Reference no: EM133126240
Question - Superb Stained Glass, is a business that produces and sells three different types of stained glass windows: small, medium, and large. The business has two full-time employees who work regular schedules to cut glass and assemble the windows.
The owner borrowed money from the bank to start the business and pay living expenses. She is concerned that her cash flows might not be high enough either to pay herself or to repay the bank loan. She would like to generate approximately $10 000 in pre-tax profit each month to cover her living expenses and repay the loan.
The following revenue and cost information covers the past four months:
|
June
|
July
|
August
|
September
|
|
Revenues
|
$9 050
|
$10 531
|
$12 946
|
$16 116
|
|
|
|
|
|
|
Raw materials and supplies
|
1 745
|
2 433
|
3 074
|
4 029
|
|
Labour
|
3 880
|
4 041
|
4 246
|
4 282
|
|
Rent
|
2 000
|
2 000
|
2 000
|
2 200
|
|
Miscellaneous
|
525
|
701
|
747
|
793
|
|
Profit
|
$900
|
$1 356
|
$2 879
|
$4 812
|
Required -
1. Develop a cost function for Superb Stained Glass. Make sure you include your assumptions and workings. There is more than one acceptable solution to this question so make sure you provide justification for how you have classified the costs as either fixed or variable and how you would estimate the costs into the future.
2. Using the cost function you calculated in (1) above, determine the level of revenue Superb Stained Glass must generate to achieve the targeted profit of $10 000 per month.
3. Using CVP analysis calculate the current breakeven point and margin of safety.
4. Write a short memo to the owner of Superb Stained Glass outlining what your analysis indicates about her achieving her target profit. Provide two (2) recommendations that would help her to achieve her desired profit.