Sweats Galore Developed by Jessica Johnson Frazier, Eastern Kentucky University
ID: 2789262 • Letter: S
Question
Sweats Galore Developed by Jessica Johnson Frazier, Eastern Kentucky University and Patricia H. Mounce, University of Central Arkansas THE BUSINESS SITUATION After graduating with a degree in business from Eastern University in Campus Town, USA, Michacl Woods realized that he wanted to remain in Campus Town. After a number of unsuccessful attempts at getting a job in his disci- pline, Michael decided to go into business for himself. In thinking about his business venture, Michael determined that he had four criteria for the new 1. He wanted to do something that he would enjoy. 2. He wanted a business that would give back to the community 3. He wanted a business that would grow and be more successful every year. 4. Realizing that he was going to have to work very hard, Michael wanted a business that would generate a minimum net income of $25,000 annually While reflecting on the criteria he had outlined, Michae, who had been president of his fraternity and served as an officer in several other student organizations, realized that there was no place in Campus Town to have cus- tom sweatshirts made using a silk-screen process. When student organiza- campus, the offi- tions wanted sweatshirts for their members or to market on cers had to make a trip to a city 100 miles away to visit "Shirts and More." Michael had worked as a part-time employee at Shirts and More while he was in high school and had envisioned owning such a shop. He realized that a sweatshirt shop in Campus Town had the potential to meet all four of his crite- ria. Michael set up an appointment with Jayne Stoll, the owner of Shirts and More, to obtain information useful in getting his shop started. Because Jayne liked Michael and was intrigued by his entrepreneurial spirit, she answered many of Michacl's questions. In addition, Jayne provided information concerning the type of equipment average useful life. Jayne knows a competitor who is retiring and would like to sell his equipment. Michael can purchase the equipment at the beginning of 2011, and the owner is willing to give him terms of 50% due upon purchase and 50% due the quarter following the purchase. Michael decided to purchase the following equipment as of Michael would need for his business and itsExplanation / Answer
1. Under the given scenario, it is quite advisable that Michael stipulates the four criteria while he plans for his new business. Simply making a profit should not be only aim of any company and hence when Michael sets his goals other than making profit, he is making a really wise decision. When we analyze the goals set by him, we could realize that first three goals convey his mission statement while the fourth one is company’s objective.
The very first criteria would actually motivate Michael to put his 100% as he would be doing something, he really enjoys. So, it is a very important thing to state as to why one wants to do something and his first statement would answer this question.
The second criteria actually reflect his intent to serve his social responsibility. Also, having such criteria would help him create a positive image for his business in general population. This would definitely help him grow his business.
The third criteria set up by him are a very important factor for any kind of business. Any business won’t survive long, if it doesn’t have a growth & growth target. This criterion would strive him to put in all required efforts to grow his business.
The last criteria would keep him pursuing his business as this criterion would give him a fair idea as to what level of sales he needs to achieve at minimum. Generating profits is very important for a business for its survival and this criterion would help the business to sustain for a longer time.
2. High level of activity = 8,000
Low level of activity = 2,000
Difference between high & low level of activities = 8,000 – 2,000 = 6,000
High level of utility cost = $1,400
Low level of utility cost = $1,100
Difference between high & low level of utility costs = $1,400 - $1,100 = $300
Estimated variable cost = Difference between high & low level of utility costs / Difference between high & low level of activities
=> $300/$6,000 = $0.05
Total fixed cost = $1,400 – ($0.05*8,000) = $1,000
Difference in maintenance costs = $1,914 - $1,716 = $198
Estimated variable cost per unit = $198/6,000 = $0.033
Total fixed costs = $1,914 – ($0.033*8,000) = $1,650
Number of units sold with sales of $12,000 = $12,000 / $16 = 750
Variable costs relating to utilities with sales of $12,000 = 750 * $0.05 = $37.50
Variable costs relating to maintenance with sales of $12,000 = 750*$0.033 = $24.75
Total variable cost with sales of $12,000 = $37.50 + $24.75 = $62.25
Total fixed cost with sales of $12,000 = $1,000 + $1,650 = $2,650
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