I am currently working on \"phase 2\" on a 3 part assignment. Below are my answe

Question

I am currently working on "phase 2" on a 3 part assignment. Below are my answers for phase one. under my answers are the questions for phase 2. On page 13 on the link https://irjaf.com/uploads/Case_ID_050102.pdf are the questions for phase 2. i also have the questions listed below my answers for "phase 1" below. Please HELP!!

PHASE 1 ANSWER:

PHASE 2 QUESTIONS:

Phase Two Requirements:

1.

Using “red track changes” revise your Phase One report (i.e. make sure that everything is correct noting that you may not need to revise anything)

2. Based on the cost estimates you developed, conduct a business evaluationon your proposed business.

a. Continue to assume that 7,800 t shirts will be made and sold in the first year. What is your product cost per unit under absorption costing? What is your product cost per unit under variable costing?

b. Based on the estimated sales level of 7,800 t shirts for the first year, prepare your company’s (forecasted) income statement for the year ended on 12/31/2016 using both (1) the traditional format based on the absorption costing and (2) the contribution format based on the variable costing.

c. Calculate contribution margin per T shirt and contribution margin ratio.

d. Calculate the number of T shirts you need to sell in order to break even. Calculate the related sales in dollars you need to make in order to break even.

e. Calculate the number of T shirts you need to sell in order to make $10,000 target profit for the year.

f. Continue to assume that 7,800 T shirts will be made and sold during the first year.

Calculate

your (1) margin of safety and (2) degree of operating leverage (DOL) for your business.

How risky is your business based on these figures? Explain.

g. If sales could increase by 1,560 shirts, by how much in dollars would net operating income increase?

Using the contribution margin concept and DOL approach, by what percentage would net operating income increase ( note: do not recalculate net operating income)?

h. Prepare a contribution format income statement assuming a sales increase by 20% to 9,360 shirts. Compare your new net operating income with your answer in Question “b” and prove mathematically that your answers to the two questions in Question “g” are correct.

i. Ignore Questions “g” and “h”. If the cost per plain shirt is expected to increase by 20% and sales (in number of T shirts) are expected to be 5% less, how much is your projected net operating income (or loss)?

j. Continue Question ‘i”. If the only expense you can cut is the salary paid to yourselves, how much salary should you cut in order to break even?

k. Ignore Question “i” and “j”. Assume that you have produced 7,800 t shirts, but the actual sales for the first year turn out to be 7,000 T shirts instead of 7,800. i.e. you will have 800 T shirts left at the end of the first year. Prepare (1) a traditional format income statement

and (2) a contribution format income statement. Are the two net operating income figures

the same? Why or why not?

3.Continue “k”. At what amount would inventory be reported in the balance sheet of 12/31/2016 under (1) the absorption costing and (2) variable costing? Are the two ending inventory figures the same or different? Why?

Variable Costs Cost Item Cost per Fixed costs Cost Item Cost per T-Shirt T-shirt Manufacturing Direct materials $3.75 Rent (2500/.9) $2,250 Design (300/5) $25 Computer (6000/3=2000, 2000*.9=1800) $1,800 Transfer paper (400/1000) $400 $0.40 Salaries Expense 10,000 Ink cartridges (50/500) $50 $0.10 Heat press (4500/3) $1,500 Laser paper (20/200) 0.1 Storage $125 Rent (2500/.1) $250 Salaries $12,000 Non-Manufacturing Wrapping paper $0.20 Computer (2000*.1=200) $200 Packing (8/10+8/20) 1.2 Insurance $3,600 Flyers (50/5) 10 Promotion (1000*4) 4000 Total Variable Manufacturing Costs: = $29.35 Total Variable non-manufacturing costs: $11.40 Total Variable costs $40.75 Total fixed manufacturing costs per year: $15,675 Total fixed non-manufacturing costs per year: $20,050 Total fixed cost $35,725 4. Cost formula for manufacturing costs $353,575.00 5. If for the first year, sales=7,800 t shirts, and selling prince=$15 per t shirt Total Sales: 117000 Net profit: ($236,575.00) Loss

Explanation / Answer

$ Absorption costing Variable costing a Product cost per unit 45.33 40.75 $ b Income statement Contribution method Sales 117000 Less: Variable cost -317850 Cotribution -200850 Less: Fixed cost -35725 Income/(Loss) -236575 Income statement Traditional method Sales 117000 Less: cost of goods sold -244605 Gross income -127605 Less: Non manufacturing cost -108970 Income/(Loss) -236575 c Contribution margin per T Shirt -25.75 Contribution margin ratio -272% d We are getting -ve contribution per unit, Therefore if it continoues the company will not get break even e Here because of higher variable cost than selling price of the T shirt, we can not calculate BEP,MOS ,Desired Profit computation etc.

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