Use information from Milestone One and the provided Milestone Two Market Research Data Appendix to conduct a cost-volume profit analysis. Complete the “Contribution Margin Analysis” and “Break-Even Analysis” tabs in the Project Workbook that you used for completing the Milestone One assignment.

You plan to open a small business for manufacturing pet collars, leashes, and harnesses. You have found a workshop space you can use for sewing your products. After some research and planning, you have estimates for the various operating costs for your business.

The total square footage for the sewing rooms is 1,500 square feet broken into three areas (500 square feet each). You have taken out a loan for start-up costs, and the monthly payment is $550; it goes into effect immediately and should be accounted for in your costs. You will also collect a modest salary for the first year of $500 per month; remember to divide evenly among the services.

Salary and Hiring Data

• One collar maker, who will be paid $16.00 per hour and work 40 hours per week
• One leash maker, who will be paid $16.00 per hour and work 40 hours per week
• One harness maker, who will be paid $17.00 per hour and work 40 hours per week
• One receptionist, who will be paid $15.00 per hour and work 30 hours per week

Other Costs

• Rent: $750 per month; allocate based on square footage
• High-tensile strength nylon webbing—$12 per yard of webbing
  • 3 collars per yard of webbing
  • 2 leashes per yard of webbing
  • 2 harnesses per yard of webbing
• Polyester/nylon ribbons—$9 per yard of ribbon
  • 3 collars per yard of ribbon
  • 2 leashes per yard of ribbon
  • 2 harnesses per yard of ribbon
• Buckles made of cast hardware—$0.50 per buckle
  • 4 buckles used per collar
  • 3 buckles used per leash
  • 8 buckles used per harness
• 3 industrial sewing machines at $3,300 each for a total of $9,900; depreciation is $165 per month (5-year life)
• Utilities and insurance: $600 per month; allocate based on square footage
• Scissors, thread, cording: $1,200
• Price tags: $250 for 2,500 ($0.10 each)
• Office supplies: $2,400 or $200 per month
• Other business equipment: $2,000
• Loan payment of $550 per month
• Salary drawn of $500 per month

• Contribution Margin. Determine your contribution margin per unit in the “Contribution Margin Analysis” tab.
  • Choose a sales price for each product.
  • Calculate the contribution margin for each product based on your sales price and the variable cost for that product. Show your work using calculations to the side of the table or using appropriate formulas in the table.
• Break-Even Analysis. Use cost-volume-profit (CVP) analysis to determine your break-even points for achieving your target profits in the “Break-Even Analysis” tab.
  • Determine the break-even points for each product. Show your work using calculations to the side of the table or using appropriate formulas in the table.
  • Determine break-even units for the suggested target profits for each product. Show your work using calculations to the side of the table or using appropriate formulas in the table.

  • You have conducted some market research for style and size of products you want to use to launch your business. The market research has indicated the following sales price ranges will be optimal for your area depending on style of products you choose to sell:

  • Collars
    • With pricing at $20 per collar, you can expect to sell 30 collars per day.
    • With pricing at $24 per collar, you can expect to sell 25 collars per day.
    • With pricing at $28 per collar, you can expect to sell 20 collars per day
  • Leashes
    • With pricing at $22 per leash, you can expect to sell 28 leashes per day.
    • With pricing at $26 per leash, you can expect to sell 23 leashes per day.
    • With pricing at $30 per leash, you can expect to sell 18 leashes per day.
  • Harnesses
    • With pricing at $25 per harness, you can expect to sell 25 harnesses per day.
    • With pricing at $30 per harness, you can expect to sell 22 harnesses per day.
    • With pricing at $35 per harness, you can expect to sell 20 harnesses per day.

  • Additionally, you will need to compare your break-even points for the following target profits for each area of your business to determine your prices:

  • Collars
    • Break-even
    • $300 target profit each month
    • $500 target profit each month
  • Leashes
    • Break-even
    • $400 target profit each month
    • $600 target profit each month
  • Harnesses
    • Break-even
    • $500 target profit each month
    • $650 target profit each month

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Collars Variable Cost/Item Fixed Costs Item Item High-tensile strength nylon webbing $ Polyester/nylon ribbons Collar maker's salary (monthly) Depreciation on sewing machines 4.00 2,773.33 3.00 55.00 Buckles made of cast hardware 2.00 Rent 250.00 Price tags 0.10 Utilities and insurance 200.00 Scissors, thread, and cording $ 33.33 $ Loan payment Salary to self 183.33 166.67 Total Variable Costs per Collar 9.10 Total Fixed Costs 3,661.66 Leashes Item High-tensile strength nylon webbing $ Polyester/nylon ribbons Buckles made of cast hardware Price tags Variable Cost/Item Fixed Costs Item 6.00 Leash maker's salary (monthly) $ 2,773.33 4.50 Depreciation on sewing machines 55.00 1.50 Rent 250.00 0.10 Utilities and insurance 200.00 Scissors, thread, and cording Loan payment Salary to self 33.33 183.33 166.67 Total Variable Costs per Leash 12.10 Total Fixed Costs $ 3,661.66 sS s sS S