Question
The Richmond Shirt Company makes two types of T-shirts: basic and custom. Basic shirts are plain shirts without any screen printing on them. Custom shirts
The Richmond Shirt Company makes two types of T-shirts: basic and custom. Basic shirts are plain shirts without any screen printing on them. Custom shirts are created using the basic shirts and then adding a custom screen printing design.
Additional information: The company buys cloth in various colors and then makes the basic shirts in two departments, Cutting and Sewing. The company uses a process costing system (weighted-average method) to determine the production cost of the basic shirts. In the Cutting Department, direct materials (cloth) are added at the beginning of the process and conversion costs are added evenly through the process. In the Sewing Department, no direct materials are added. The only additional material, thread, is considered an indirect material because it cannot be easily traced to the finished product. Conversion costs are added evenly throughout the process in the Sewing Department. The finished basic shirts are sold to retail stores or are sent to the Custom Design Department for custom screen printing.The Custom Design Department creates custom shirts by adding screen printing to the basic shirt. The department creates a design based on the customer's request and then prints the design using up to four colors. Because these shirts have the custom printing added, which is unique for each order, the additional cost incurred is determined using job order costing, with each custom order considered a separate job.
For March 2016, the Richmond Shirt Company compiled the following data for the Cutting and Sewing Departments:
Cutting Department
THE RICHMOND SHIRT COMPANY | ||||
Production Cost ReportCUTTING DEPARTMENT | ||||
Month Ended March 31, 2016 | ||||
UNITS | Whole Units | Transferred In | Direct Materials | Conversion Costs |
Beginning Work in Process | 0 | |||
Units Started during the Period | 1,400 | |||
Ending WIP | 0 | |||
Total Units to Account For | 1,400 | |||
Beginning Work in Process | 0 | 0 | 0 | 0 |
Units Started and Completed | 1,400 | 1,400 | 1,400 | 1,400 |
Ending WIP | 0 | 0 | 0 | 0 |
Total Units Accounted For | 1,400 | 1,400 | 1,400 | 1,400 |
COSTS | Transferred In | Direct Materials | Conversion Costs | Total Costs |
Beginning Work in Process | 0 | 0 | 0 | 0 |
Current Added During Period | 0 | 4,060 | 1,540 | 5,600 |
Ending Work in Process | 0 | 0 | 0 | 0 |
Total Costs to Account For | 0 | 4,060 | 1,540 | 5,600 |
Equivalent Units | 0 | 1,400 | 1,400 | |
Equivalent Cost per Unit | 0 | 2.90(4,060/1,400) | 1.10(1,540/1,400) | 4.00 (2.90 + 1.10) |
Costs Assigned to Completed Units | 0 | 4,060 | 1,540 | 5,600 |
Costs Assigned to Ending WIP | 0 | 0 | 0 | 0 |
Total Costs Accounted For | 0 | $4,060 | $1,540 | $5,600 |
_____
Sewing Department:
THE RICHMOND SHIRT COMPANY | ||||
Production Cost ReportSEWING DEPARTMENT | ||||
Month Ended March 31, 2016 | ||||
UNITS | Whole Units | Transferred In | Direct Materials | Conversion Costs |
Beginning Work in Process | 500 | |||
Units Transferred in from Cutting | 1,400 | |||
Total Units | 1,900 | |||
Units Started and Completed | 1,350 | 1,350 | 0 | 1,350 |
Units in Ending WIP (1,900 - 550) | 550 | 550 | 0 | 385 (550*70%) |
Total Units | 1,900 | 1,900 | 0 | 1,735 |
COSTS | Transferred In | Direct Materials | Conversion Costs | Total Costs |
Beginning Work in Process | 2,000 | 0 | 500 | 2,500 |
Current Added During Period | 5,600 | 0 | 1,235 | 6,835 |
Total Costs to Account For | 7,600 | 0 | 1,735 | 9,335 |
Equivalent Units | 1,900 | 0 | 1,735 | |
Equivalent Cost per Unit | 4.00(7,600/1,900) | 0.00 | 1.00(1,735/1,735) | 5.00 (4.00 + 1.00) |
Costs Assigned to Completed Units | 5,400 (1,350*4) | 0 | 1,350 (1,350*1) | 6,750 |
Costs Assigned to Ending WIP | 2,200 (550*4) | 0 | 385 (385*1) | 2,585 |
Total Costs Accounted For | $7,600 | 0 | $1,735 | $9,335 |
For the same time period, the Richmond Shirt Company compiled the following data for the Custom Design Department:
Job | 367 | 368 | 369 | 370 |
Quantity | 200 | 100 | 400 | 300 |
Design Fee | Yes | No | Yes | Yes |
Number of Colors Printing | 5 | 4 | 2 | 4 |
Costs: | ||||
Basic Shirt ($5) | 1,000 (200*5) | 500 (100*5) | 2000 (400*5) | 1500 (300*5) |
Design Cost ($90/Order) | 90 | 0 | 90 | 90 |
Printing Cost ($0.80/Color) | 800 (200*5*.80) | 320 (100*4*.80) | 640 (400*2*.80) | 960 (300*4*.80) |
Total Cost | $1,890 | $820 | $2,730 | $2,550 |
Average Cost Cost/Shirt | 9.45 (1,890/200) | 8.20 (820/100) | 6.83 (2,730/400) | 8.50 (2,550/300) |
Sales Price/Shirt | 14.18 (9.45*150%) | 12.30 (8.20*150%) | 10.24 (6.83*150%) | 12.75 (8.50*150%) |
Total Sales | $2,835 | $1,230 | $4,095 | $3,825 |
The Richmond Shirt Company has previously determined that creating and programming the design cost $90 per design. This is a one-time charge. If a customer places another order with the same design, the customer is not charged a second time. Additionally, the cost to print is $0.80 per color per shirt.
Requirement 4. Calculate the total revenue and total cost of goods sold for all sales, basic and custom.
Requirement 5. Assume the company sold only basic shirts (no custom designs) and incurred fixed costs of $700 per month
A. Calculate the contribution margin per unit, contribution margin ratio, required sales in units to break even, and required sales in dollars to break even.
B. Determine the margin of safety in units and dollars.
C. Graph Richmond Shirt Company's CVP relationships. Show the breakeven point, the sales revenue line, the fixed cost line, the total cost line, the operating loss area, and the operating income area.
D. Suppose the Richmond Shirt Company wants to earn an operating income of $500 per month. Compute the required sales in units and dollars to achieve this profit goal.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started