The purpose of this project is to help you integrate the managerial accounting concepts we cover in class and apply them to a real-world business setting. This project contains three phases. In the first phase, you will analyze the costs of your business. In the second phase, you will make sales forecasts, conduct cost-volume-profit analysis, and prepare budgeted financial statements. In the third phase, you will perform variance analysis and come up with strategies to improve the profitability of your business.

): You are an entrepreneur who will be starting a t-shirt business. Your company will rent space inside the mall. You will buy plain t-shirts and imprint them with one of twelve pictures exclusively designed for your company by a famous artist who is a friend of yours. Your target customers are teenagers and young adults and you plan on selling your t-shirts for $15 each. Your business is scheduled to open on January 1, 2020. Below is the cost information for your company:

1. The mall charges you $2,500 rent per month which includes utilities, telephone, cleaning, and maintenance. You estimated that 90% of the rent is related to operations and 10% is related to selling and administrative activities.
2. You will purchase white, cotton t-shirts from a wholesaler for $3.75/shirt.
3. You agree to pay your artist friend a $10,000 annual contract fee for designing 12 new t-shirts each year for your business.
4. You will buy a computer and printer that cost $6,000 which is expected to last 3 years with no salvage value. You will use straight-line depreciation method. You estimate 90% of the computer and printer will be used for operations and 10% will be used for selling and administrative activities.
5. You purchase a heat press machine for $4,500 which is expected to last 3 years with no salvage value. The machine is used only for imprinting the t-shirts.
6. You will purchase transfer paper that cost $400/case and contains 1,000 sheets of transfer paper. One sheet of transfer paper will be used to print one t-shirt.
7. You will purchase ink-jet cartridges that cost $50 and can make 500 prints. Each t-shirt requires one print. You will also need to print flyers for selling and administrative purposes. For this non-manufacturing printing, you will print about flyer for every 5 t-shirts sold.
8. You will purchase laser paper for $20/ream which contains 200 sheets of laser paper.
9. You will hire three part-time employees. You will pay each employee $8/hour. On average printing 10 t-shirts will take one hour of labor.
10. You will do all of the selling and administrative work by yourself and will be paid $12,000/year.
11. To protect your business from legal obligations, you will purchase a liability insurance that cost $3,600/year.

    After reviewing the budgeted income statement, you prepared in phase two for your companys first year of operations, you are disappointed at the estimated net income. So, you begin to think about business strategies that you hope will help to improve the profitability of your t-shirt business.

    Develop a business strategy which will involve at least three changes in some (or all) of the following attributes: (1) variable cost per t-shirt, (2) total fixed cost, and (3) selling price per t-shirt. Your three (or more) changes can come in any combination of (1), (2), and (3). For instance, you could propose that you use better quality t-shirts as raw material (which will increase the variable cost per t-shirt and increase the advertising budget), and then sell the t-shirts at a higher price (which will change the selling price per t-shirt). By doing so you are hoping to sell more t-shirts and increase your revenue and hopefully your net income. Use your imagination to come up with creative business strategy.

    In a minimum two-page typed document, describe your strategy clearly and justify why you believe your strategy will work. Incorporate small/simple tables in your document that answer the three bullet points listed below. (Chapter 24 in the textbook might give you some ideas on business strategies and how to compare the different options in a simple table.)

12. • Indicate by how much your variable cost per t-shirt, total fixed cost, and selling price will change under your business strategy.
    • What would the new contribution margin per t-shirt be? What would be the new break-even level in number of t-shirts be under your new strategy?
    • Under your strategy, how many t-shirts do you think you will be able to produce/sell in a year in the best (but realistic) scenario? How many t-shirts do you think you will produce/sell in the worst scenario? Assume that the t-shirts produced will be all sold. Calculate your net income under each of the two scenarios.

13. After your thorough analysis of costs, sales, and profitability of your t-shirt business, what is your overall impression of the future potential of this business venture? Submit your business strategy document in Moodle by the due date for grading.