Mall of America charges you $2,300 rent per month, which includes utilities, cleaning, and maintenance.

You will order white, cotton T-shirts from a T-shirt wholesaler. Each T-shirt costs $3.50 to purchase (cost includes taxes, shipping, and handling).

To store T-shirts that were bought, but not yet imprinted, you will rent a storage unit. The storage unit costs $75 per month.

You agreed to pay your artist friend a $6,000 annual contract fee for twelve T-shirt designs. This same term is renewable for the next 3 years. Each T-shirt picture will only be used for one year. Therefore, in the second year, 12 new pictures will be designed for another $6,000 annual contract fee.

You will buy several items before the start of your business:

Computer and printer cost $5,000. They are expected to last 3 years without salvage value. Straight-line method of depreciation should be used.

Heat press machine cost $2,500. The machine is used for imprinting T-shirts only and is expected to last 3 years without salvage value.

Transfer paper Each case of transfer paper costs $400 and contains 1,000 sheets of 8.5 x 11 transfer paper. One transfer paper is used to print one T-shirt.

Ink-jet cartridges On average, each cartridge costs $50 and can make 500 prints. Each T-shirt requires one print.

Each T-shirt costs about $0.20 to wrap and box.

Three students are hired as part-time workers. On average it takes one labor hour to print 10 shirts. Folding and packaging 20 shirts takes about one labor hour. Each worker is paid $10 per hour.

You pay yourself $18,000 per year.

A liability insurance policy is purchased at a cost of $3,600 per year to protect the business from legal obligations.

Requirements:

5.Assume that you make and sell 7,500 T-shirts in the first year. Use the cost formula to calculate the first years total cost. If the T-shirts sell at $15 each, how much would net profit be in the first year?

6.Based on the estimated sales level of 7,500 T-shirts for the first year, prepare the companys forecasted income statement for the year ended on 12/31/2016.

7.Calculate contribution margin per T-shirt and contribution margin ratio.