they manufacture a single product, specialty curry sauce. They are interested in developing 12 MONTH budget models and want to perform decision analysis on this model. Curryrus.com has approached you for help.
The following information is available:
1. Curryrus.com sells ONE product, specialty curry sauce, at a price of $11 a unit. The price will remain fixed for the next year (2012).
2. Sales will average 5500 units per month from Jan to May, 2012. Starting June 1 sales will increase by 5% each month thereafter.
3. Cost of production involves materials and labor costs. (based on units produced and NOT units sold)
o Material costs are $1.00/unit
o Direct labor costs are $ 0.50/unit until end of June and then will increase 5% (monthly) thereafter..
4. Production will be constant at 6000 units/month.
5. Inventory at the beginning of the year, January 1, 2012 will be 3000 units.
6. Inventory carrying costs are $4/end of the month inventory units., i.e., if there are 5000 units at the end of January, inventory carrying cost will be 5000*4=$20,000 and will be charged as inventory carrying cost for January. (this is an example, you need to calculate end of January inventory using following formula)
end of the month inventory= Beginning inventory of the month + Production for that month - sales for that month
(Note: Beginning inventory of a given month is the same as ending inventory of the previous month)
7. The following operating expenses are also projected:
• Advertising expense: $1000 the first month and 2.5% of the previous month's GROSS SALES (unit price * monthly sales), in dollars thereafter.
• Administrative salaries are $15,000 per month
• Company has a lease on its factory in Beijing which costs $500 per month
8. Curryrus.com expects tax rate to be 30% in 2012.
Note: All increases are incremental. i.e., if there is 10% increase in sales starting February and there after, then
February sales will be January sales + 10 % increase of January sales
March sales will be February sales + 10% increase of February sales etc.