Dear Mr.. Gibbering, After a careful review and analysis of your annual costs and income, our team has some suggestions on how to best make a profit for your business. It seems that the prices you are charging for your products too low to cover all of your costs. Since the main constraint in your business is your time, we determined a rate that you should charge per minute of your time in order to make a profit. We then came up with a price per piece that we suggest that you charge according to how much time it takes for you to make the product ready to sell.
Our suggested pricing is as follows: These prices were determined based on your charging $. 76/minute, which would allow you to make $55,000/year. That would cover all of your costs ($50,391 ‘year) and allow you to make your truck payments ($2000/year). It will also give you a little cushion of net income. This will also include the $25000 that you’d like to earn each year. Additionally, we think that your willingness to hire part-time help for the finishing work could free up more of your time for blowing glass, to make you even more money.
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If you price the items as we have suggested above, then you will earn 1 AAA/week. You would pay out roughly $38/week for part-time labor at the rate of $5/hour, 7 hours per week, taking away $1 ,375/week. Since that would free up that amount of time for you to blow glass, you could make about 28 extra Wrapped Tumblers per week, since this is your most popular item. At $18/piece you would earn an extra $504/week, minus pay for part-time help would bring you down to $494/ week and $19,760/year.
Even if your hired help does not work as quickly and efficiently as you and despite the fact that you would have to train them, any additional income that is made is purely profit to you, since your expenses are cover already by charging higher prices for your product. It seems that you could make these extra items at no additional cost by using your clean scrap. This would save on that amount of waste that is produced each week, as well. You should still have enough culled to use in the following weeks batch. Producing additional product could also help alleviate the two week backlog that you are experiencing.
All data and calculations have been included for you throughout the report. We sincerely hope that this information is helpful to you when making these important decisions for your business. Please don’t hesitate to contact us with any questions or concerns in regards to this information or if you have questions regarding future business plans. Regards, Your team The Absorption Income Statement has been created for you to demonstrate how your your expenses exceed your total revenue, resulting in lost net income. Throughout this report, we will make suggestions as to how you can improve your total net income by reducing expenses.