Need Finance Case to be solved
Alejandra123
Tiffanyexcel1.xlsxGeneral info
| Payment for raw materials per ounce | ||
| Gold | $1,200 | |
| Silver | $16.50 | |
| No. of items per batch | 20 | |
| Price per batch | $2,880 | |
| Workers | Skilled | Unskilled |
| No. | 10 | 1 |
| Pay per hour | $30 | $20 |
| Production | High | Low |
| No. of batches per week | 26 | 14 |
| Batches per year | 1,000 | |
| Cost to pack, ship and insure a batch excluding wages | $130 | |
| Hours to pack and ship per batch | 1 | |
| Hours worked by Joe per week | 30 | |
| Weeks per year | 50 | |
| Tour weeks per year by Tiffany | 10 | |
| Cost per week | $4,200 | |
| Working weeks per year | 40 | |
| Working hours per week | 50 | |
| Vacation weeks per year | 2 | |
| Workshop rent and utilities per month | $7,500 | |
| Insurance cost per month | $1,500 | |
| Advertising cost per year | $38,000 | |
| Cost of raw materials per batch | $1,900 | |
| Hours to manufacture a batch by Maria and Juanita | 20 | |
| Income tax rate | 45% | |
| Monthly requirement for mortgage | $5,400 | |
| Monthly requirement after tax | $10,000 | |
| Desired annual earning | $120,000 |
Breakeven and contribution stat
| Break even analysis | Revenue per batch at zero profit | Revenue per batch at $120,000 profit | Pro-forma contribution income statement | |||||||
| Fixed cost of production per year | At 0 profit | At a profit of $120,000 | Revenue | $3,686,182 | ||||||
| Cost of attending trade shows | $42,000 | Revenue per batch | $3,468 | Revenue per batch | $3,686 | Less: Variable cost of goods sold | $3,100,000 | |||
| Rent and utilities for the workshop | $90,000 | No. of batches per year | 1,000 | No. of batches per year | 1,000 | Gross contribution margin | $586,182 | |||
| Insurance | $18,000 | Total revenue | $3,468,000 | Total revenue | $3,686,182 | Less: Variable administration and general expenses | $150,000 | |||
| Advertising | $38,000 | Contribution margin | $436,182 | |||||||
| Unskilled labor | $30,000 | Less: Variable costs | Less: Variable costs | Less: Fixed expenses | $218,000 | |||||
| Total | $218,000 | Variable costs per batch | $3,250 | Variable costs per batch | $3,250 | Profit before tax | $218,182 | |||
| No. of batches per year | 1,000 | No. of batches per year | 1,000 | Less: Tax | $98,181.82 | |||||
| Contribution margin per batch | Total variable costs | $3,250,000 | Total variable costs | $3,250,000 | Net profit | $120,000.00 | ||||
| Revenue per batch | $2,880 | |||||||||
| Less: Fixed costs | $218,000 | Less: Fixed costs | $218,000 | |||||||
| Variable costs per batch | ||||||||||
| Raw materials | $1,900 | Profit before tax | $0 | Profit before tax | $218,182 | |||||
| Packing, shipping and insurance | $130 | |||||||||
| Wages to pack, ship and insure | $20 | Less: Tax | $0 | Less: Tax | $98,182 | |||||
| Skilled labor per batch | $1,200 | |||||||||
| Total | $3,250 | Net profit | $0 | Net profit | $120,000 | |||||
| Contribution margin | ($370) | |||||||||
| Breakeven point in batches | -589.1891891892 | |||||||||
| No. of batches per year | 1,000 | |||||||||
| Contribution margin per year | ($370,000) | |||||||||
| Profit before tax | ($588,000) | |||||||||
| Tax | -$264,600 | |||||||||
| Net profit | ($323,400) | |||||||||
Report
To: Ms. Tiffany Nadeau A report on business operations Having carried out an analysis on the business operations for the jewelry production, the analysis indicate that the business does not break even on normal operations. The operations result to a loss of $323,400 per annum, which justifies the frustration despite working for long hours. For the business to break even, the minimum price per batch should be set at $3,468. However, given that there is need to generate a profit of $120,000 per annum, the minimum price per batch should be set at $3,686. One way to increase the price is by conducting a market research to determine the most suitable bundling package for the target market. Also, the batches should consititute a variety of bundles to attract more clients to increase sales. I believe that this report is sufficient to guide on your pricing to achieve the desired target profit. This will go a long way in meeting your mortgage requirements and to live a moderate lifestyle.
