General infoPayment for raw materials per ounceGold$1,200Silver$16.50No. of items per batch20Price per batch$2,880WorkersSkilledUnskilledNo.101Pay per hour$30$20ProductionHighLowNo. of batches per week2614Batches per year1,000Cost to pack, ship and insure a batch excluding wages$130Hours to pack and ship per batch1Hours worked by Joe per week30Weeks per year50Tour weeks per year by Tiffany10Cost per week$4,200Working weeks per year40Working hours per week50Vacation weeks per year2Workshop rent and utilities per month$7,500Insurance cost per month$1,500Advertising cost per year$38,000Cost of raw materials per batch$1,900Hours to manufacture a batch by Maria and Juanita20Income tax rate45%Monthly requirement for mortgage$5,400Monthly requirement after tax$10,000Desired annual earning$120,000
Breakeven and contribution statBreak even analysisRevenue per batch at zero profitRevenue per batch at $120,000 profit Pro-forma contribution income statementFixed cost of production per yearAt 0 profitAt a profit of $120,000Revenue$3,686,182Cost of attending trade shows$42,000Revenue per batch$3,468Revenue per batch$3,686Less: Variable cost of goods sold$3,100,000Rent and utilities for the workshop$90,000No. of batches per year1,000No. of batches per year1,000Gross contribution margin$586,182Insurance$18,000Total revenue$3,468,000Total revenue$3,686,182Less: Variable administration and general expenses$150,000Advertising$38,000Contribution margin$436,182Unskilled labor$30,000Less: Variable costsLess: Variable costsLess: Fixed expenses$218,000Total$218,000Variable costs per batch$3,250Variable costs per batch$3,250Profit before tax$218,182No. of batches per year1,000No. of batches per year1,000Less: Tax$98,181.82Contribution margin per batchTotal variable costs$3,250,000Total variable costs$3,250,000Net profit$120,000.00Revenue per batch$2,880Less: Fixed costs$218,000Less: Fixed costs$218,000Variable costs per batchRaw materials$1,900Profit before tax$0Profit before tax$218,182Packing, shipping and insurance$130Wages to pack, ship and insure$20Less: Tax$0Less: Tax$98,182Skilled labor per batch$1,200Total$3,250Net profit$0Net profit$120,000Contribution margin($370)Breakeven point in batches-589.1891891892No. of batches per year1,000Contribution margin per year($370,000)Profit before tax($588,000)Tax-$264,600Net 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 res ...
General infoPayment for raw materials per ounceGold$1,200Silver$16.docx
1. General infoPayment for raw materials per
ounceGold$1,200Silver$16.50No. of items per batch20Price per
batch$2,880WorkersSkilledUnskilledNo.101Pay per
hour$30$20ProductionHighLowNo. of batches per
week2614Batches per year1,000Cost to pack, ship and insure a
batch excluding wages$130Hours to pack and ship per
batch1Hours worked by Joe per week30Weeks per year50Tour
weeks per year by Tiffany10Cost per week$4,200Working
weeks per year40Working hours per week50Vacation weeks per
year2Workshop rent and utilities per month$7,500Insurance
cost per month$1,500Advertising cost per year$38,000Cost of
raw materials per batch$1,900Hours to manufacture a batch by
Maria and Juanita20Income tax rate45%Monthly requirement
for mortgage$5,400Monthly requirement after
tax$10,000Desired annual earning$120,000
Breakeven and contribution statBreak even analysisRevenue per
batch at zero profitRevenue per batch at $120,000 profit Pro-
forma contribution income statementFixed cost of production
per yearAt 0 profitAt a profit of
$120,000Revenue$3,686,182Cost of attending trade
shows$42,000Revenue per batch$3,468Revenue per
batch$3,686Less: Variable cost of goods sold$3,100,000Rent
and utilities for the workshop$90,000No. of batches per
year1,000No. of batches per year1,000Gross contribution
margin$586,182Insurance$18,000Total revenue$3,468,000Total
revenue$3,686,182Less: Variable administration and general
expenses$150,000Advertising$38,000Contribution
margin$436,182Unskilled labor$30,000Less: Variable
costsLess: Variable costsLess: Fixed
expenses$218,000Total$218,000Variable costs per
batch$3,250Variable costs per batch$3,250Profit before
tax$218,182No. of batches per year1,000No. of batches per
year1,000Less: Tax$98,181.82Contribution margin per
batchTotal variable costs$3,250,000Total variable
2. costs$3,250,000Net profit$120,000.00Revenue per
batch$2,880Less: Fixed costs$218,000Less: Fixed
costs$218,000Variable costs per batchRaw
materials$1,900Profit before tax$0Profit before
tax$218,182Packing, shipping and insurance$130Wages to pack,
ship and insure$20Less: Tax$0Less: Tax$98,182Skilled labor
per batch$1,200Total$3,250Net profit$0Net
profit$120,000Contribution margin($370)Breakeven point in
batches-589.1891891892No. of batches per
year1,000Contribution margin per year($370,000)Profit before
tax($588,000)Tax-$264,600Net 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.
3. Long vowels and soft consonants in describing a character
In a certain city there once lived a woman who loved his kids
very much. The lady used to wake up early in the morning to
prepare and bake cakes for her lovely kids before they left for
school. The kids were pleased by their mother and always
portrayed a lot of respect to their mother due to the concern and
care she had on them. The kids had a typical behavior that
distinguished them from the other kids who lived in the city.
The lady never failed to discipline the kids. On one particular
morning, a kid whose name was Tommy was caught while
stealing from her mother’s pockets and that day turned to be
chaotic for the entire family. The lady was very furious and
could not control her temper and she beat the errant kid telling
her that she could not tolerate thieves in the house. After the
thorough beating the kid apologized to the mum and their
former relationship was restored.
The children loved what their mother taught them on the need to
have virtues based on the biblical aspect. The lady was a
staunch follower in the Christianity doctrines and would usually
emphasize to the kid s on the need to fear and adore the
almighty. Going to church become a core quality that would
ensure the children would acquire the proper ethics that would
assist them in future. The qualities of the children become
outstanding and were normally admired by the rest of the
society.
Today the kids are prominent men and women. The mother
indeed raised a generation that others always want to emulate
and follow in their footsteps.
Short vowels and hard consonants used to describe a character
Back in the days there lived a woman who was madly in love
with her kids. The mother always wanted to see the best out of
her kids. The lady yearned to raise a generation that whose
4. characters would amaze the world. The woman always hid the
kids from the wild world as she always believed in good morals.
The kids loved their mother so much. When the mother fell ill
or was tired, the kids would assist their mother in the daily
chores of the house. Tommy who was the eldest of all would
always hug her mother and comfort her that things will get
better someday. The kids would show exemplary performance in
their classes. The headteacher praised the discipline of the kids
and would always give gifts to the kids whenever they
performed well.
Poverty had struck the family hard. Getting a meal was difficult
and the mum had to work extra hard for her to put food on the
table. She could usually encourage the kids that God was in
control and one day they will make it in life. The mother had to
come up with a clear plan on how the children would acquire
education. As we speak today, the generation raised by the
woman is shining. The greatness in this generation can never be
compared with others in the society.
Petaluma 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!
5. 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)!
*
Your assignmentYou agreed to analyze her business operations
and to advise her how to reach her goal of earning $240,000 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.
6. Tiffany 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!
*
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 $2,975 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?”
7. 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!
*
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 taxes, 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 Petaluma,
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 $240,000 a year, after taxes. She
estimates her mortgage payment to be at least $10.400 per year.
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 $240,000 after taxes by working 50 weeks per year, No
more. She is optimistic that you, her MBA consultant can give
her some good recommendation.
8. 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.
*
Costs per unit: which unit? Tiffany employed 22 people. 20
earned $30 per hour including benefits and company paid taxes.
These 20 worked producing jewelry. Two employees were were
paid $20 per hour for unskilled labor. Jewelry production
varied between a low of 34 and a high of 46 batches per week,
and averaged 2,000 batches per year. Each batch cost $130
(excluding wages) to pack and ship. It takes 1 hour labor per
batch. When not processing orders, these 2 employees do other
chores, such as cleaning, and average 30 hours per week. This
includes company paid taxes but no other benefits.
Who does all of the “making” or “creating” ?
I appreciate your willingness to think of creative solutions, but
be sensitive to your client.
KIS
*
Contribution Income StatementRevenue # units Xsales price per
9. unitless variable costs # units X Variable cost per
unitContribution # units X Contribution per unit= Total
contribution Fixed Costs less total fixed costs Income before
taxIncome before tax. Tax Income X tax rateIncome after
taxIncome 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?
*
Tiffany’s marketing tripsTiffany spends 20 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 $4,800 each
week. Workshop rent and utilities cost her an average of
$12,500 per month. Tiffany works 30 weeks a year designing
10. jewelry. 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 $12,500 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.
*
Fixed and Variable manufacturing costsThe 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 for each batch. They earn
$30 per hour. And work 40 hours per week. Advertising runs
$68,000 per year. Insurance costs $8,500 per month. Rent and
Utilities are $12,500.
$12,500 per month (not per batch, ) for rent and utilities. Be
sure to read carefully!
Oh, and KIS (Keep it simple)!
*
Fixed CostsRent and UtilitiesMarketingClean-
upInsuranceProduction ManagerAccounting20 weeks of jewelry
shows
11. Petaluma Jewelry Case
July 2017
Tiffany Nadeau established and ran a small workshop that
manufactured original design quality jewelry. What began as a
hobby for sale in craft shows grew into a small on-line business.
Later, it became a manufacturer for upscale jewelry shops in
tourist locations across the country. To accommodate the
greater volume, Ms. Nadeau opened a small workshop in the
historic district of Petaluma, California, about 45 miles north of
San Francisco. She paid the following prices for some of her
raw material: Gold $1,200 per ounce, Silver $16.50 per ounce.
Gold and Silver prices have been volatile making pricing
difficult.
She marketed these creations to gift shops across the United
States in batches of 20 assorted items, for which she charged
$2,975 per batch. In turn, the gift shop sold the jewelry at
prices averaging eight times what they paid for the jewelry.
Tiffany had a staff of 22. Twenty workers produced the
jewelry. Two workers helped with shipping and cleanup. The
production people were paid $30 per hour including benefits.
The shipping and cleanup workers were paid $20 per hour for
their unskilled labor. Jewelry production varied between a low
of 34 and a high of 46 batches per week, and averaged 2,000
batches per year. Each batch cost $130 (excluding wages) to
pack, ship and insure. It takes 1 hour to pack and ship one
batch. The shipping and clean up staff each works 50 weeks per
year for 30 hours per week. They received no benefits beyond
the employers’ portion of FICA which was included in the $20.
As she expanded Tiffany found it necessary to hire an outside
accountant to handle payroll, taxes, and to keep the books. This
cost $25,000 per year. She also engaged a production manager
for $80,000 per year including benefits.
Tiffany spends 20 weeks a year touring the U.S. She attends
trade shows in order to sell her jewelry, and to find suppliers of
the components for her products. Her travel, hotel, show fees,
12. and food costs were $4,800 each week. Workshop rent and
utilities cost her an average of $12,500 per month. Insurance
including liability, workers compensation, and unemployment
cost $8,500 per month. Advertising in trade journals and on
Fashionista.com cost $68,000 per year.
Tiffany works 30 weeks a year at designing jewelry, often
working over 50 hours per week. She spends 20 weeks
marketing and takes 2 weeks of vacation.
The cost of raw materials averaged $1,900 per batch. It takes
20 hours of labor per batch to manufacture the jewelry. Tiffany
does design work and creates the molds for the jewelry.
Business was brisk, and Tiffany could easily sell every batch
that she produced. But she found herself earning very little
money. After paying her 45% income, social security and
Medicare taxes for US and California, she found herself with
almost no money to live on. That led her to ask for your help.
She complained to you that she worked very hard, 50 weeks a
year, but ended up broke and frustrated. Tiffany said that
Petaluma was expensive even though home prices were less than
half of what they were in San Francisco, some 50 miles to the
south. Reasonable homes sold for $500,000 to $2,000,000.
These were about 7 times the price of homes in Croydon, New
Hampshire where her sister lived. With property taxes and
insurance, Tiffany thought that she needed at least $10,400 per
month for her mortgage payment. That payment was far beyond
what she can afford. She would need $20,000 per month after
tax to afford the mortgage and have enough left for a moderate
lifestyle.
You agreed to analyze her business operations and to advise her
how to reach her goal of earning $240,000 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. Write a
short report directed to Ms. Tiffany Nadeau with your
recommendation on how to increase revenue, supported with a
pro-forma contribution income statement which incorporates
13. your recommendations. You should show all calculations in a
Microsoft Excel document. Include a breakeven analysis for
zero profit and a second analysis to achieve an after tax target
income of $240,000 for Ms. Nadeau and provide your
conclusion. The report to Ms. Nadeau can be written in a
Textbox. Textboxes automatically wrap text in a separate
worksheet in the same Excel document.
Submit one document that contains your calculations, the 2
breakeven analyses, and the report. Be sure to proofread. A
PowerPoint presentation “Petaluma Jewelry Hints” has been
posted in this week’s module to get you started.