Chapter 21, Problem 5CP

Comprehensive Problem for Chapters 18- 21

The Jacksonville Shirt Company makes two types of T-shirts: basic and custom. Basic shirts are plain shirts without any screen printing on them. Custom shirts are created using the basic shirts and then adding a custom screen printing design.

The company buys cloth in various colors and then makes the basic shirts in two departments, Cutting and Sewing. The company uses a process costing system (weighted-average method) to determine the production cost of the basic shirts. In the Cutting Department, direct materials (cloth) are added at the beginning of the process and conversion costs are added evenly through the process. In the Sewing Department, no direct materials are added. The only additional material, thread, is considered an indirect material because it cannot be easily traced to the finished product. Conversion costs are added evenly throughout the process in the Sewing Department. The finished basic shirts are sold to retail stores or are sent to the Custom Design Department for custom screen printing.

The Custom Design Department creates custom shirts by adding screen printing to the basic shirt. The department creates a design based on the customer's request and then prints the design using up to four colors. Because these shirts have the custom printing added, which is unique for each order, the additional cost incurred is determined using job order costing, with each custom order considered a separate job.

For March 2018, the Jacksonville Shirt Company compiled the following data for the Cutting and Sewing Departments:

Department	Item	Amount	Units
Cutting	Beginning balance	$ 0	0 shirts
	Started in March		1,200 shirts
	Direct materials added in March	1,920
	Conversion costs	1,320
	Completed and transferred to Sewing	???	1,200 shirts
	Ending balance	0	0 shirts

Sewing Beginning balance, transferred in, $ 1,350

conversion costs, $650	$2,000	$00 shirts
Transferred in from Cutting	???	???
Conversion costs added in March	1,196
Completed and transferred to Finished Goods	???	1,000 shirts
Ending balance,complete	???	???

For the same time period, the Jacksonville Shirt Company compiled the following data for the Custom Design Department

Job	Quantity	Design Fee	Printing	Status
367	400	Yes	3 colors	Complete
368	150	No	2 colors	Complete
369	100	Yes	5 colors	Complete
370	500	Yes	4 colors	Complete

The Jacksonville Shirt Company has previously determined that creating and programming the design cost $80 per design. This is a one-time charge. If a customer places another order with the same design, the customer is not charged a second time. Additionally, the cost to print is $0.20 per color per shirt.

Requirements

5. Assume the company sold only basic shirts (no custom designs) and incurred fixed costs of $700 per month.
a. Calculate the contribution margin per unit, contribution margin ratio, required sales in units to break even, and required sales in dollars to break even.
b. Determine the margin of safety in units and dollars.
c. Graph JacksonvilleShirt Company's CVP relationships. Show the breakeven point, the sales revenue fine, the fixed cost line, the total cost fine, the operating loss area, and the operating income area.
d. Suppose the Jacksonville Shirt Company wants to earn an operating income of $1,000 per month. Compute the required sales in units and dollars to achieve this profit goal.