Question
STYLE & FASHION (2) LIST OF VARIABLE COSTS Cost per T shirt Manufacturing Variable Costs: Cost of T shirt $3.75 Cost of transfer paper for
| STYLE & FASHION | |||||||||
| (2) | LIST OF VARIABLE COSTS | Cost per T shirt | |||||||
| Manufacturing Variable Costs: | |||||||||
| Cost of T shirt | $3.75 | ||||||||
| Cost of transfer paper for printing | $0.40 | ||||||||
| Cost of inkjet cartridge(manufacturing) | $0.10 | ||||||||
| Direct labor-printing | $0.80 | ||||||||
| Total Manufacuring Variable | $5.05 | ||||||||
| Non Manufacturing Variable Costs: | |||||||||
| Cost of inkjet cartridge(selling &admin) | $0.02 | ||||||||
| Wrapping & Box(Selling & admin) | $0.20 | ||||||||
| Folding & Wrapping(Selling & admin) | $0.40 | ||||||||
| Total Non- Manufacuring Variable | $0.62 | ||||||||
| Total Variable Costs=(5.05+0.62) | $5.67 | ||||||||
| (3) | FIXED COSTS | Total Cost/Year | |||||||
| Manufacturing Fixed costs: | |||||||||
| Rent (Factory) | $27,000 | ||||||||
| T shirt storage | $1,500 | ||||||||
| Cost of design | $13,600 | ||||||||
| Depreciation of computer(manufacturing) | $1,800 | ||||||||
| Depreciation of heatpress machine(factory) | $1,500 | ||||||||
| Total Manufacturing Fixed Costs | $45,400 | ||||||||
| Non Manufacturing Fixed Costs: | |||||||||
| Rent(selling & admin) | $3,000 | ||||||||
| Depreciation of computer(selling&admin) | $200 | ||||||||
| Laser paper(Selling & admin) | $200 | ||||||||
| Selling and administration salaries | $12,000 | ||||||||
| Liability Insurance cost | $3,600 | ||||||||
| Sales promotion cost | $4,000 | ||||||||
| TotalNon-manufacturing Fixed Costs | $23,000 | ||||||||
| Total Fixed Costs(45400+23000) | $68,400 | ||||||||
| (4) | Annual Cost formula : | ||||||||
| Y=a+bX | |||||||||
| Y=annual Cost | |||||||||
| a=Annual Fixed cost=68400 | |||||||||
| b=Variable cost per unit=5.67 | |||||||||
| X=Annula number of T shirts sold | |||||||||
| Y=68400+5.67X | |||||||||
| (5) | Calculation of Profit in the first Year | ||||||||
| Number of T-shirts sold=7800 | |||||||||
| Sales price=$15 each | |||||||||
| Sales Revenue(15*7800) | $117,000 | ||||||||
| Less: Variable Cost(5.67*7800) | $44,226 | ||||||||
| Contribution Margine | $72,774 | ||||||||
| Less: Fixed Costs | $68,400 | ||||||||
| Profit | $4,374 | ||||||||
Questions
1. Continue to assume that 7,800 t-shirts will be made and sold in the first year. What is your product cost per unit under absorption costing? What is your product cost per unit under variable costing? 2. Based on the estimated sales level of 7,800 t-shirts for the first year, prepare your companys (forecasted) income statement for the year ended on 12/31/2020 using both (a) the traditional format based on the absorption costing and (b) the contribution format based on the variable costing. 3. Calculate contribution margin per T-shirt and contribution margin ratio. 4. Calculate how many T-shirts you need to sell in order to break-even. Calculate how much sales in dollars you need to make in order to break-even. (Use break-even formulas.) 5. Calculate how many T-shirts you need to sell in order to make $10,000 target profit for the year. 6. Continue to assume that 7,800 T-shirts will be made and sold during the first year. Calculate your (a) margin of safety and (b) degree of operating leverage (DOL) for your business. What do these figures tell you about how risky your business is?
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Horngrens Accounting The Managerial Chapters
Authors: Tracie L. Miller-Nobles, Brenda L. Mattison, Ella Mae Matsumura
11th Global Edition
1292105879, 978-1292105871
