Choose an item that you would like to manufacture. You do not actually need to manufacture something, but will proceed through the assignment as if you were planning on manufacturing the item you have selected. The product should require materials and labor and be something that you are familiar with in process from start to finish. The product must be useful and marketable. You can choose something as simple as making chocolate chip cookies, a type of craft, or something more complicated. Consider production as if you were making the product from beginning to end, and not as if using a kit.
Perform the following steps:
- Choose a product to manufacture and describe the manufacturing process.
- Prepare the following budgets for 1 quarter, broken down monthly, regarding your chosen item:
- estimated sales budget
- estimated direct materials budget
- estimated direct labors budget
- estimated manufacturing overhead budget
- estimated selling and administrative expenses
- estimated income statement.
- Classify all manufacturing costs and selling and administrative expenses as either variable or fixed.
- Prepare a contribution margin income statement separating all variable and fixed costs into their own categories.
- Determine the breakeven point in units and dollars. Also determine the number of units and dollars that need to be sold to make a target profit of $5,000 a month.
- Identify what types of trends you should be aware of in the industry and who the primary competitors are.
- Answer the following question: If you had to improve the bottom line, what would you do and what concerns would you have going forward?
- Choose a piece of equipment that you might consider purchasing to increase production of your item and address the following questions: What types of capital budgeting factors would you look at when deciding whether to do this? What would be the relevant costs that you would consider in this decision?