ans 5
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5. What is the financial impact of the proposed Vigor active-wear program for the manufacturing group? Using Exhibit 9 in the case as a guide, what are the start-up, ongoing fixed, and variable costs for this new product line? What is the profit potential if demand is equal to current Vigor market share of 7% in the segment in which it competes Startup Costs $ Startup Costs Pants Plant 1 200 000 Start Up Costs Hoodies and Tee Shirt Plant 2 500 000 Equipment Pants Plant 2 000 000 equipment Hoodie and Tshirt plant 2 500 000 Launch PR and Advrtising 2 000 000 Fixtures For Company Stores 2 500 000 Total Setup Costs 12 700 000 Annual Depreciated Start Up Costs 10 160 000 Annual Ongoing Operating Costs - Fixed Overhead Pants Plant 3 000 000 Overhead Hoodie and Tee shirt Plant 3 500 000 Rent Pants Plant 500 000 Rent Hoodie and Tee Shirt Plant 500 000 Management/Support 1 000 000 Advertising 2 000 000 Total Fixed Operating Costs 10 500 000 Direct Variable Costs Hoodie Tee Shi rt Pants Sew and Press 3.25 2 2.85 Cut 1.15 0.4 0.7
Transcript of ans 5
5. What is the financial impact of the proposed Vigor active-wear program for the manufacturing group? Using Exhibit 9 in the case as a guide, what are the start-up, ongoing fixed, and variable costs for this new product line? What is the profit potential if demand is equal to current Vigor market share of 7% in the segment in which it competes
Startup Costs $Startup Costs Pants Plant 1 200 000Start Up Costs Hoodies and Tee Shirt Plant 2 500 000Equipment Pants Plant 2 000 000equipment Hoodie and Tshirt plant 2 500 000Launch PR and Advrtising 2 000 000Fixtures For Company Stores 2 500 000
Total Setup Costs 12 700 000Annual Depreciated Start Up Costs 10 160 000
Annual Ongoing Operating Costs - FixedOverhead Pants Plant 3 000 000Overhead Hoodie and Tee shirt Plant 3 500 000Rent Pants Plant 500 000Rent Hoodie and Tee Shirt Plant 500 000Management/Support 1 000 000Advertising 2 000 000
Total Fixed Operating Costs 10 500 000
Direct Variable Costs HoodieTee
Shirt PantsSew and Press 3.25 2 2.85Cut 1.15 0.4 0.7Other Variable Labour 3.2 2.4 3.05Fabric 9.1 2.2 7.5Finding 3.85 0.5 2.3
20.55 17.5 16.4
Direct Variable Costs translated into unit costs Hoodie Tee
Shirt Pant20.55 17.5 16.4×0.5 ×1.5 ×1
10.27526.2
5 16.4
Indirect Variable CostsWholesale "Unit" Price 95Total Variable Costs as % of wholesale price 9.09%Indirect Variable Costs per Unit 8.6355
Direct Variable Costs per Unit 52.925Indirect Variable Costs Per Unit 8.6355Total Variable Costs per Unit 61.5605
ContributionWholesale Price per Unit 95less Total Variable cost per unit 61.5605Contribution per Unit 33.44
BreakevenFixed Annual Costs 20 660 000÷ Contributrion per Unit 33.44Is Equal To Breakeven Units 617823
Profit Margin
Revenue* 39 900 000Less: Fixed Annual Costs 20 660 000
Less: Total Variable Costs 25 855 200
Profit Before Tax(6 615 200)
Profit Margin Before Tax -16.50%
*7.5 million units in 2007double number of units in 2009 = 15 million unitsbetter category = 40% market sharenumber of units in better active wear = 6 000 000Harrington's share of better category = 7%No. of units made by Harrington = 420 000
