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Auroa Textile

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Submitted By cnelly911
Words 486
Pages 2
Zinser
Cost = $8.05 mil + $200,000 (installation costs) = $8.25 mil
Life expectancy = 10 years with straight line depreciation
No value after ten years, but option of sale on open market for $100,000.
Sunk costs = $15,000 (marketing research) + $5,000 (engineering tests)
Note: Price of Zinser goes up 5% a year. Ring-spinning process is more expensive and slower (3 to 5 times), but makes better quality yarn.
Training cost = $50,000 during installation year
Reduces power and maintenance costs  savings of $0.03/lb.
SG&A expenses = 7% for both machines
Cost of costumer returns = $0.084/lb.

Industry forecast: 2% increase in growth, increase in prices and costs at 1% inflation rate.
Buffer stocks are necessary to hedge against the uncertainties surrounding cotton’s timely delivery and problems with spinning machine.
Replacement hurdle rate = 10%

Sales Volume-500,000
500,000* 5% decrease = 475,000 (new sales volume)
How to compute:
• Pounds Shipped o the new sales volume of 475,000 x 52 weeks= volume for a year o 2% increase in growth every year which is how I forecasted my projections o (475000*52)*1.02 o 24,700,000*1.02=25,194,000
• Avg. Selling Price Per lb. o Starting price 1.0235  10% increase o 1.0235* 1.10= 1.1259 o Increase by 1% inflation 1.1259* 1.01=
• Conversion Cost Per lb. o 0.43* 1% increase in inflation
• Avg Raw Material per lb o Given in the consolidated income statement o 0.4509* 1% increase o 0.4509*1.01=0.4554
• Net Sales o Pounds shipped * average selling price
• Raw Material Cost o Pounds shipped * average raw material cost
• Cost of Conversion o Pounds shipped * conversion cost
• Gross Margin o Net sales – both expenses
• SG&A Exppenses o Net sales * 7% (given)
• Depreciation & Amortization o Cost of the new machine 852,000,000 / 10 years o 825,000
• Operating profit o Gross

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