Museum jewelry case study target profit assignment

Break even analysis

Museum Jewelry Case Study

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(Case by Les Livingstone, copied with permission)

Jane Goodheart established and ran a small workshop that manufactured costume jewelry productions of well-known jewelry masterpieces by Faberge and other famous designers, plus antique pieces of Etruscan, Russian, Egyptian, Chinese and French jewelry. She marketed these creations to museums across the United States in batches of 12 assorted items, for which she charged $680 per batch. In turn, the museums sold the jewelry at prices averaging nine times what they paid for the jewelry.

Jane’s only assistant was Joe, who was paid $15 per hour for his unskilled labor. Jewelry production varied between a low of 4 and a high of 6 batches per week, and averaged 200 batches per year. Each batch cost $80 (excluding wages) to pack and ship, with Joe doing all the packing and shipping. It takes Joe 2 hours to pack and ship one batch. Joe also does other chores, such as sweeping, vacuuming and cleaning, and he averages 20 hours per week of employment with Jane’s workshop, for the 40 weeks per year that he works for Jane (with his time split between packing and shipping of batches and doing weekly cleaning, etc.)

Jane spends 10 weeks a year touring the U.S. and attending trade shows in order to sell her jewelry, and to find suppliers of semi-precious stones, beads, and other components for her products. Her travel, hotel and food costs were $6,050 each year. Workshop rent and utilities cost her an average of $300 per week.

Jane works 40 weeks a year at making jewelry, and sublets the workshop for its cost in rent and utilities during her 10-week tour plus her 2 weeks of vacation each year.

The cost of rent, utilities and raw materials varied from $2,300 per week when 4 batches were produced, to $2,800 per week in weeks when 5 batches were produced, and $3,300 per week when 6 batches per week were manufactured.

Business was brisk, and Jane could easily sell every batch that she produced. But she found herself earning very little money, and after paying her 28% income tax, she found herself with almost no money to live on. That led Jane to you, as her consultant. She complained to you that she worked very hard, 50 weeks a year, but ended up broke and frustrated. Jane said that her tastes were modest, and emphasized artistry rather than material possessions. She noted that she would be quite satisfied to make $25,000 a year, after taxes.

 

You agreed to analyze her business operations and to advise her how to reach her modest goal of earning $25,000 per year, after taxes.

After some calculation and some thought, you conclude that Jane has to increase her revenues, perhaps by achieving greater volume, or perhaps by raising her selling price.  Write a short report directed to Jane Goodheart with your recommendation on how to increase revenue, supported with a pro-forma contribution income statement which incorporates your recommendations. You should show all calculations in a Microsoft Excel document, include a Cost-Volume-Profit chart that is well labeled,  and provide your conclusion.  (The report to Ms. Goodheart can be written in a Textbox (Textboxes automatically wrap text) in a separate worksheet in the same Excel document. The report should be appropriate for your client, Jane, Goodheart, the artist and sole proprietor.

Submit one document  that contains your calculations, CVP graph, and the report.  Be sure to proofread.  

 

1. Show all your calculations.

2. Use Excel in order to accomplish item 1 above.

3. Describe and justify each assumption you have made,

4. Explain, support and justify every statement you make.

5. Support your conclusions with evidence (such as facts and statistics from reliable sources, quotes from the readings, or a well-reasoned logical argument).  Examples from your own experience are also helpful.

Please bear in mind that analyses and conclusions are only as good as the data and assumptions that they are based on;

So ALWAYS support all of your numbers or calculations with reasoning and explanations, and be sure to provide sources for all of your data.

 

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