See case file attached.
Jane Goodheart established and ran a small workshop that manufactured costume jewelry reproductions of well-known jewelry masterpieces by Faberge and other famous designers, plus antique pieces of Etruscan, Russian, Egyptian, Chinese and French jewelry. She marketed these creations to museums across the United States in batches of 12 assorted items, for which she charged $680 per batch. In turn, the museums sold the jewelry at prices averaging nine times what they paid for the jewelry.
Jane's only assistant was Joe, who was paid $15 per hour for his unskilled labor. Jewelry production varied between a low of 4 and a high of 6 batches per week and averaged 200 batches per year. Each batch cost $80 (excluding wages) to pack and ship, with Joe doing all the packing and shipping. It takes Joe 2 hours to pack and ship one batch. Joe also does other chores, such as sweeping, vacuuming and cleaning, and he averages 20 hours per week of employment with Jane's workshop, for the 40 weeks per year that he works for Jane.
Jane spends 10 weeks a year touring the U.S. and attending trade shows in order to sell her jewelry, and to find suppliers of semi-precious stones, beads, and other components for her products. Her travel, hotel and food costs were $6,050 each year. Workshop rent and utilities cost her an average of $300 per week.
If Jane works 40 weeks a year at making jewelry, and sublets the workshop for its cost in rent and utilities during her 10-week tour plus her 2 weeks of vacation each year.
The cost of rent, utilities and raw materials varied from $2,300 per week when 4 batches were produced, to $2,800 per week in weeks when 5 batches were produced, and $3,300 per week when 6 batches per week were manufactured.
Business was brisk, and Jane could easily sell every batch that she produced. But she found herself earning very little money, and after paying her 28% income tax, she found herself with almost no money to live on. That led Jane to you, as her consultant. She complained to you that she worked very hard, 50 weeks a year, but ended up broke and frustrated. Jane said that her tastes were modest, and emphasized artistry rather than material possesions. She noted that she would be quite satisfied to make $25,000 a year, after taxes.
You agreed to analyze her business operations and to advise her how to reach her modest goal of earning $25,000 per year, after taxes. After some calculation and some thought, you conclude that Jane has to increase her revenues, perhaps by achieving greater volume, or perhaps by raising her selling price.
Analyze Jane's business operations and use excel to show how Jane can reach her goal of earning $25,000 per year, after taxes. Calculations and explanation must conclude that Jane has to increase her revenues, perhaps by achieving greater volume, or perhaps by raising her selling price. Include at least 2 scenarios that would achieve Jane's goal of $25K profit per year and explore both benefits and risks of each scenario.
See the attached Excel file.
First identify the fixed costs and variable costs:
Variable costs per batch
Packing and shipping (material) $80.00
Variable Labor (2 hours for shipping) $30.00
Material Cost $500.00
Variable Cost per batch $610.00
Note: The cost of rent, utilities and raw materials has a fixed component and a variable component. Similarly, labor has a fixed component and a variable component.
We assume that the variable component is for the material cost and fixed component is for the utilities and rent.
We assume that labor used on sweeping, vacuuming and cleaning is fixed in nature.
Travel cost $6,050.00
Workshop rent & ...
The expert analyzes Jane Goodheart's business operations.