The inspiration for a company for T-shirt came through the idea of Glyn Williams who is a British man that made a net profit of 800.000 $ of selling T-shirt and therefore we also decided to make T-shirts and look if it is achievable to make as much money as Mr. Williams with the help of accounting.
Since our inspiration comes from Mr Williams we have decided to imitate his printing style as well as the T-shirt quality he uses. But our printing should be different from Mr. Williams. Since our printing are more made in a funny sense.
We will start our business in London from the first of January 2017 and will run our business for a year which means until the 31th of December and then make a judgment whether it is worth to run the business or even to expand the business. In order to make a better judgment we will use management accounting skills which will be mainly budgeting to make better planning and decision. Our business is a partnership and we have decided not to be a public limited company if the business is making good profit then we will decide our company to go IPO.
Since we are almost at the end of 2016 we decided to purchase certain assets and install them in our place so our business can start next year. Our following purchases will be 5 T-shirt heating press machine since we will make appealing designs on the T-shirt and the price for each is 320£. The second asset will be a T-shirt manufacturing machine since we have raw materials and we have to make them in a finished product and its price is 8000£. Our third asset will be furniture (320£) since it is needed for a basic business to work as well as some computers (3000£). We have calculated that our depreciation for our Capital expenditure will be 20% for 5 years (2584£ p.a.)
Now we come the most important asset of our business which are the people who are working for us. We will hire one retailer who is responsible for Sales & Marketing and then we will need 3 designers who will make our T-shirt appealing for the customers, one accountant who keeps track of our cost. Finally, one director who makes sure that everyone does his work properly and advices them how to do it.
We have decided to have direct labour and fixed labour. The wage for direct labour will be 7£ per hour and therefore it will be a variable cost. Furthermore we have decided that the wage will 7 pounds since the minimum wage in UK is 6.95£.Furthermore our T-shirt represent a dynamic culture hence our labour will be young people between 21-24. This age group are students. These people will also gain experience from making T-shirts which will benefit also their CVs. Since we are producing at a certain limit we don’t need to make the direct labour as fixed cost; a new worker is recruited every two months in order to keep up with the increased production of T-shirts. The retailer, the accountant and the designers will be a fixed cost since they have to be always steady in our business and we decided to give them 8£ per hour since their work is more sophisticated then a person who makes the t-shirt, in fact in our company our wages are split depending on the worker’s position. Then we will have our director who works in the highest position earns a fixed wage of 10£ per hour; he has the highest payment since he has to monitor every aspect of our business. In addition to that we will hire a trainer who will train our employees so our business can grow better and the payment will be 250£ per year where the trainer comes twice a year.
The T-shirt industry is a big industry and therefore we know that we have to make our prices competitive. Furthermore, we have to position our self in the right way. Our group decided not to be in the luxury part of T-shirts because we took from the bank 15,000£ to pay for our capital expenditure and the starting expenses. Due to the fact that we want to finance ourselves with the repayments for the sales. Therefore, we decided to make T-shirts, which everyone can afford and hence the mass group of the people.
Since our business is a partnership we do not want much financing of other entities but we will get a loan from our Bank which is 15.000£. The loan will be granted because we have enough fixed assets which can back up our loan if we default. We will pay our suppliers 40% of the previous month and 60% of the current month since we have our specific department who will give us such a deal.
Since we go for the mass people we made our T-shirts very simple. One T-shirt is made of 900gr. of cotton and 15gr of thread. The quality of our materials are high quality. Hence we pay a lot for our direct materials compared to the average type of cotton. The reasoning for this is that we want to offer a reasonable value for the customers. This is why the price of our direct materials are not so high compared luxury brands. Therefore making the T-shirt will take our workers around 15 minutes give or take per T-shirt, while including the time lost per workers.
The selling price for our T-shirt will be 20£. This price will position our product for the mass people since the price is very reasonable. At the start of the business will assume that we cannot sell many T-shirts since our business just started and therefore we will sell in the first month only 2000 T-shirts but as times goes on our business get more sophisticated and therefore we will increase our production 10% for the first 6 month and after the 6 month it increases by 5% since the last 6 months is a winter season and we assume that our T-shirts are based on seasons as well. We assume that the majority of our customers are not from a high social class, so they have to pay only 50% with cash in the same month and the remaining 50% we will receive the next month.
Our first opening stock will be 0 since we will start our machinery will be installed and will be functioning in the first month of 2017 but our closing stock will be 100 units for the first month and it will increase 10% for the first 6 month and after the second 6 months it will be 5% since we said that our production will increase by 10% in the first 6 months and then 5% for the remaining months. The closing balance for our direct material will be 30 gr. in cotton and 5 gr. for thread and it increases for the first 6 months by 10% and the remaining months by 5% the reasoning is because of the production which is mentioned above.
In our business we do not do any withdrawals since we are planning the business for one year. In our fixed costs we will have our rent for the factory, that is 3000 per month, as well as utilities such as water, gas &electricity which is 1000£ each month and our office expenses such as paper, pen, print colours etc. that is 200£ per month. We have decided that we will advertise our products online since we live in a world where online marketing becomes more and more important and outside the tube, that the cost will be 250£ for 2 weeks for 6 sheet panels, for a total amount of 500 £ each month.
With the helpful managing accounting skills we have a better understanding of careful planning and decision making. This is our success secret of our business and as you can see on our Income statement it proves that our business is almost as successful as Mr. Williams’s business.
Table of assumptions:
· Our product are quality made t-shirts, made from scratch and are cotton based. After making the shirts in a variety of colours we use our T-shirt heating press to print beautifully aesthetic designs that our wonderful designer make.
· Amount of Material used (cotton 900 gr and thread 15 gr.)
· How many minutes to produce 1 t-shirt (15 min) including time lost by workers
· When we open the company we decide to buy: 1. 5 T-shirt heating press machine (320£* 5) 2. T-shirt making machine (8000£) 3.furniture (320) 4.6 computer 3000£(1 for marketers, 3 for designers, 1 accountants and 1 for director) All of these is our capital expenditure and we have calculated a depreciation of 20% for 5 years.
· Selling price 20 £, the first month we sell 2000 t-shirt and we increase our production by 10% for the first 6 months of the year and by 5 % for the second 6 months.
· Our customers pay by cash but 50 % in the same month and 50% in the following month
· Being the first year , for units produced, our opening stock is zero, instead our closing stock in the first month is 100 and it increase by 10% for 6 months and then by 5%
· For units purchased the first closing balance is 30 for the cotton and 5 for the thread (increase 10% and then 5%)
· Other variable cost: transfer paper15£ for 100 t-shirt
· We have direct labour and fixed labour, the wages for the workers (variable) is 7£ per hour instead for the designer, (fixed) accountant and retailers is 8£ and for the director is 10£. Furthermore we pay twice a year a trainer for our employees (250£ each year)
· Other fixed cost are: rent factory, utilities (as electricity, lighting), office expenses (paper, print colour, pens..) and the advertising in our case only online and at the tube entry (the price is 250 for 2 weeks for 6 sheets panel)
· We take on January a bank loan of 15000 only to pay our capital expenditure and some starting expenses. As we want to try to finance it alone during the year. We promise to pay a simple interest rate of 5% p.a.
· We pay our providers 40% of the previous month and 60% of the current month, all thanks our ability to negotiate.
· In conclusion, we want to say that our company need to be well managed and control, in fact with our good job we have all time good at the end of the year thanks to the meticulous management calculations.
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