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harlequinelk851Lv1

28 Sep 2019

Variable Costs, Contribution Margin, Contribution MarginRatio

Super-Tees Company plans to sell 18,000 T-shirts at $21 each inthe coming year. Product costs include: Direct materials perT-shirt $7.35 Direct labor per T-shirt $1.47 Variable overhead perT-shirt $0.63 Total fixed factory overhead $45,000 Variable sellingexpense is the redemption of a coupon, which averages $1.05 perT-shirt; fixed selling and administrative expenses total$17,000.

3. What if the per unit sellingexpense increased from $1.05 to $2.25? Calculate new values for thefollowing:
Round dollar amounts to the nearest cent and round ratio values tofour decimal places (express the ratio as a decimal rather than apercentage):

a. Variable product cost per unit

$

b. Total variable cost per unit

$

c. Contribution margin per unit

$

d. Contribution margin ratio

e. Total fixed expense for the year

$

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Patrina SchowalterLv2

28 Sep 2019

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Related questions

Variable Costs, Contribution Margin, Contribution Margin Ratio

Super-Tees Company plans to sell 12,000 T-shirts at $16 each in the coming year. Product costs include:

Direct materials per T-shirt	$5.75
Direct labor per T-shirt	$1.25
Variable overhead per T-shirt	$0.60
Total fixed factory overhead	$43,000

Variable selling expense is the redemption of a coupon, which averages $0.80 per T-shirt; fixed selling and administrative expenses total $19,000.

Required:

1. Calculate the following values:
Round dollar amounts to the nearest cent and round ratio values to three decimal places.

a. Variable product cost per unit	$
b. Total variable cost per unit	$
c. Contribution margin per unit	$
d. Contribution margin ratio
e. Total fixed expense for the year	$

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2. Prepare a contribution-margin-based income statement for Super-Tees Company for the coming year. If required, round your per unit answers to the nearest cent.

Super-Tees Company
Contribution-Margin-Based Operating Income Statement
For the Coming Year
	Total	Per Unit
< >SalesTotal contribution marginTotal fixed expenseTotal variable expense	$	$
< >SalesTotal contribution marginTotal fixed expenseTotal variable expense
< >SalesTotal contribution marginTotal fixed expenseTotal variable expense	$	$
< >SalesTotal contribution marginTotal fixed expenseTotal variable expense
< >Operating incomeOperating lossSalesTotal contribution margin	$

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3. What if the per unit selling expense increased from $0.80 to $1.75? Calculate new values for the following:
Round dollar amounts to the nearest cent and round ratio values to four decimal places:

a. Variable product cost per unit	$
b. Total variable cost per unit	$
c. Contribution margin per unit	$
d. Contribution margin ratio
e. Total fixed expense for the year	$

copperbee260

Please answer all questions (2-19). Thank you!

Business Description

You will assume the role of an entrepreneur to start a smallcompany. Your company will rent a retail cart inside the Mall ofAmerica to imprint T-shirts with exclusive original designs by afamous artist who has agreed to design these T-shirt pictures foryou each year at a special discount. Your target customers areaffluent teenagers and young adults. Your business is scheduled tolaunch on January 1, 2017.

Cost information:

1 Mall of America charges you $2,750 rent per month, which includesutilities, cleaning, and maintenance.

2 You will order white, cotton T-shirts from a T-shirt wholesaler.Each T-shirt costs $2.00 to purchase (cost includes taxes,shipping, and handling).

3 You agreed to pay the artist a $3,000 annual contract fee fortwelve T-shirt designs. This same term is renewable for the next 3years. Each T-shirt picture will only be used for one year.Therefore, in the second year, 12 new pictures will be designed foranother $3,000 annual contract fee.

4 Equipment that will be required to be acquired at the start ofbusiness includes a computer, printer, and direct to garmentprinter. Total cost will be $25,000. The equipment is expected tolast 5 years without salvage value. Straight-line method ofdepreciation should be used.

5 Production cost per shirt is $5.20 (ink, etc.)

6 Bags for shirts cost $0.10 each.

7 Students are hired as part-time workers. On average it takes onelabor hour to print 10 shirts. Each worker is paid $10 perhour.

8 Sales personnel are required 80 hours per week and are paid $10 perhour.

9 Business insurance is purchased at a cost of $2,000 per year.

10 Advertising costs are expected to be $12,000 per year.

Requirements:

2 What and how much are the variable costs? Present each item in costper T-shirt basis (5 points).

3 What and how much are the fixed costs? Present each item in totalcost per year (5 points).

4 Write out the annual cost formula in Y = a + bX format (5points).

5 Calculate the total amount of cash that will be needed at the startof the business in order to buy all necessary equipment andmachines, purchase sufficient materials and supplies for 1,000shirts, and cover the first three months of fixed expenses. Thisamount will be your initial investment in the business. Note thatthe equipment will be paid in full on the first day of business aswell as the first annual payment to the artist. Other expenses willbe paid on a monthly basis (10 points).

6 Develop a price using a target price (what are similar T-shirtsselling for) (5 points).

7 Develop a price using cost-based pricing and what you would like tosee as a return on your business (i.e. 10%, 15%, 25%) (5points).

8 Calculate contribution margin per T-shirt and contribution marginratio based on the price you decided upon (either the price fromitem 6 or 7 above) (5 points).

9 Based on the price you decided upon, calculate how many T-shirtsneed to be sold in order to break-even. Calculate how much sales indollars are needed to break-even (10 points).

10 Prepare a cost/volume/profit chart (10 points).

11 Based on the estimated sales level of 12,000 T-shirts for the firstyear, prepare the companyâs forecasted functional income statementfor the year ended on 12/31/2017 (10 points).

12 If sales could increase by 10% (to 13,200 T-shirts), by how much indollars would net operating income increase? By what percentagewould net operating income increase? (5 points)

13 Prepare a contribution format income statement assuming a salesincrease of 10%. Compare your new net operating income with youranswer in 11 (10 points).

14 Calculate how many T-shirts need to be sold in order to make a$25,000 target profit for the year (5 points).

15 Based on the assumption that the number of shirts calculated initem 14 are made and sold during the first year of business,calculate the margin of safety and the operating leverage for thebusiness. What do these figures tell you about how risky thebusiness is? (10 points)

16 Prepare a cash budget for the companyâs first year of operationsbased on the sales calculated in item 14. Assume all sales are cashsales and that all costs and expenses are paid in cash. The initialcash balance is the amount calculated in #5. You decide to maintaina minimum cash balance of $10,000 at December 31, 2017 (15points).

17 Calculate the first yearâs estimated return on equity based on thesales calculated in item 14 (note that beginning equity will equalthe initial investment in the business calculated in #5). (5points).

18 After reviewing the budgeted income statement and the estimatedreturn on equity for the first year of operations, considerbusiness strategies that will help to improve profitability.Describe your strategies clearly and justify why you believe thestrategies will work. Provide the variable cost per T-shirt, totalfixed cost, selling price per T-shirt, and contribution margin perT-shirt under your new strategies. Provide the new cost formula.What is the new break even? (15 points).

19 After your thorough analyses of costs, sales, and profitability ofyour T-shirt business throughout this project, what is your overallimpression of the future potential of the business? Provide a shortassessment (10 points).

jadewombat71

Business Description

Cost information:

Mall of America charges you $2,750 rent per month, whichincludes utilities, cleaning, and maintenance.

You will order white, cotton T-shirts from a T-shirt wholesaler.Each T-shirt costs $2.00 to purchase (cost includes taxes,shipping, and handling).

You agreed to pay the artist a $3,000 annual contract fee fortwelve T-shirt designs. This same term is renewable for the next 3years. Each T-shirt picture will only be used for one year.Therefore, in the second year, 12 new pictures will be designed foranother $3,000 annual contract fee.

Equipment that will be required to be acquired at the start ofbusiness includes a computer, printer, and direct to garmentprinter. Total cost will be $25,000. The equipment is expected tolast 5 years without salvage value. Straight-line method ofdepreciation should be used.

Production cost per shirt is $5.20 (ink, etc.)

Bags for shirts cost $0.10 each.

Students are hired as part-time workers. On average it takes onelabor hour to print 10 shirts. Each worker is paid $10 perhour.

Sales personnel are required 80 hours per week and are paid $10per hour.

Business insurance is purchased at a cost of $2,000 peryear.

Advertising costs are expected to be $12,000 per year.

Requirements:

1. Name your company (5 points)

2. What and how much are the variable costs? Present each itemin cost per T-shirt basis (5 points).

3. What and how much are the fixed costs? Present each item intotal cost per year (5 points).

4. Write out the annual cost formula in Y = a + bX format (5points).

5. Calculate the total amount of cash that will be needed at thestart of the business in order to buy all necessary equipment andmachines, purchase sufficient materials and supplies for 1,000shirts, and cover the first three months of fixed expenses. Thisamount will be your initial investment in the business. Note thatthe equipment will be paid in full on the first day of business aswell as the first annual payment to the artist. Other expenses willbe paid on a monthly basis (10 points).

6. Develop a price using a target price (what are similarT-shirts selling for) (5 points).

7. Develop a price using cost-based pricing and what you wouldlike to see as a return on your business (i.e. 10%, 15%, 25%) (5points).

8. Calculate contribution margin per T-shirt and contributionmargin ratio based on the price you decided upon (either the pricefrom item 6 or 7 above) (5 points).

9. Based on the price you decided upon, calculate how manyT-shirts need to be sold in order to break-even. Calculate how muchsales in dollars are needed to break-even (10 points).

10. Prepare a cost/volume/profit chart (10 points).

11. Based on the estimated sales level of 12,000 T-shirts forthe first year, prepare the companyâs forecasted functional incomestatement for the year ended on 12/31/2017 (10 points).

12. If sales could increase by 10% (to 13,200 T-shirts), by howmuch in dollars would net operating income increase? By whatpercentage would net operating income increase? (5 points)

13. Prepare a contribution format income statement assuming asales increase of 10%. Compare your new net operating income withyour answer in 11 (10 points).

14. Calculate how many T-shirts need to be sold in order to makea $25,000 target profit for the year (5 points).

15. Based on the assumption that the number of shirts calculatedin item 14 are made and sold during the first year of business,calculate the margin of safety and the operating leverage for thebusiness. What do these figures tell you about how risky thebusiness is? (10 points)

16. Prepare a cash budget for the companyâs first year ofoperations based on the sales calculated in item 14. Assume allsales are cash sales and that all costs and expenses are paid incash. The initial cash balance is the amount calculated in #5. Youdecide to maintain a minimum cash balance of $10,000 at December31, 2017 (15 points).

17. Calculate the first yearâs estimated return on equity basedon the sales calculated in item 14 (note that beginning equity willequal the initial investment in the business calculated in #5). (5points).

18. After reviewing the budgeted income statement and theestimated return on equity for the first year of operations,consider business strategies that will help to improveprofitability. Describe your strategies clearly and justify why youbelieve the strategies will work. Provide the variable cost perT-shirt, total fixed cost, selling price per T-shirt, andcontribution margin per T-shirt under your new strategies. Providethe new cost formula. What is the new break even? (15 points).

19. After your thorough analyses of costs, sales, andprofitability of your T-shirt business throughout this project,what is your overall impression of the future potential of thebusiness? Provide a short assessment (10 points).

*** 1-5 completed below***

Variable Costs:

Purchase cost per T-shirt

Total variable cost perT-shirt

$8.30