and variable cost in the yearly cost formula as follows:5 y = 64900 + 5.77x Assuming that Exotic Print Tees made and sold 7,800 T-shirts in the first year, the first year's total cost would be $109,606 after plugging in 7,800 as "x" in the total cost formula above. If each T-shirt is sold at $15, total sales for the year would be 7,800 multiplied by $15, equaling $117,000 in sales. Based on these assumptions, the net profit for the first year is found by subtracting sales from total costs equaling $7,394. Summary Exotic Print Tees is a T-shirt company that has been up and running for only a year. They were required to make several purchases and equipment to start their business. The purchases invested in the company are separated into fixed and variable costs, including manufacturing and non- manufacturing items. It is important to understand the category each item or investment made in the business falls in order to have the correct data for the annual total cost of the company. After finding the variable cost per unit and total fixed cost, the total cost formula was used to compute the total cost of production for the past year. This is extremely necessary in order to conclude the approximate profit or loss levels achieved at certain sales volume. |