Solved by verified expert :Museum
Jewelry Case Study
(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. A PowerPoint presentation
“Museum Jewelry Hints” has been posted in this week’s module to get you
started.
