Business Description You will assume the role of an entrepreneur to start a smal
ID: 2485412 • Letter: B
Question
Business Description
You will assume the role of an entrepreneur to start a small company. Your company will rent a retail cart inside the Mall of America to imprint T-shirts with exclusive original designs by a famous artist who is a friend of yours. Your friend has agreed to design these T-shirt pictures for you each year at a special discount. Your target customers are teenagers and young adults who have your kind of good taste. Your business is scheduled to launch on January 1, 2017.
Cost information:
Mall of America charges you $2,500 rent per month, which includes utilities, cleaning, and maintenance.
You will order white, cotton T-shirts from a T-shirt wholesaler. Each T-shirt costs $3.00 to purchase (cost includes taxes, shipping, and handling).
To store T-shirts that were bought, but not yet imprinted, you will rent a storage unit. The storage unit costs $75 per month.
You agreed to pay your artist friend a $3,000 annual contract fee for twelve T-shirt designs. This same term is renewable for the next 3 years. Each T-shirt picture will only be used for one year. Therefore, in the second year, 12 new pictures will be designed for another $3,000 annual contract fee.
You will buy several items before the start of your business:
Computer and printer – cost $5,000. They are expected to last 3 years without salvage value. Straight-line method of depreciation should be used.
Heat press machine – cost $2,500. The machine is used for imprinting T-shirts only and is expected to last 3 years without salvage value.
Transfer paper – Each case of transfer paper costs $400 and contains 1,000 sheets of 8.5 x 11 transfer paper. One transfer paper is used to print one T-shirt.
Ink-jet cartridges – On average, each cartridge costs $50 and can make 500 prints. Each T-shirt requires one print.
Each T-shirt costs about $0.20 to wrap and box.
Students are hired as part-time workers. On average it takes one labor hour to print 10 shirts. Folding and packaging 20 shirts takes about one labor hour. Each worker is paid $10 per hour.
A liability insurance policy is purchased at a cost of $3,600 per year to protect the business from legal obligations.
Annual Cost(Y)=$39,100 + $5.20X
1 Assume that you make and sell 12,000 T-shirts in the first year. Use the cost formula to calculate the first year’s total cost. If the T-shirts sell at $15 each, how much would net profit be in the first year? (10 points)
Explanation / Answer
Annual Sale
12000 units
$
Rent of Mall of America
30,000
2500X12
cost of T Shirt
$3/unit
36,000
3 x12000
design cost
3,000
computer and printer
$5000
1666.666667
5000/3
3 year life with zero salvage value
Heat press machine
$2500
833.3333333
2500/3
3 year life with zero salvage value
transfer paper
4800
(12000/1000)X400
ink jet cartridges
1200
(12000/500)X50
wrap and box
2400
.20X12000
print t shirt
12000
(12000/10)x10
Folding
6000
(12000/20)x10
insurance policy
3,600
Annual Cost -(A)
1,01,500
Annual cost
=
$39100+$5.20 X
$101500
`=
$39100+$5.20 X
5.20 x
(101500-39100)
62,400
x
12000
62400/5.20
Sell price
$15
Total Sell value (B)
1,80,000
15X12000
Profit (B-A)
78,500
Annual Sale
12000 units
$
Rent of Mall of America
30,000
2500X12
cost of T Shirt
$3/unit
36,000
3 x12000
design cost
3,000
computer and printer
$5000
1666.666667
5000/3
3 year life with zero salvage value
Heat press machine
$2500
833.3333333
2500/3
3 year life with zero salvage value
transfer paper
4800
(12000/1000)X400
ink jet cartridges
1200
(12000/500)X50
wrap and box
2400
.20X12000
print t shirt
12000
(12000/10)x10
Folding
6000
(12000/20)x10
insurance policy
3,600
Annual Cost -(A)
1,01,500
Annual cost
=
$39100+$5.20 X
$101500
`=
$39100+$5.20 X
5.20 x
(101500-39100)
62,400
x
12000
62400/5.20
Sell price
$15
Total Sell value (B)
1,80,000
15X12000
Profit (B-A)
78,500
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