Fashion Designs International, Inc. Preview the document [PDF] case study and complete the following requirements.
Instructions
Please note: All information required for this assignment is provided in the
Unit 3 Student Workbook
[Excel] for this unit.
Read the
Fashion Designs International, Inc.
[PDF] case study and complete the following requirements.
Quantitative Analysis:
Based on the information presented in Tables 1 and 2, calculate the following:
- Calculate Total Variable Costs.
- Calculate Total Fixed Costs
- Calculate Contribution Margin per Unit
- Calculate Break-Even, Unit Sales
- Calculate Target Profit
Qualitative Analysis:
In a 2-3 page report, based on your quantitative analysis, what do you think FDI should do with its production: continue in North America or move it overseas? Discuss the quantitative, qualitative, and ethical factors, if any, that come into play with this decision. Support your recommendation with a minimum of 3 academic resources.
Deliverables
- Quantitative Analysis (Excel Required): You are required to use the provided Excel workbook to complete the quantitative analysis for this assignment.
- Qualitative Analysis (Word Required): Prepare a 2-3 page summary addressing the required qualitative analysis, as noted in the Student Workbook. Your paper is required to be formatted according to APA requirements. Be sure to incorporate key concepts from this unit’s readings and properly cite your references according to APA requirements. Do NOT embed the results of your quantitative analysis in your Word document. You should only reference parts of your quantitative analysis in your written analysis. Your written responses to the qualitative prompts should not be presented in a question and answer format.
CaseStudy
>Data
ashion Designs International, Inc.
1,
1,260 22,450 5,400 5,400 30,996 36,996 42,234 7,380 2,100 ehicle expenses
)
amount ( )
Cost of Goods Sold: V (6) x VC per unit
V units sold (6) x VC per unit 3.00% -50% V units sold (6) x VC per unit 3.00% -50% V units sold (6) x VC per unit 3.00% -50% V units sold (6) x VC per unit 3.00% -50% V units sold (6) x VC per unit 3.00% Operating Expenses: 0% F 0% F fixed annual cost x 1 0% x VC per unit
2.0% F 0% V same % 0% 1.5% F fixed monthly cost x 12 1.5% 0% 1.5% F fixed monthly cost x 12 1.5% 1.5% 0% 1.5% 0% 1.5% 0% 1.5% 0% 1.5% 0% 1.5% 0% 1.5% 20% 1.5% 0% 1.5% 0% 1.5% 0% F fixed monthly cost x 12 1.5% 0% 1.5% 1.5% 0% 2016 (b)
÷ CM/U
Adapted from IMA
IMA EDUCATIONAL CASE JOURNAL VOL. 11, NO. 4, ART. 2, DECEMBER 2018
ISSN 1940-204X
Fashion Designs International, Inc.
INTRODUCTION FDI, based in Greensboro, North Carolina, manufactures and distributes women’s apparel to retailers ALINA ROSSI, FASHION DESIGNER
Alina Rossi studied fashion design in Italy and, upon completing her studies, moved back to the United States APPAREL PRODUCTION
The production of FDI’s products is composed of three major phases: (1) manufacturing the fabric to be used A separate company, RossiDesigns LLC, owns the RossiDesigns brand name and trademarks. Rossi assigns
all of her designs to RossiDesigns LLC. As apparel pieces are distributed to retailers, FDI pays a royalty to
RossiDesigns LLC for the right to use the designs and the RossiDesigns brand name.1 The RossiDesigns label
is sewn into each piece that FDI produces.
FDI PROFITABILITY
FDI’s profitability is attributable to a lean company structure and Rossi’s talents and work ethic. The company, RILEY’S RESEARCH AND PREPARATION
As mentioned previously, all of FDI’s production activities are in North America: The fabric is produced in Riley believes that it is in the company’s best interest to move production overseas and that this course of convincing her to move the company’s production overseas. When he meets with Rossi, Riley’s challenges
include helping her focus on her financial goal, convincing her that achieving those goals will require tradeoffs
in production supervision, and convincing her that the tradeoffs will be well worth it.
Unit 3_Fashion Designs International, Inc. Adapted from IMA
IMA EDUCATIONAL CASE JOURNAL VOL. 11, NO. 4, ART. 2, DECEMBER 2018
ISSN 1940-204X
Fashion Designs International, Inc.
INTRODUCTION FDI, based in Greensboro, North Carolina, manufactures and distributes women’s apparel to retailers ALINA ROSSI, FASHION DESIGNER
Alina Rossi studied fashion design in Italy and, upon completing her studies, moved back to the United States APPAREL PRODUCTION
The production of FDI’s products is composed of three major phases: (1) manufacturing the fabric to be used A separate company, RossiDesigns LLC, owns the RossiDesigns brand name and trademarks. Rossi assigns
all of her designs to RossiDesigns LLC. As apparel pieces are distributed to retailers, FDI pays a royalty to
RossiDesigns LLC for the right to use the designs and the RossiDesigns brand name.1 The RossiDesigns label
is sewn into each piece that FDI produces.
FDI PROFITABILITY
FDI’s profitability is attributable to a lean company structure and Rossi’s talents and work ethic. The company, RILEY’S RESEARCH AND PREPARATION
As mentioned previously, all of FDI’s production activities are in North America: The fabric is produced in Riley believes that it is in the company’s best interest to move production overseas and that this course of convincing her to move the company’s production overseas. When he meets with Rossi, Riley’s challenges
include helping her focus on her financial goal, convincing her that achieving those goals will require tradeoffs
in production supervision, and convincing her that the tradeoffs will be well worth it.
Table 1
F
Comparative Income Statements
year ended December
3
201
4
201
5
201
6
Sales
$1,987,050
$2,124,885
$2,249,830
Cost of Goods Sold:
Fabric
237,250
250,390
264,260
Cutting
201,500
212,660
224,440
Sewing
260,000
274,400
289,600
Brand labels
3,900
4,116
4,344
Thread etc.
650
686
724
Shipping and freight
29,250
30,870
32,580
Total Cost of Goods Sold
732,550
773,122
815,948
Gross Profit
1,254,500
1,351,763
1,433,882
Operating Expenses:
Bank charges
1,260
1,320
Salary expense
350,000
360,000
370,500
Wage expense
263,250
291,722
323,275
Employee benefits – salaried employees
63,000
64,800
66,690
Employee benefits – hourly employees
31,590
35,007
38,793
Insurance
22,450
23,124
Information Technology services
8,220
8,340
8,520
Legal fees
15,000
18,840
20,280
Licenses and permits
5,400
Meals and entertainment
14,304
15,019
15,925
Printing and reproduction
1,452
1,740
1,860
Professional Fees
15,504
16,260
16,920
Marketing and promotion
30,996
34,104
Rent – Office
36,996
3
7,380
Rent – Warehouse
41,004
42,234
Repairs and maintenance
8,592
10,188
Security expense
2,100
2,184
Office supplies
2,136
2,532
2,844
Telephone and internet
2,472
2,604
2,808
V
5,760
5,875
6,051
Travel expenses
21,000
21,210
21,846
Utilities
1,956
2,034
2,156
Total operating expenses
944,442
997,907
1,051,295
Profit before taxes
310,058
353,856
382,587
Income taxes
93,017
106,157
114,776
Profit after taxes
$217,041
$247,699
$267,811
Table 2
Fashion Designs International, Inc.
Assumptions for Income and Expense Projections
Expense Item
F/V (
1a
Formula
2016
1b
Projected annual growth
Effect of overseas move
Fabric (2)
units sold
$7.30000
3.0
0%
-50%
Cutting (2)
$6.20000
Sewing (3)
$8.00000
Brand labels (4)
$0.12000
Thread etc. (1)
$0.02000
Shipping and freight (5)
$0.90000
300%
Bank charges F
fixed monthly cost x 12
$1,320
1.5%
Sal exp – owner
fixed annual cost x 1
$150,000
0.0%
Sal exp – employees
$220,500
2.0%
Wage expense V
units produced
$8.93025
–
20%
Emp benis – sal
salary expense x percentage
$66,690
same %
Emp benis – hrly
wage expense x percentage
$1.07163
Insurance F fixed annual cost x 1
$23,124
250%
IT services
$8,520
Legal fees F fixed monthly cost x 12
$20,280
200%
Lic & Permits
$5,400
75%
Meals and entertainment F fixed monthly cost x 12
$15,925
Printing and reproduction F fixed monthly cost x 12
$1,860
Professional Fees F fixed monthly cost x 12
$16,920
Marketing and promotion F fixed monthly cost x 12
$30,996
Rent – Office F fixed monthly cost x 12
$37,380
Rent – Warehouse F fixed monthly cost x 12
$42,234
Repairs and maintenance F fixed monthly cost x 12
$10,188
Security expense F fixed monthly cost x 12
$2,184
Office supplies F fixed monthly cost x 12
$2,844
Telephone and internet F fixed monthly cost x 12
$2,808
Vehicle expenses
$6,051
Travel expenses F
fixed quarterly cost x 4
$21,846
400%
Utilities F fixed monthly cost x 12
$2,156
1a
F = fixed cost; V = variable cost;
1b
for variable (V): amount per unit; for fixed (F): annual amount
2
cost paid on per yard basis ;
3
cost paid on per piece basis
4
cost paid on per label basis ;
5
cost paid on weight and volume basis
6
units sold and units produced both projected to grow at annual rate of 6%
Student Template
Fashion Designs International, Inc.
Global Assumptions:
units sold
36,200
units produced 36,200
avg sales price
$62.15
income tax rate
30%
benefits – salary
18.0%
benefits – wages
12.0%
Desired Cash Payout
(a) – Calculate Total Variable Costs
Total variable costs
(b) – Calculate Total Fixed Costs
Total fixed costs
(c) – Calculate Contribution Margin per Unit
Sales price per unit
Variable costs per unit (a)
Contrib margin per unit
(d) – Calculate Break-Even, Unit Sales
Fixed costs
÷ CM/U
Unit sales, BEP
(e) – Calculate Target Profit
Desired cash payout to owner (from scenario)
Subtract owner salary
Target profit after taxes
÷ 100% less income tax rate
Target profit before taxes
Fixed costs
FC + target profit
Unit sales, target profit
George Gonzalez, PhD, Assistant Professor Accounting
University of Lethbridge–Calgary Campus
Calgary, Alberta, Canada
“Balancing quantitative and qualitative factors can be quite a challenge,” Charles Riley thought to himself. Riley
is the CFO of Fashion Designs International, Inc. (FDI), a small women’s apparel business. The CEO and sole
shareholder of FDI, Alina Rossi, had asked Riley for suggestions about how to increase the company’s profits
to the level that matched her financial goals. Riley knew, however, that there were qualitative factors of
importance to Rossi that posed challenges.
worldwide under the brand name RossiDesigns. Headed by Rossi, an Italian-educated, award-winning fashion
designer with a high work ethic and a perfectionist streak, the company’s products are considered of excellent
quality by consumers and retailers. The designs, fabric, and processes used in production all contribute to this
high level of quality. Since its inception in 2001, the company has grown steadily to annual sales of US$2.25
million in 2016 (see Table 1).
where her family had emigrated when she was 10 years old. Rossi was a highly creative designer who almost
certainly could have done well by selling her designs to large international fashion companies but chose
instead to start her own company.
Rossi started her fashion business in 2001 by selling women’s apparel to small U.S.-based boutique shops.
Her designs—particularly popular with women in their 20s, 30s, and 40s—sold quickly, and her business grew
accordingly. After several years, her market expanded to include Canada, Mexico, and a few countries in
Europe.
Rossi tends to be a perfectionist both with her designs and in her insistence on high production quality. This
manifests itself in her close supervision of production processes, to a point of near-obsession with ensuring the
high apparel standards that she demands.
for apparel pieces, (2) cutting the fabric according to the particular apparel piece’s design, and (3) sewing the
cut fabric into apparel wear. FDI’s women’s outfits are made from high-quality fabric, which Rossi specifies to
the fabric manufacturer, a company based in Toronto, Ontario, Canada. Large rolls of fabric manufactured for
FDI are shipped to FDI’s warehouse in Greensboro, where they are stored until ready to be used in production
runs. At such time, fabric is sent to the cutting shop where the fabric is cut into large pieces of specific size and
shape, as specified by Rossi’s design. Finished cut pieces are then delivered to the sewing shop. In the sewing
process, cut pieces are sewn as prescribed by Rossi into final products, which is then transported to FDI’s
warehouse until ready for shipment to retailers (for instance, FDI’s main customers). The cutting and sewing
shops, independent from each other, are both located within a 50-mile radius of FDI’s main offices in
Greensboro.
however, has not achieved the level of profitability that Rossi desires. While her goal is an annual net cash
payout from the company of US$600,000, currently the net cash paid or available to her (for instance,
combined salary and net profit) is only about two-thirds that amount.2
Canada, and the cutting and sewing are done in the United States. Riley believes that the quickest and surest
way for FDI to increase its profitability is by moving manufacturing activities overseas to a low-cost country
where labor and other production costs would be significantly reduced.3 Based on his prior research, Riley has
estimated how the company’s costs would change if all manufacturing was moved overseas (see Table 2). He
has prepared a schedule of revenue and expense growth rates that allow him to project future net profits under
either scenario—for instance, keeping manufacturing in North America or moving it overseas (see Table 2,
“Projected Annual Growth” column). Riley determined the cost behavior of each item of expense based on cost
drivers and used this information to arrive at formulas for projecting each expense item (see Table 2, “Formula”
column).
action is the best way to reach Rossi’s goals for the company. He recognizes, however, that a big challenge in
convincing Rossi of this is her strong desire for close supervision of all production processes. Riley knows that
Rossi is a perfectionist, and he believes that other related aspects of Rossi’s personality represent potential
hurdles to an overseas move. Fashion design is, at its essence, an artistic skill. As with many artists, Rossi
probably views her company’s final product as an extension of herself. Riley imagines that Rossi’s pride and
ego are significant factors in her strong need for oversight and her obsession with production quality.
Riley knows that he will have to keep Rossi’s personality factors in mind if he is to have a good chance of
George Gonzalez, PhD, Assistant Professor Accounting
University of Lethbridge–Calgary Campus
Calgary, Alberta, Canada
“Balancing quantitative and qualitative factors can be quite a challenge,” Charles Riley thought to himself. Riley
is the CFO of Fashion Designs International, Inc. (FDI), a small women’s apparel business. The CEO and sole
shareholder of FDI, Alina Rossi, had asked Riley for suggestions about how to increase the company’s profits
to the level that matched her financial goals. Riley knew, however, that there were qualitative factors of
importance to Rossi that posed challenges.
worldwide under the brand name RossiDesigns. Headed by Rossi, an Italian-educated, award-winning fashion
designer with a high work ethic and a perfectionist streak, the company’s products are considered of excellent
quality by consumers and retailers. The designs, fabric, and processes used in production all contribute to this
high level of quality. Since its inception in 2001, the company has grown steadily to annual sales of US$2.25
million in 2016 (see Table 1).
where her family had emigrated when she was 10 years old. Rossi was a highly creative designer who almost
certainly could have done well by selling her designs to large international fashion companies but chose
instead to start her own company.
Rossi started her fashion business in 2001 by selling women’s apparel to small U.S.-based boutique shops.
Her designs—particularly popular with women in their 20s, 30s, and 40s—sold quickly, and her business grew
accordingly. After several years, her market expanded to include Canada, Mexico, and a few countries in
Europe.
Rossi tends to be a perfectionist both with her designs and in her insistence on high production quality. This
manifests itself in her close supervision of production processes, to a point of near-obsession with ensuring the
high apparel standards that she demands.
for apparel pieces, (2) cutting the fabric according to the particular apparel piece’s design, and (3) sewing the
cut fabric into apparel wear. FDI’s women’s outfits are made from high-quality fabric, which Rossi specifies to
the fabric manufacturer, a company based in Toronto, Ontario, Canada. Large rolls of fabric manufactured for
FDI are shipped to FDI’s warehouse in Greensboro, where they are stored until ready to be used in production
runs. At such time, fabric is sent to the cutting shop where the fabric is cut into large pieces of specific size and
shape, as specified by Rossi’s design. Finished cut pieces are then delivered to the sewing shop. In the sewing
process, cut pieces are sewn as prescribed by Rossi into final products, which is then transported to FDI’s
warehouse until ready for shipment to retailers (for instance, FDI’s main customers). The cutting and sewing
shops, independent from each other, are both located within a 50-mile radius of FDI’s main offices in
Greensboro.
however, has not achieved the level of profitability that Rossi desires. While her goal is an annual net cash
payout from the company of US$600,000, currently the net cash paid or available to her (for instance,
combined salary and net profit) is only about two-thirds that amount.2
Canada, and the cutting and sewing are done in the United States. Riley believes that the quickest and surest
way for FDI to increase its profitability is by moving manufacturing activities overseas to a low-cost country
where labor and other production costs would be significantly reduced.3 Based on his prior research, Riley has
estimated how the company’s costs would change if all manufacturing was moved overseas (see Table 2). He
has prepared a schedule of revenue and expense growth rates that allow him to project future net profits under
either scenario—for instance, keeping manufacturing in North America or moving it overseas (see Table 2,
“Projected Annual Growth” column). Riley determined the cost behavior of each item of expense based on cost
drivers and used this information to arrive at formulas for projecting each expense item (see Table 2, “Formula”
column).
action is the best way to reach Rossi’s goals for the company. He recognizes, however, that a big challenge in
convincing Rossi of this is her strong desire for close supervision of all production processes. Riley knows that
Rossi is a perfectionist, and he believes that other related aspects of Rossi’s personality represent potential
hurdles to an overseas move. Fashion design is, at its essence, an artistic skill. As with many artists, Rossi
probably views her company’s final product as an extension of herself. Riley imagines that Rossi’s pride and
ego are significant factors in her strong need for oversight and her obsession with production quality.
Riley knows that he will have to keep Rossi’s personality factors in mind if he is to have a good chance of