breakeven
help-science20
attachment_2.pptSanta Rosa Jewelry
Target Profit Assignment
There are some hints in the notes page of each slide .
To get there, go to view tab, Notes page, you can see what is written in the notes sections, while the case facts and requirements are in the main PP slide area.
Tiffany Nadeau is your client!
Write a report that is appropriate for her (based on what you learn about her)
Make it a great week!
This assignment is not about working hard, but working smart. I do not expect you to consider every possible option nor for you to employ every tool we are providing you. Use what you need for this engagement, no more.
The goal always is to consider who your client is and to be cognizant of his/her business sophistication and her needs.
Read cases carefully. Write down the key input or facts of the case, write down what your assignment or goal is, and then re-read the case every day to make sure you are answering the question posed and providing an appropriate solution (not a bunch of possible sophisticated options) . Then support your recommendation as necessary and in a clear, concise, but complete way that your client will understand.
KIS (Keep it Simple)!
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Your assignment
- You agreed to analyze her business operations and to advise her how to reach her goal of earning $120,000 per year, after taxes. After some calculation and some thought, you conclude that Tiffany has to increase her revenues, perhaps by achieving greater volume, or perhaps by raising her selling price.
Jane just wants a reasonable outcome for her hard work.
You are given only two recommendations to consider: either increase volume OR Raise the selling price (Both to increase revenue!). NO MORE!!!
Work with the facts given and requirements your client set out for you.
KIS – Keep it Simple!
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Evaluate what kind of business
- Tiffany Nadeau established and ran a small workshop that manufactured unique, high quality jewelry. She marketed these creations to up scale gift shops across the United States in batches of 20 assorted items, for which she charged $2,880 per batch. In turn, the gift shops sold the jewelry at prices averaging eight times what they paid for the jewelry.
Evaluate what kind of business you are doing the analysis for. What do you think Tiffany’s likely competition is.?
What is her market? Is hers a mass production operation or a specialized niche market?
Can the market withstand a higher price for her “creations?”
She sells her jewelry by batch of 20 items in a batch. She does not sell partial batches, so discussion of 7.4 batches does not make sense. Also, as she sells by batch, it is not necessary to break costs out per piece of jewelry. (Although knowing the price per jewelry piece did help me to imagine a bit better the product being sold).
KIS and read the case carefully more than once!
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A bit about your client
Business was brisk, and Tiffany could sell all that she produced. But she found herself earning very little money, and after paying her 45% U S and California income tax, she found herself with almost no money to live on. That led Tiffany to you, as her consultant. She complained to you that she worked very hard, 50 weeks a year, but ended up broke and frustrated. Tiffany said that house prices were very expensive in Santa Rosa, CA and that she hoped to purchase a home and have enough left for a nice vacation and moderate lifestyle. She noted that she would be satisfied to make $120,000 a year, after taxes.
Think about your audience, the business savvy of your client, their needs, their personality. Can’t you picture Tiffany in your mind?
Tiffany really just wants to know what revenue she must have to have $120,000 after taxes by working 50 weeks per year, No more. She is optimistic that you, her MBA consultant can give her some good recommendation.
Your recommendations should reflect that you are “listening” to her needs and frustrations..
Tiffany does not have the patience to flip through your vast number of spreadsheets with lots of numbers on it, she is an artist. Keep it simple, but show how you get the numbers you come up with.
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Costs per unit: which unit?
- Tiffany employed 11 people. 10 earned $30 per hour and worked producing jewelry. Joseph was paid $20 per hour for his unskilled labor. Jewelry production varied between a low of 14 and a high of 26 batches per week, and averaged 1,000 batches per year. Each batch cost $130 (excluding wages) to pack and ship, with Joseph doing all the packing and shipping. It takes Joseph 1 hour to pack and ship one batch. Joseph also does other chores, such as sweeping, vacuuming and cleaning, and he averages 30 hours per week of employment with Tiffany's workshop, for the 50 weeks per year that he works for Tiffany.
Who does all of the “making” or “creating” ?
I appreciate your willingness to think of creative solutions, but be sensitive to your client.
KIS
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Contribution Income Statement
| Revenue | # units | X | sales price per unit | ||
| less variable costs | # units | X | Variable cost per unit | ||
| Contribution | # units | X | Contribution per unit | = | Total contribution |
| Fixed Costs | less total fixed costs | ||||
| Income before tax | Income before tax. | ||||
| Tax | Income X tax rate | ||||
| Income after tax | Income after tax (belongs to the owner) |
Your job is to determine which costs are fixed and which are variable per batch. Then find the target profit and determine the revenue required to reach target profit.
What is your recommendation?
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Tiffany’s marketing trips
- Tiffany spends 10 weeks a year touring the U.S. and attending trade shows in order to sell her jewelry. Her travel, hotel, show fees, and food costs were $4,200 each week. Workshop rent and utilities cost her an average of $7,500 per month. Tiffany works 40 weeks a year at making jewelry, While at the shop, she works 50 hours per week designing, setting up and manufacturing as needed to get orders out on time. She takes 2 weeks of vacation each year.
Are marketing and purchasing important functions? Are they important to Tiffany and to her sales?
Rent and utilities of $7,500 per month (included in the rent, utilities, and raw materials numbers given later in the case).
KIS and read the entire case more than once carefully! Keep in mind your client’s needs.
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Fixed and Variable manufacturing costs
- The cost of raw materials varied depending on the price of gold and silver. Tiffany spends about $1,900 per batch on raw materials. Production workers spend 20 hours form each batch. Tiffany’s time is in addition. They earn $30 per hour. And work 40 hours per week. Advertising runs $38,000 per year. Insurance costs $1,500 per month. Rent and Utilities are $7,500.
$7,500 per month (not per batch, ) for rent and utilities. Be sure to read carefully!
Oh, and KIS (Keep it simple)!
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