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 o 3 collars per yard of webbing o 2 leashes per yard of webbing o 2 harnesses per yard of webbing Polyesterylon ribbons,$9 per yard of ribbon o 3 collars per yard of webbing o 2 leashes per yard of webbing o 2 harnesses per yard of webbing Buckles made of cast hardware-$0.50 per buckle o 4 buckles used per collar o 3 buckles used per leash o 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 . . . 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 o With pricing at $20 per collar, you can expect to sell 30 collars per day. o With pricing at $24 per collar, you can expect to sell 25 collars per day. o With pricing at $28 per collar, you can expect to sell 20 collars per day Leashes o With pricing at $22 per leash, you can expect to sell 28 leashes per day. o With pricing at $26 per leash, you can expect to sell 23 leashes per day. o With pricing at $30 per leash, you can expect to sell 18 leashes per day. Harnesses o With pricing at $25 per harness, you can expect to sell 25 harnesses per day. o With pricing at $30 per harness, you can expect to sell 22 harnesses per day. o 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 o Break-even o $300 target profit each month o $500 target profit each month Leashes o Break-even o $400 target profit each month o $600 target profit each month Harnesses o Break-even o $500 target profit each month o $650 target profit each month At the end of the first month of opening your business, you calculate the actual operating costs of the business and the income you earned. You also notice and document the difference in what you budgeted for certain materials and labor against the actual amounts you spent on the same. For your statement of cost of goods sold, use the following data regarding the actual costs incurred by the business over the past month: . Materials purchased: $20,000 o Consumed 80% of the purchased materials Direct labor: $8,493.33 Overhead costs: $3,765 Note: Assume that the beginning materials and ending work in process are zero for the month. . Use the following revenue and cost information for the income statement. Note that the revenue you use will depend on the pricing level options you chose in Milestone Two. Also, assume that after accounting for weekends and other holidays, there were 20 business days in the first month of operation. For example, if you chose a sales price of $20 per collar, the actual number of collars sold in the month was 33 per day or 33 x 20 = 660 per month. + Number of Items Sold per Day 33 28 23 Established Sales Price Collars $20 $24 $28 Leashes $22 $26 $30 Harnesses $25 $30 28 23 18 25 22 20 $35 The other costs incurred by the business include: General and administrative salaries o Receptionist: $1,950 Owner salary: $500 Depreciation: $165 Rent: $750 Utilities and insurance: $600 Scissors, thread, and cording: $1,200 Loan repayment: $550 . Variance At the end of the month, you find that the labor and materials spent on manufacturing collars was different from what you estimated: The collar maker had to work nine hours a day instead of eight due to an increased demand for collars. Because of the increased demand, the hourly rate you paid your employee for making the collars increased to $16.50. An increase in the cost of raw material led the direct material cost per collar to increase to $10. However, you also made and sold 60 more collars than you expected to sell in the month. You now need to determine the variance in the materials and labor cost from what you estimated in Milestone Two based on the market research data. Collars Item Variable Cost/Item Item Fixed Costs 4.00 High-tensile strength nylon webbing $ Polyesterylon ribbons $ Buckles made of cast hardware $ Price tags $ 3.00 2.00 Collar maker's salary (monthly) Depreciation on sewing machines Rent Utilities and insurance Scissors, thread, and cording Loan payment Salary to self $ $ $ $ $ $ $ 2,773.33 55.00 250.00 200.00 400.00 183.33 166.67 0.10 Total Variable Costs per Collar $ 9.10 Total Fixed Costs $ 4,028.33 Leashes Item Fixed Costs Item Variable Cost/Item High-tensile strength nylon webbing $ 6.00 Polyesterylon ribbons $ 4.50 Buckles made of cast hardware $ 1.50 Price tags $ 0.10 Leash maker's salary (monthly) Depreciation on sewing machines Rent Utilities and insurance Scissors, thread, and cording Loan payment Salary to self $ $ $ $ $ $ $ 2,773.33 55.00 250.00 200.00 400.00 183.33 166.67 Total Variable Costs per Leash $ 12.10 Total Fixed Costs $ 4,028.33 Item Fixed Costs 6.00 Harnesses Item Variable Cost/Item High-tensile strength nylon webbing $ Polyesterylon ribbons $ 4.50 Buckles made of cast hardware $ 4.00 Price tags $ 0.10 $ $ Harness maker's salary Depreciation on sewing machines Rent Utilities and insurance Scissors, thread, and cording Loan Salary to self $ $ $ $ $ 2,946.67 55.00 250.00 200.00 400.00 183.33 166.67 Total Variable Costs per Harness $ 14.60 Total Fixed Costs $ 4,201.67 Milestone Two - Contribution Margin Analysis COLLARS LEASHES HARNESSES $ $ $ Sales Price per Unit Variable Cost per Unit 20.00 9.10 22.00 12.10 25.00 14.60 Contribution Margin $ 10.90 $ 9.90 $ 10.40 Milestone Two - Break-Even Analysis COLLARS LEASHES HARNESSES Sales Price $ 20.00 $ 22.00 $ 25.00 Fixed Costs $ 4,028.33 4,028.33 $ 4,201.67 Contribution Margin $ 10.90 $ 9.90 $ 10.40 Break-Even Units (round up) 370 407 404 Target Profit $ 300.00 $ 400.00 $ 500.00 Break-Even Units (round up) 398 448 453 Target Profit $ 500.00 $ 600.00 $ 650.00 Break-Even Units (round up) 416 468 467 Scenario It has now been one month since you launched your business. You are meeting with a few investors soon to share your vision for the company and to ask for more funding. You will be sharing your company's financial health at this meeting. To do that, you need to determine and analyze your company's performance over the last month using the data provided. Prompt Use the information in the Milestone Three Actual Costs and Revenue Data Appendix Word Document to evaluate your company's performance, and complete the remaining tabs in the Project Workbook Spreadsheet that you used for the Milestone One and Two assignments. Specifically, you must address the following rubric criteria: Statement of Cost of Goods Sold: Prepare the statement of cost of goods sold in the "COGS" tab of the workbook. Remember to show your work using calculations to the side of the table or using appropriate formulas in the table. Income Statement: Use the given revenue data to prepare the "Income Statement" tab table and calculate the net income. Remember to show your work using calculations to the side of the table or using appropriate formulas in the table. Variance Analysis: Prepare the data in the "Variances" tab to determine whether the variances are favorable or unfavorable. Remember to show your work using calculations to the side of the table or using appropriate formulas in the table. o Complete the data table for the variances by entering the budgeted (standard) and actual labor and material values. Remember to use the estimates for expected sales from your Milestone Two assignment. Determine the variances for direct labor and direct materials in the "Variances" tab. Evaluate the significance of the variances in the "Variances" tab, and mark them as favorable or unfavorable. Milestone Three - Statement of Cost of Goods Sold 0 0 Beginning Work in Process Inventory Direct Materials: . Materials: Beginning Add: Purchases for month of January 1 Materials available for use 2 Deduct: Ending materials 4 Materials Used 5 6 Direct Labor 7 Overhead 9 Total Costs 0 1 Deduct: Ending Work in Process Inventory 2 3 Cost of Goods Sold 4 5 6 Milestone Three - Income Statement $ Revenue: Collars Leashes Harnesses $ Total Revenue: Cost of goods sold - Gross profit $ . $ Expenses: General and administrative salaries Depreciation Rent Utilities and insurance Scissors, thread, and cording Loan $ - Total Expenses . Net Income/Loss $ Milestone Three - Variance Analysis Data for Variance Analysis: Budgeted (Standard) Hours/Qty Budgeted (Standard) Rate Actual Hours/Qty Actual Rate Labor Materials Variances for Collar Sales Favorable/ Unfavorable Variance Direct Labor Time Variance (Actual Hours - Standard Hours) x Standard Rate $ Direct Labor Rate Variance (Actual Rate - Standard Rate) Actual Hours $ Direct Materials Quantity/Efficiency Variance (Actual Quantity - Standard Quantity) x Standard Price Direct Materials Price Variance (Actual Price - Standard Price) Actual Quantity $