Topic 7 Assignment 0 Saved 1 2,14 pornts skipped eBook Print Refererces Analytics Exercise 20-1 (Algo) BiglOSweaters.com is a new company started last year by two recent college graduates. The idea behind the company was simple. They will sell premium logo sweaters for Big Ten colleges with one major, unique feature. This unique feature is a special large monogram that has the customer's name, major. and year of graduation. The sweater is the perfect gift for graduating students and alumni, particularly avid football fans who want to show support during the football season. The company is off to a great start and had a successful first year while selling to only a few schools. This year they plan to expand to a few more schools and target the entire Big Ten Conference within three years. You have been hired by BiglOSweaters.com and need to make a good impression by making good supply chain decisions. This is your big opportunity with a startup. There are only two people in the firm and you were hired with the prospect of possibly becoming a principal in the future. You majored in supply chain (operations) management in school and had a great internship at a big retailer that was getting into Internet sales. The experience was great, but how you are on your own and have none of the great supportthat the big company had. You need to find and analyze your own data and make some big decisions. Of course, Rhonda and Steve, the partners who started the company, are knowledgeable about this venture and they are going to help along the way. Rhonda had the idea to start the company two years ago and talked her friend from business school, Steve, intojoining her. Rhonda is into web marketing, has a degree in computer science, and has been working on completing an online MBA. She is as much an artist as a techie. She can really make the website sing. Steve majored in accounting and likes to pump the numbers. He has done a greatjob of keeping the books and selling the company to some small venture capital people in the area. Last year, he was successful in getting them to invest $2.000,000 in the company (a onetime investment). There were some significant strings attached to this investment in that it stipulated that only $100000 per year could go toward paying the salary of the two principals. The rest had to be spent on the website, advertising, and inventory. In addition. the venture capital company gets 22 percent of the company profits. before taxes, during the first four years of operation, assuming the company makes a profit. Your firstjob is to focus on the firm's inventory. The company is centered on selling the premium sweaters to college football fans Topic 7 Assignment 0 Saved 1 2.14 points Skip ped BBQ-3K Print RETEVEI'CES not accurately reflect actual demand since they stocked out of the OSU sweaters toward the end of the season. As for advertising the sweaters for next season, Rhonda is committed to using the same approach used last year. The firm placed ads in the football program sold at each game. These worked very well for reaching those attending the games. but she realized there might be ways to advertise that would open sales to more alumni. She has hired a market research firm to help identify other advertising outlets but has decided to wait at least another year to try something different. Forecasting demand is a major problem for the company. You have asked Rhonda and Steve to predict whatthey think sales might be next year. You have also asked the market research firm to apply their forecasting tools. Data on these forecasts are given in Exhibit 20.13. To generate some statistics you have averaged the forecasts and calculated the standard deviation for each school and in total. Based on advice from the market research firm, you have decided to use the aggregate demand forecast and standard deviation for the aggregate demand. The aggregate demand was calculated by adding the average forecast for each item. The aggregate standard deviation was calculated by squaring the standard deviation for each item (this is the variance), summing the variance for each item, and then taking the square root of this sum. This assumes that the demand for each school is independent, meaning that the demand for Ohio State is totally unrelated to the demand at Michigan and the other schools. You will allocate your aggregate order to the individual schools based on their expected percentage of total demand. You discussed your analysis with Rhonda and Steve and they are OK with your analysis. They would like to see what the order quantities would be if each school was considered individually. You are curious as to how much Rhonda and Steve made in their business last year. You do not have all the data. but you know that most of their expenses relate to buying the sweaters and having them monogrammed. You know they paid themselves $50000 each and you know the rent, utilities, insurance, and a benefit package for the business was about $25,000. a. What was the net prestax profit for their business last year. after deducting salary and overhead? (Do not round intermediate calculations. Round your answer to the nearest dollar amount.) i Topic 7 Assignment 0 Saved 2.14 points Skipped EBOOK Pdm RETE'TEVCES FORECAST DATA FOR THE BIG TEN SWEATERS AVERAGE LAST YEAR'S RHONDA'S STEVE'S MARKET RESEARCH FOOTBALL GAME ACTUAL SALES FORECAST FOR FORECAST FOR FORECAST FOR AVERAGE STANDARD ATTENDANCE (FULL PRICE) NEXT YEAR NEXT YEAR NEXT YEAR FORECAST DEVIATION Ohio State 195,261 2,399 2,499 2,379 2,779 2,513 223 Michigan 199,933 1,394 1,819 1,429 2,919 1,747 399 Pur'due 56,457 959 1,668 556 1,879 993 124 Michigan State 74,741 , 1,739 1,429 1,629 1,599 157 Indiana 41,833 - 588 536 449 517 71 Penn State 167,688 Wisconsin 86,169 Iowa 76,214 Illinois 59,545 Minnesota 56,865 Northwestern 24,196 Nebraska 85,671 Total 4,654* 7,589 6,596 7,919 7,369 439m "336 sweaters were sold through eBay for $46 each (the customer pays shipping on all orders). WCalculated assuming the demand at each school is independent = :11 03-2 .: Our monogramming subcontractor gets $14.00 for each sweater. Shipping cost is paid by the customer when the order is placed. In addition to the cost data. you also have some demand information. as shown in Exhibit 20.13. The exact sales numbers for last year are given. The exhibit indicates the retail or \"full price" sales for the sweaters that were sold for $127 each. Sweaters that we had at the end of the season were sold through eBay for $46 each and were not monogrammed. Keep in mind that the retail sales numbers do not accurately reflect actual demand since they stocked out of the OSU sweaters toward the end of the season. Topic 7 Assignment 0 Saved 2.14 pomts skipped EBOOK Pilrit HETE'TEI'CES \"mum...\" ' \"nu\"... -ur..cu.__...r.u..1 3.4\2.14 points skipped eBo-dk Print REfEfEI'CES for Ohio State is totally unrelated to the demand at Michigan and the other schools. You will allocate your aggregate order to the individual schools based on their expected percentage of total demand. You discussed your analysis with Rhonda and Steve and they are OK with your analysis. They would like to see what the order quantities would be if each school was considered individually. You are curious as to how much Rhonda and Steve made in their business last year. You do not have all the data. but you know that most of their expenses relate to buying the sweaters and having them monogrammed. You know they paid themselves $50000 each and you know the rent, utilities, insurance. and a benefit package for the business was about $25000. a. What was the net pretax profit for their business last year. after deducting salary and overhead? (Do not round intermediate calculations. Round your answer to the nearest dollar amount.) i b. If they must pay 50% in taxes after deducting their venture capital firm payment. what was the increase in cash that their business accrued last year? (Do not round intermediate calculations. Round your answer to the nearest dollar amount.) i Topic 7 Assignment i Saved Exhibit 20.12 COST INFORMATION FOR THE BIG TEN SWEATERS China supplier cost 2.14 Material $36.00 points Labor 10.50 Overhead 1. 25 Skipped Transportation within China 1.00 Supplier profit 8 . 85 Agent's fee 2. 68 Freight (ocean carrier) 1.50 eBook Duty, insurance, etc. 3.00 Total supplier cost $64. 78 Print Domestic subcontractor cost Monogram material $ 6.00 References Labor 8.00 Total subcontractor cost $14.00 Total (per sweater) $78 .78 Exhibit 20.13 FORECAST DATA FOR THE BIG TEN SWEATERS AVERAGE LAST YEAR'S RHONDA'S STEVE'S MARKET RESEARCH FOOTBALL GAME ACTUAL SALES FORECAST FOR FORECAST FOR FORECAST FOR AVERAGE STANDARD ATTENDANCE (FULL PRICE) NEXT YEAR NEXT YEAR NEXT YEAR FORECAST DEVIATION Ohio State 105, 261 2,300 2, 400 2, 370 2,770 2, 513 223 Michigan 108,933 1, 384 1, 810 1, 420 2, 010 1, 747 300 Purdue 50, 457 980 1, 060 850 1, 070 993 124 Michigan State 74, 741 1, 730 1, 420 1, 620 1, 590 157 Indiana 41, 833 580 530 440 517 71 Penn State 107, 008 Wisconsin 80, 109 Iowa 70, 214