Question
(See attached excel Sheet for easy Example with formulas already inserted you have the freedom to be creative) Product being made is handmade hand scrub.
(See attached excel Sheet for easy "Example" with formulas already inserted you have the freedom to be creative)
Product being made is "handmade hand scrub". Our salt hand scrub recipe will include Coarse Sea Salt, Coconut Oil, Vitamin E and Container/ Jar. The total price for all ingredient and Container is $18.00 for 12 units of 4-ounce jars of product. Which will make the selling price for each unit about $1.50 per 4-ounce jar sold.
Competitors sell a 4-ounce jar of hand scrubs between the price of $8 through $10 per jar, so for profit we can make triple to quadruple the price it cost to make our product, and gain profitability.
Coarse Sea Salt $3
Coconut Oil $3
Vitamin E $4
4oz Jars $8
Price to produce 12 units of 4oz Jars Cost is $1.50 per jar, meaning a Profit of $4.50 per product on sale portion.
Deliverables
1.Discuss what product your company will manufacture. Explain why you selected this product. (The Product is Hand made Hand Scrub)
2.See above for prices, Determine the selling price for your product and estimate your sales in units for 3 years.
3.List at least 8 costs that your company will incur. You must include multiple variable costs, fixed costs, and mixed costs. Please explain why you classified each cost in the manner that you did.
4.For each of the costs that you listed above, please estimate the cost. Please keep in mind that variable costs are incurred per unit and fixed costs in total. Mixed costs have a variable and fixed cost component.
5.Calculate how many units of your product you will have to sell to break-even for the next 3 years.
6.Calculate the margin of safety in units for each of the 3 years based on your projections above.
7.In year 1, you are happy to break-even but as a group discuss what target profit you would like to make for Year 2 and 3? Based on your target profit, calculate how many units you would need to sell.
8.Realistically, do you feel manufacturing this product makes sense or is it too risky? You must justify your decision.
Year 1 10000 Sales Units Year 2 12000 Year 3 14400 20% growth Sales Price per unit $ 10.00 $ 10.00 $ 10.00 REVENUE $ 100,000 $ 120,000 $ 144,000 $2.00 $0.50 $0.10 $2.04 $0.52 $0.10 $30,000 $ $60,000 30,000 $ $63,000 30,000 $66,150 25,000 $ 0.02 $ 25,000 $ 0.02 $ 25,000 0.02 Variable Costs: Direct Materials Direct Labor Variable OH $2.08 increase at 2% per year $0.54 increase at 4% per year $0.10 increase at 1% per year Fixed Costs: Rent Supervision Mixed Costs: Utilities - Fixed $ Utilities - Variable $ Total Costs: Variable Cost per unit Fixed Costs Contribution Margin: $2.62 $115,000 $ 7.38 $ 74% $2.68 $118,000 7.32 $ 73% $2.74 $121,150 7.26 73% BREAKEVEN: Sales Units Sales Revenue MARGIN OF SAFETY 15,583 $155,826.56 $ (55,827) $ 16,122 $161,224 (41,224) $ 16,696 $166,956 (22,956)Step by Step Solution
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