Section $3$ Streamline Products?

After spending a few weeks contemplating the next move for LSI, Jason has come up with two options. The first option is to streamline the performance baseball apparel department by eliminating the less profitable products. Jason knows that the profitability of each product is limited by the number of operating hours available to his production staff. By $$cutting the fat$$ LSI can focus on producing fewer products at a higher quality, which will lead to higher profitability. Jason has put together the numbers $($Appendix III$)$ from the performance baseball apparel production department. He would like you to create an optimal production schedule given the departmental constraints. He would also like you to determine the forecasted Operating Income Statement for each year until $2027.$ Ignore the impact of both taxes and the time value of money.

Appendix III

$$Streamline Products

Performance Baseball Apparel

$2023$ Forecast

Socks

Shorts

Pants

T$-$shirts

Jackets

Sales $($units$)$

$150,000$

$180,000$

$400,000$

$550,000$

$55,000$

Sales Price $($per unit$)$

$$19\mathrm{.}99$

$$34\mathrm{.}99$

$$49\mathrm{.}99$

$$29\mathrm{.}99$

$$99\mathrm{.}99$

Direct Materials $($per unit$)$

$$15\mathrm{.}00$

$$12\mathrm{.}00$

$$18\mathrm{.}00$

$$2\mathrm{.}75$

$$40\mathrm{.}00$

Direct Labour $($per unit$)$

$$0\mathrm{.}30$

$$1\mathrm{.}50$

$$4\mathrm{.}00$

$$1\mathrm{.}25$

$$8\mathrm{.}00$

Variable Overhead $($per unit$)$

$$0\mathrm{.}45$

$$2\mathrm{.}25$

$$6\mathrm{.}00$

$$2\mathrm{.}25$

$$12\mathrm{.}00$

Variable Sales $($per unit$)$

$$3\mathrm{.}00$

$$5\mathrm{.}25$

$$7\mathrm{.}50$

$$5\mathrm{.}50$

$$15\mathrm{.}00$

Fixed Overhead Cost $($per year$)$

$$450,000$

$$565,000$

$$184,300$

$$280,100$

$$354,000$

Fixed SG&A Cost $($per year$)$

$$125,000$

$$125,000$

$$125,000$

$$125,000$

$$125,000$

Production Minutes $($per unit$)$

$2$

$5$

$14$

$6$

$25$

Production Hours $($per unit$)$

$0\mathrm{.}033$

$0\mathrm{.}083$

$0\mathrm{.}233$

$0\mathrm{.}100$

$0\mathrm{.}417$

Total Production Hours Available

$78,500$

Note to Students

The above chart can be copied and pasted directly into MS Excel, so you do not have to re$-$create the entire chart.

Appendix I $$ Notes

The marketing department has used the anticipated demand to forecast their $2023$ sales units

Jason would like this analyzed for five years $(2023-2027)$

Jason has assumed that variable $2023$ forecasted numbers will increase by $5\%$ per year until $2027$ and fixed $2023$ forecasted numbers will increase by $3\%$ per year until $2027.$

If LSI is going to continue producing performance baseball apparel, he would like to spend $$35$M on January $01,2023,$ on a national advertising campaign explaining the benefits of LSI performance apparel. This would be a one$-$time cost.

Jason is positive that the LSI executives will want a break$-$even calculation for each of the products you recommend producing. This will be used as a part of Jason$$s recommendation to the LSI executives.

SG&A $=$ Sales, general and administrative.

The forecasted numbers are looking forward from $20232027,$ the numbers in Section $2$Government Grant$$ are looking at $2022.$ These numbers are to be used in isolation and are completely independent of each other.

Appendix I

$$Accounting Mess$$

Beginning of Year

End of Year

Finished Goods Inventory

$$417,600$

$$548,975$

Work in Process Inventory

$28,800$

$36,125$

Raw Materials Inventory

$38,465$

$142,500$

Sales

$568,486$

Direct Labour

$128,710$

Factory Supervisory Salaries

$42,580$

Income Tax Expense

$31,500$

Factory Insurance

$16,600$

Raw Material Purchases

$298,430$

Administrative Expenses

$125,365$

Sales Returns and Allowances

$13,747$

Factory Depreciation

$35,000$

Indirect Labour

$28,500$

Selling Expenses

$39,900$