Question

The Jacksonville Shirt Company makes two types of T-shirts: basic and custom. Basic shirts are plain shirts without any screen using the basic shirts and then adding a custom screen printing design The company buys cloth in various colors and then makes the basic shirts in two departments, Cutting and Sewing. The company uses a process costing system (weighted-average method) to determine the production cost of the basic shirts. In the Cutting Department, direct materials (cloth) are added at the beginning of the process and conversion costs are added evenly through the process. In the Sewing Depart- ment, no direct materials are added. The only additional material, thread, is considered an indirect material because it cannot be easily traced to the finished product. Conver- sion costs are added evenly throughout the process in the Sewing Department. The finished basic shirts are sold to retail stores or are sent to the Custom Design Depart- ment for custom screen printing The Custom Design Departmen ing to the basic shirt. The department creates and then prints the design using up to four colors. Because these shirts have the cus tom printing added, which is unique for each order, the additional cost incurred is determined using job order costing, with each custom order considered a separate job For March 2018, the Jacksonville Shirt Company compiled the following data for the Cutting and Sewing Departments: them. Custom shirts printing are created on ent creates custom shirts by adding scr screen print design based on the customer's request a Department Item Amount Units Cutting Beginning balance 0 0 shirts 1,200 shirts Started in March Direct materials added in March 1,920 Conversion costs 1,320 1,200 shirts Completed and transferred to Sewing ??? 0 shirts Ending balance 0 Beginning balance, transferred in, $1,350; conversion costs, $650 Sewing $2,000 500 shirts Transferred in from Cutting ??? ??? Conversion costs added in March 1,196 Completed and transferred to Finished Goods ??? 1,000 shirts Ending balance, 60% complete ??? ??? For the same time period, the Jacksonville Shirt Company compiled the following data for the Custom Design Department Job Quantity Design Fee Printing Status 367 400 Yes 3 colors Complete 368 150 No 2 colors Complete 5 colors 369 100 Yes Complete 370 500 Yes 4 colors Complete The Jacksonville Shirt Company has previously determined that creating and program ming the design cost $80 per design. This is a one-time charge. If a customer places another order with the same design, the customer is not charged a second time. Addi- tionally, the cost to print is $0.20 per color per shirt Requirements 1. Complete a production cost report for the Cutting Department and the Sewing Department. What is the cost of one basic shirt? 2. Determine the total cost and the average cost per shirt for jobs 367, 368, 369, and 370. If the company set the sales price at 200% of the total cost, determine the total sales price of each job. 3. In addition to the custom jobs, the Jacksonville Shirt Company sold 1,000 basic shirts (assume the beginning balance in Finished Goods Inventory is sufficient to make these sales, and the unit cost of the basic shirts in Finished Goods Inventory is the same as the unit cost incurred this month). If the company set the sales price 125% of the cost, determine the sales price per unit, total sales revenue, total cost of goods sold, and total gross profit for the basic shirts. at 4. Calculate the total revenue, total cost of goods sold, and total gross profit for all sales, basic and custom 5. Assume the company sold only basic shirts (no custom designs) and incurred fixed costs of $700 per month Calculate the contribution margin per unit, contribution margin ratio, required sales in units to break even, and required sales in dollars to break even a. 1. b. Determine the margin of safety in units and dollars. Graph Jacksonville Shirt Company's CVP relationships. Show the breakeven point, the sales revenue line, the fixed cost line, the total cost line, the operating loss area, and the operating income area C. d. Suppose the Jacksonville Shirt Company wants to earn an operating income of $1,000 per month. Compute the required sales in units and dollars to achieve this profit goal 6. The Jacksonville Shirt Company is considering adding a new product line, a cloth shopping bag with custom screen printing that will be sold to grocery stores. If the current market price of cloth shopping bags is $2.25 and the company desires a profit of 60%, what is the target cost? The company estimates the full product of the cloth bags will be $0.80. Should the company manufacture the cloth bags? Why or why not? net cost

Answer 1

Ques 1 Raleigh Shirt Company Production Cost Report-Cutting Department Month Ended March 31, 2018 Equivalent Units Transferred Whole Direct Conversion UNITS In Materials Units Costs Units to account for Beginning work-in-process Started in production 1,200 Total units to account for 1,200 Units accounted for Completed and transferred out 1,200 n/a On/a 1,200 n/a Direct Materials 1,200 1.200 Ending work-in-process Total units accounted for 1,20C 1,200 Conversion Total Transferred COSTS Costs to account for: In Costs Costs Beginning work-in-process Costs added during the period Total costs to account for n/a n/a S0 S0 $0 1,920 1,320 3,240 n/a n/a $1,920 $1,320 $3,240 Divided by: Total EUP Cost per equivalent unit Costs accounted for: Completed and transferred out Ending work-in-process Total costs accounted for 1,200 1,200 n/a $1.60 $1.10 $3,240 $1,920 $1,320 n/a n/a $1,920 $3,240 n/a $1,320 Raleigh Shirt Company Production Cost Report-Sewing Department Month Ended March 31, 2018 Equivalent Units Direct Transferred Conversion Whole Units In UNITS Materials Costs Units to account for Beginning work-in-process Transferred in Total units to account for 500 1,200 1,700 Units accounted for Completed and transferred out Ending work-in-process Total units accounted for 1,000 n/a 700 n/a 1,700 n/a Conversion 1,000 1,000 700 420 1,700 1,420 Direct Total Transferred COSTS Materials In Costs Costs Costs to account for: $1,350 n/a 3,240 n/a $4.590 n/a 1,700 n/a $2.70 n/a Beginning work-in-process Costs added during the period Total costs to account for $650 $2,000 1,196 4,436 $1,846 $6,436 Divided by: Total EUP Cost per equivalent unit Costs accounted for: Completed and transferred out Ending work-in-process Total costs accounted for 1,420 $1.30 $4.00 n/a 2700 1300 4000 $546 $1,890 $2,436 n/a $4,590 $1,846 $6,436 n/a

Ques 2 Job (Custom Shirts) Total cost of basic shirts 368 Total 367 369 370 $1,600 $600 $400 $2,000 Design costs Printing costs Total cost of the order 80 80 80 240 60 100 400 $1,920 $660 $580 $2,480 $5,640 $4.80 $4.40 $5.80 $4.96 |Average cost per shirt Ques 3 1,100 Basic shirts Sales price per unit (per basic shirt) $5.00 $5,000 Total sales revenue from 1,100 basic shirts Total cost of goods sold for 1,100 basic shirts Total gross profit for 1,100 basic shirts $4,000 $1,000 Ques 4 Basic and Custom $16,280 Total sales revenue from basic and custom sales Total cost of goods sold for basic and custom sales 9,640 $6,640 Total gross profit from basic and custom sales

Ques 5 Contribution margin per unit Sales price -Variable costs $4.00 $5.00 $1.00 Contribution Net sales Contribution margin ratio margin $1.00 = 20.00 % revenue $5.00 = / Contribution Required sales in units Fixed costs+ margin $1.00 Target profit ($700 $0) 700 shirts x Sales price Required sales Required sales in dollars per unit in units 700 shirts $5.00 $3,500 Margin of Expected sales Breakeven sales safety in units 300 shirts 1,000 shirts 700 shirts = Margin of safety in dollars Margin of safety in units x Sales price per unit $5.00 $1,500 300 shirts 5,00 Cpesrs e 500 Breaiever и ос kaem son0 -edond -ToalCops s2000 :1000 1ww Nabeal Stie Contribution Fixed costs Target profit Required sales in units margin ($700$1,000) 1.700 shirts Required sales in dollars Required sales in units Sales price per unit ¢5 00 1,700 shirts $8,500

Ques 6 Target Cost Target sales - Desired profit price = $2.25 - ($2.25 x .60) $2.25 $1.35 $0.90 The Jacksonville Shirt Company should manufacture the cloth bags. Its estimated full product cost of $0.80 per bag is less than the target cost of $0.90. Therefore, the company will earn a profit greater than the desired 60%