Needing Help with Part 2. Correct answers to Part 1 are on here as well. Thank you
Part Two (25 points): Now you have developed your costs estimates, do some evaluations on your proposed business. Be sure to use the answer key from part one of the project for your calculations in this part of the project. 1) Based on an estimated sales level of 7,800 t-shirts for the first year, prepare your company's forecasted income statement for year ended May 31, 2023 using both (1) the traditional format based on absorption costing and (2) the contribution format based on variable costing. You must fill in the missing labels on the income statements for full credit. Also, be sure to show your calculations under explanations to get full credit!! (See chapter 21 for help) 2) Calculate the product cost per unit under both (1) absorption costing and (2) variable costing. 3) Perform cost-volume-profit analysis (see chapter 20 for help) on your new business by determining the following: a. Contribution margin per T-shirt b. Contribution margin ratio C. Number of T-shirts you need to sell in order to break-even EACH month d. Amount of sales in dollars you need to make in order to break-even EACH month e. Number of T-shirts you need to sell in order to make $1,000 target profit EACH month f. Margin of safety g. Operating leverage Business Simulation Project - Part Two Variable Costing: Explanation: 1. Absorption Costing Income Statement (5 pts.) You don't need to list each cost/expense separately but you did need to explain either in words or formulas how you determined your final answers. Present your numbers as whole dollars. Fill in the missing line labels below (highlighted in yellow). Net operating income under variable costing should be the same as net operating income under absorption costing since units produced are the same as units sold. Assume estimated sales for the year of 7,800 t-shirts and selling price of $15/shirt. 3. Perform Cost-Volume-Profit Analysis (10 pts.) Contribution Margin per T-Shirt: : Explanation: Sales Explanation: Contribution Margin Ratio: Explanation: Less: Explanation: Break-even number of t-shirts EACH month: -- Explanation: Gross Profit Explanation: Less: Explanation: Break-even sales in dollars EACH month: Explanation: : Net Operating Income Explanation: Number of shirts needed to earn $1,000 target profit EACH month: Explanation: Variable Costing Income Statement (7 pts.) Sales Explanation: Margin of Safety (in %): Explanation: Less: Explanation: Based on the margin of safety you calculated, do you feel your business is risky or not risky? Why? Less: Explanation: : Contribution Margin Explanation: Degree of Operating Leverage: Explanation: Less: Explanation: Based on the degree of operating leverage you calculated, you feel that your business is vulnerable or not vulnerable to changes in the economy? Why? Less: Explanation: Net Operating Income Explanation: 2. Determine cost per t-shirt (3 pts.) Absorption Costing: Explanation: 1 Business Simulation Project Report - Part One 2 3 1. Your Company Name: 4 5 2. and 3. Detailed list and classification of costs 6 Please show or explain your computations in a readable/understandable format. 7 No points will be given if no explanations are provided. 8 9 Variable costs and Expenses 10 (Round your numbers to the hundreth, ie. $x.xx) 11 Cost Items Cost Per T-Shirt 12 Manufacturing 13 (1) T-shirts 3.75 14 Explanations: 15 t-shirts cost $3.75 each to purchase 16 17 (2) transfer paper 0.40 18 Explanations: 19 1000 sheets per case; 1 sheet per shirt; $400 per case / 1000 sheets = 0.45 20 21 (3) printing costs/ink jet cartridge 0.10 22 Explanations: 23 ink cartridge cost $50; makes 500 prints per cartridge; $50 / 500 prints = 0.10 24 25 (4) employee wages 0.80 26 Explanations: 27 employee makes $8/hour; 10 shirts an hour; $8 / 10 shirts = 0.80 28 29 Total Variable Manufacturing cost per T-Shirt: 5.05 30 32 Non-Manufacturing 33 (1) laser paper 0.02 34 Explanations: 35 $20 a ream; 200 sheets in a ream; $20 / 200 sheets = $0.10; one flyer printed for every 5 shirts sold; $0.10 / 5 shirts = $0.02 36 37 (2) ink cartridge 0.02 38 Explanations: 39 $50 for ink cartridge; makes 500 prints; $50 / 500 prints = 0.10; one flyer printed for every 5 shirts sold; $0.10/5 shirts = $0.02 40 41 Total Variable Non-Manufacturing costs per T-shirt: 0.04 Mall rent 43 Total Variable costs per T-shirt: 5.09 44 45 Fixed Costs and Expenses 46 (Round your numbers to the nearest whole dollar) 47 Cost Items Cost Per Month 48 Manufacturing 49 (1) artist fee 833.33 50 Explanations: 51 $10,000 for 12 designs; $10,000 / 12 months = $833.33 52 53 (2) 2250 54 Explanations: 55 $2500 per month; 90% of rent for operations; $2500 x 0.90 = $2250 56 57 (3) Heat press 125 58 Explanations: 59 $4500 for heat press; heat press lasts for 3 years; $4500 / 3 years = $1500 per year; $1500 / 12 months = $125 60 61 (4) Computer & Printer 150 62 Explanations: 63 $6000 cost; lasts for 3 years; 90% for operations; $6000 / 3 years = $2000 per year; $2000 / 12 months = 166.67 x 90% = 150 64 65 Total Fixed Manufacturing cost per year: 3358.33 GS 67 Cost Items Cost Per Month 68 Non-Manufacturing 69 (1) Mall Rent 250 70 Explanations: 71 $2500 per month; 10% for selling & admin; $2500 x 0.10 = $250 72 73 (2) Computer & Printer 16.67 74 Explanations: 75 $6000 cost; lasts for 3 years; 10% for selling & admin; $6000 / 3 years = $2000 per year; $2000 / 12 months = 166.67 x 10% = 16.67 76 77 (3) Owner's Salary 1000 78 Explanations: 79 12,000 per year; $12,000 / 12 months = $1000 80 81 (4) Insurance 300 82 Explanations: 83 $3600 per year; $3600 / 12 months = $300 84 85 Total Fixed Non-Manufacturing costs per month: 1566.67 86 87 Total Fixed Costs Per Month: 4925 88 89 4. Cost Formula Y = 4925 +5.09x 90 91 a) Total Cost $8,233.50 92 Explanations: 93 4925 monthly fixed costs +(5.09 x 650 shirts) 94 95 96 b) Net Profit $ 1,516.00 97 Explanations: 98 (650 shirts x $15) - $8,234 X Part Two (25 points): Now you have developed your costs estimates, do some evaluations on your proposed business. Be sure to use the answer key from part one of the project for your calculations in this part of the project. 1) Based on an estimated sales level of 7,800 t-shirts for the first year, prepare your company's forecasted income statement for year ended May 31, 2023 using both (1) the traditional format based on absorption costing and (2) the contribution format based on variable costing. You must fill in the missing labels on the income statements for full credit. Also, be sure to show your calculations under explanations to get full credit!! (See chapter 21 for help) 2) Calculate the product cost per unit under both (1) absorption costing and (2) variable costing. 3) Perform cost-volume-profit analysis (see chapter 20 for help) on your new business by determining the following: a. Contribution margin per T-shirt b. Contribution margin ratio C. Number of T-shirts you need to sell in order to break-even EACH month d. Amount of sales in dollars you need to make in order to break-even EACH month e. Number of T-shirts you need to sell in order to make $1,000 target profit EACH month f. Margin of safety g. Operating leverage Business Simulation Project - Part Two Variable Costing: Explanation: 1. Absorption Costing Income Statement (5 pts.) You don't need to list each cost/expense separately but you did need to explain either in words or formulas how you determined your final answers. Present your numbers as whole dollars. Fill in the missing line labels below (highlighted in yellow). Net operating income under variable costing should be the same as net operating income under absorption costing since units produced are the same as units sold. Assume estimated sales for the year of 7,800 t-shirts and selling price of $15/shirt. 3. Perform Cost-Volume-Profit Analysis (10 pts.) Contribution Margin per T-Shirt: : Explanation: Sales Explanation: Contribution Margin Ratio: Explanation: Less: Explanation: Break-even number of t-shirts EACH month: -- Explanation: Gross Profit Explanation: Less: Explanation: Break-even sales in dollars EACH month: Explanation: : Net Operating Income Explanation: Number of shirts needed to earn $1,000 target profit EACH month: Explanation: Variable Costing Income Statement (7 pts.) Sales Explanation: Margin of Safety (in %): Explanation: Less: Explanation: Based on the margin of safety you calculated, do you feel your business is risky or not risky? Why? Less: Explanation: : Contribution Margin Explanation: Degree of Operating Leverage: Explanation: Less: Explanation: Based on the degree of operating leverage you calculated, you feel that your business is vulnerable or not vulnerable to changes in the economy? Why? Less: Explanation: Net Operating Income Explanation: 2. Determine cost per t-shirt (3 pts.) Absorption Costing: Explanation: 1 Business Simulation Project Report - Part One 2 3 1. Your Company Name: 4 5 2. and 3. Detailed list and classification of costs 6 Please show or explain your computations in a readable/understandable format. 7 No points will be given if no explanations are provided. 8 9 Variable costs and Expenses 10 (Round your numbers to the hundreth, ie. $x.xx) 11 Cost Items Cost Per T-Shirt 12 Manufacturing 13 (1) T-shirts 3.75 14 Explanations: 15 t-shirts cost $3.75 each to purchase 16 17 (2) transfer paper 0.40 18 Explanations: 19 1000 sheets per case; 1 sheet per shirt; $400 per case / 1000 sheets = 0.45 20 21 (3) printing costs/ink jet cartridge 0.10 22 Explanations: 23 ink cartridge cost $50; makes 500 prints per cartridge; $50 / 500 prints = 0.10 24 25 (4) employee wages 0.80 26 Explanations: 27 employee makes $8/hour; 10 shirts an hour; $8 / 10 shirts = 0.80 28 29 Total Variable Manufacturing cost per T-Shirt: 5.05 30 32 Non-Manufacturing 33 (1) laser paper 0.02 34 Explanations: 35 $20 a ream; 200 sheets in a ream; $20 / 200 sheets = $0.10; one flyer printed for every 5 shirts sold; $0.10 / 5 shirts = $0.02 36 37 (2) ink cartridge 0.02 38 Explanations: 39 $50 for ink cartridge; makes 500 prints; $50 / 500 prints = 0.10; one flyer printed for every 5 shirts sold; $0.10/5 shirts = $0.02 40 41 Total Variable Non-Manufacturing costs per T-shirt: 0.04 Mall rent 43 Total Variable costs per T-shirt: 5.09 44 45 Fixed Costs and Expenses 46 (Round your numbers to the nearest whole dollar) 47 Cost Items Cost Per Month 48 Manufacturing 49 (1) artist fee 833.33 50 Explanations: 51 $10,000 for 12 designs; $10,000 / 12 months = $833.33 52 53 (2) 2250 54 Explanations: 55 $2500 per month; 90% of rent for operations; $2500 x 0.90 = $2250 56 57 (3) Heat press 125 58 Explanations: 59 $4500 for heat press; heat press lasts for 3 years; $4500 / 3 years = $1500 per year; $1500 / 12 months = $125 60 61 (4) Computer & Printer 150 62 Explanations: 63 $6000 cost; lasts for 3 years; 90% for operations; $6000 / 3 years = $2000 per year; $2000 / 12 months = 166.67 x 90% = 150 64 65 Total Fixed Manufacturing cost per year: 3358.33 GS 67 Cost Items Cost Per Month 68 Non-Manufacturing 69 (1) Mall Rent 250 70 Explanations: 71 $2500 per month; 10% for selling & admin; $2500 x 0.10 = $250 72 73 (2) Computer & Printer 16.67 74 Explanations: 75 $6000 cost; lasts for 3 years; 10% for selling & admin; $6000 / 3 years = $2000 per year; $2000 / 12 months = 166.67 x 10% = 16.67 76 77 (3) Owner's Salary 1000 78 Explanations: 79 12,000 per year; $12,000 / 12 months = $1000 80 81 (4) Insurance 300 82 Explanations: 83 $3600 per year; $3600 / 12 months = $300 84 85 Total Fixed Non-Manufacturing costs per month: 1566.67 86 87 Total Fixed Costs Per Month: 4925 88 89 4. Cost Formula Y = 4925 +5.09x 90 91 a) Total Cost $8,233.50 92 Explanations: 93 4925 monthly fixed costs +(5.09 x 650 shirts) 94 95 96 b) Net Profit $ 1,516.00 97 Explanations: 98 (650 shirts x $15) - $8,234 X
