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You plan to open a small business for manufacturing pet collars, leashes, and harnesses. You have found a workshop space you can use for sewing your products. After some research and planning, you have estimates for the various operating costs for your business.

The total square footage for the sewing rooms is 1,500 square feet, which is broken into three areas that are 500 square feet each. You have taken out a loan for start-up costs. The $550 monthly payment goes into effect immediately and should be accounted for in your costs. You will also collect a modest salary for the first year of $500 per month; remember to divide evenly among the services.

Salary and Hiring Data
• One collar maker, who will be paid $16 per hour and work 40 hours per week
• One leash maker, who will be paid $16 per hour and work 40 hours per week
• One harness maker, who will be paid $17 per hour and work 40 hours per week
• One receptionist, who will be paid $15 per hour and work 30 hours per week

Other Costs
• Rent: $750 per month; allocate based on square footage
• High-tensile strength nylon webbing—$12 per yard of webbing
o 3 collars per yard of webbing
o 2 leashes per yard of webbing
o 2 harnesses per yard of webbing
• Polyester and nylon ribbons—$9 per yard of ribbon
o 3 collars per yard of ribbon
o 2 leashes per yard of ribbon
o 2 harnesses per yard of ribbon
• Buckles made of cast hardware—50¢ per buckle
o 4 buckles used per collar
o 3 buckles used per leash
o 8 buckles used per harness
• 3 industrial sewing machines at $3,300 each for a total of $9,900; depreciation is $165 per month (five-year life, zero salvage value)
• Utilities and insurance: $600 per month; allocate based on square footage
• Scissors, thread, cording: $1,200
• Price tags: $250 for 2,500 tags (10¢ each)
• Office supplies: $2,400 or $200 per month
• Other business equipment: $2,000
• Loan payment: $550 per month
• Salary drawn: $500 per month

1 answer

To establish a comprehensive understanding of your business's monthly operating costs, let's break down all the expenses you've provided. This will include determining manufacturing costs, direct labor costs, indirect expenses, and allocating shared costs appropriately.

Monthly Operating Costs Breakdown

1. Direct Labor Costs:

Let's calculate the monthly labor costs for each employee.

  • Collar Maker:

    • Rate = $16/hour
    • Hours = 40 hours/week
    • Monthly Wage = $16 * 40 * 4 = $2,560

  • Leash Maker:

    • Rate = $16/hour
    • Monthly Wage = $16 * 40 * 4 = $2,560

  • Harness Maker:

    • Rate = $17/hour
    • Monthly Wage = $17 * 40 * 4 = $2,720

  • Receptionist:

    • Rate = $15/hour
    • Monthly Wage = $15 * 30 * 4 = $1,800

Total Direct Labor Costs:

\[ Total\ Labor\ Costs = Collar\ Maker + Leash\ Maker + Harness\ Maker + Receptionist \] \[ Total\ Labor\ Costs = 2,560 + 2,560 + 2,720 + 1,800 = $9,640 \]

2. General Operating Costs:

  • Rent:

    • Monthly Rent = $750

  • Utilities and Insurance:

    • Monthly Cost = $600

  • Monthly Depreciation for Sewing Machines:

    • Depreciation = $165

  • Salary Drawn:

    • Salary = $500

  • Loan Payment:

    • Loan Payment = $550

  • Office Supplies:

    • Monthly Cost = $200

3. Cost Allocations Based on Square Footage:

Since the total space is 1,500 square feet, each area (500 square feet) comprises 1/3 of the total operating expenses. We need to allocate rent and utilities.

Rent Allocation:

\[ Rent\ Allocation = \frac{750}{3} = $250 \text{ per area} \]

Utilities Allocation:

\[ Utilities\ Allocation = \frac{600}{3} = $200 \text{ per area} \]

4. Manufacturing Costs:

Now, let's calculate costs based on expected production, but we need the anticipated quantity produced for collars, leashes, and harnesses. It’s important to note that material costs will depend on production volume.

Assuming production as follows for simplicity:

  • 50 collars (producing requires 17 yards of webbing and 17 yards of ribbon, 200 buckles)
  • 30 leashes (producing requires 30 yards of webbing, 15 yards of ribbon, 90 buckles)
  • 20 harnesses (producing requires 15 yards of webbing, 15 yards of ribbon, 160 buckles)

Calculating Materials:

  1. High-Tensile Strength Nylon Webbing:

    • Collars: \(\frac{50\ collars}{3\ collars/yard} = 17\ yards\)
    • Leashes: \(\frac{30\ leashes}{2\ leashes/yard} = 15\ yards\)
    • Harnesses: \(\frac{20\ harnesses}{2\ harnesses/yard} = 10\ yards\)
    • Total Webbing: \(17 + 15 + 10 = 42\ yards\)
    • Cost of Webbing: \(42\ yards \times 12 = $504\)

  2. Polyester and Nylon Ribbons:

    • Collars: \(\frac{50\ collars}{3\ collars/yard} = 17\ yards\)
    • Leashes: \(\frac{30\ leashes}{2\ leashes/yard} = 15\ yards\)
    • Harnesses: \(\frac{20\ harnesses}{2\ harnesses/yard} = 10\ yards\)
    • Total Ribbons: \(17 + 15 + 10 = 42\ yards\)
    • Cost of Ribbons: \(42\ yards \times 9 = $378\)

  3. Buckles Cost:

    • Collars: \(50\ collars \times 4 = 200\ buckles\)
    • Leashes: \(30\ leashes \times 3 = 90\ buckles\)
    • Harnesses: \(20\ harnesses \times 8 = 160\ buckles\)
    • Total Buckles: \(200 + 90 + 160 = 450\ buckles\)
    • Total Cost of Buckles: \(450 \times 0.50 = $225\)

Total Manufacturing Costs:

\[ Total\ Manufacturing\ Costs = \text{Webbing} + \text{Ribbons} + \text{Buckles} \] \[ Total\ Manufacturing\ Costs = 504 + 378 + 225 = $1,107 \]

Final Monthly Operating Costs:

Now we can summarize the total monthly operating costs:

\[ Total\ Monthly\ Costs = Total\ Labor\ Costs + General\ Operating\ Costs + Total\ Manufacturing\ Costs \]

General Operating Costs Calculation:

\[ General\ Operating\ Costs = Rent + Utilities + Depreciation + Salary\ drawn + Loan\ Payment + Office\ Supplies \] \[ General\ Operating\ Costs = 750 + 600 + 165 + 500 + 550 + 200 = $2,765 \]

Final Calculation: \[ Total\ Monthly\ Costs = 9,640 + 2,765 + 1,107 = $13,512 \]

Summary

Your total estimated monthly operating cost is $13,512 given your current labor, rent, utilities, materials costs, and other operating expenses. Adjust your expected production volume or sales projections as necessary to cover this cost and generate profit.