Investor Report for Paw Pets Manufacturing

Investor Report for Paw Pets Manufacturing Introduction Paw Pets Manufacturing creates collars, leashes, and harnesses that pets love to wear, and their owners love to show off. Our products are trendy for the fashionable pet, functional for the active pet, and comfortable for every pet, all at an affordable price. We are a relatively small company with four employees, hoping to grow our business and reach pets worldwide. Our vision is to provide a product that appeals to pets of all sizes, ages, and activity levels. Ideally, we would like to build our business and have a presence in every brick-and-mortar store in the Northeastern region of the U.S. and online retailers nationwide in five years. In ten, we want to extend our online reach worldwide and give back to animal shelters along the way. Purpose The purpose of this report is to provide current financial information to inspire potential investors to assist us with our company, ultimately enabling us to grow and deliver our products to a larger market. We hope to convey our passion for creating these items. With the help of investors and stakeholders, we can reach our goal of delivering outstanding and affordable products to more pets and their owners. Methods and Approach We used a job order cost system to show direct materials, direct labor, overhead, and period costs. We also classified variable and fixed costs to illustrate precisely what goes into producing each item and expenses we incur regardless of production. Because we are a small company, this system effectively displays any changes that need to be made for better efficiency and higher profitability. This system's detailed information ensures our firm closely adheres to Report for Paw Pets Manufacturing the AICPA Code of ethics by using our time, resources, reporting, and managing finances morally and ethically. Our company takes the principles of professional conduct very seriously. We want to assure all future investors that our company understands the importance and has zero tolerance for violating these principles. Financial Strategy Costing System The job order cost system is used within our company because we are small and the items we produce are similar. This system enables us to see where every penny goes. If an inefficiency should arise, we can quickly see the issue and remedy the solution. The details provided also allows us to shop for more price conscience materials, increasing our overall profitability. Lastly, we can see the labor hours used in creating these products to ensure production runs as it should and materials and time are not wasted. An alternative system considered was the process cost system. Process cost system provides details on a larger scale, such as by departments, and is more suited toward more extensive companies. This issue with this system and our company is that while we would discover inefficiencies, it would be over a more extended period than we deem reasonable. The research needed to find the problem and remedy it under the process cost system would be costly to our investors and stakeholders. We value our investors and stakeholders and their contributions; we want to guarantee we make the most of every cent. Selling Prices The selling prices we used for this first month are as follows: Report for Paw Pets Manufacturing · Collars… $20.00 each · Leashes… $22.00 each · Harnesses… $25.00 each We selected the prices to be competitive in the market as a new brand and pique the interest of pet owners. We conducted a cost-volume-profit analysis, seen below, to assess the correlation between selling price, sales and production volume, costs, expenses, and profit. (Warren & Tayler, 2020) Market research determined with these prices, we could expect to sell thirty collars per day, twenty-eight leashes per day, and twenty-five harnesses per day. We considered other costs, but the amount expected to sell per day decreased as the prices increased. We opted to increase sales with a lower price, ultimately hoping for a more significant profit. Contribution Margin Milestone Two - Contribution Margin Analysis COLLARS LEASHES HARNESSES Sales Price per Unit Variable Cost per Unit $ 20.00 9.10 $ 22.00 12.10 $ 25.00 14.60 Contribution Margin $ 10.90 $ 9.90 $ 10.40 The contribution margin shows how much is left from the sales price after producing the item. It is calculated by adding all materials used in each item, then subtracting that total from the sales price. Collars would have $10.90 leftover once the $9.10 cost per unit was taken from the sales price of $20. A leash would have a $9.90 contribution margin once the $12.10 cost per Report for Paw Pets Manufacturing unit was taken from the $22 sales price. Lastly, a harness would produce a $10.40 contribution margin once the $14.60 cost per unit was subtracted from the $25 sales price. As you can see, each item has a pretty significant portion of the sales price leftover. Target Profits Milestone Two - Break-Even Analysis COLLARS LEASHES HARNESSES Sales Price $ 20.00 $ 22.00 $ 25.00 Fixed Costs $ 4,028 $ 4,028 $ 4,202 Contribution Margin $ 10.90 $ 9.90 $ 10.40 Break-Even Units (round up) Target Profit 369.57 $ Break-Even Units (round up) Target Profit Break-Even Units (round up) 300.00 406.90 $ 397.09 $ 500.00 415.44 400.00 404.01 $ 447.31 $ 600.00 500.00 452.08 $ 467.51 650.00 466.51 Based on contribution margin and fixed costs, the break-even analysis indicates how many units need to be sold for our revenues and expenses to be equal. (Warren & Tayler, 2020) The break-even point is calculated by adding our fixed costs and dividing them by the contribution margin. It is important to note that if our fixed costs increased, so would our breakeven point. The same thing applies if our fixed costs were to decrease, so would our break-even point. For our selected prices, with no profit, we would need to sell approximately 370 collars, Report for Paw Pets Manufacturing 407 leashes, and 404 harnesses to break even within our company. The goal is, however, to make a profit. We selected two target profits for each item and calculated the number of units to sell to reach these goals. We would need to sell 397 collars to achieve a $300 target profit and 415 collars to gain a $500 target profit. For $400 profit on leashes, 447 would need to be sold, and 468 sold to reach the $600 target profit. Lastly, a $500 target profit for harnesses would require 452 sales and 467 sales for a $650 target profit. This analysis determined that each month, our first three weeks of sales would cover the cost of producing the items plus our fixed costs, leaving the fourth week’s sales for profit. Financial Statements Statement of Cost of Goods Sold Milestone Three - Statement of Cost of Goods Sold Beginning Work in Process Inventory Direct Materials: Materials: Beginning Add: Purchases for month of January Materials available for use Deduct: Ending materials Materials Used 0 $ 0 20,000 20,000 4,000 $ Direct Labor Overhead Total Costs 8,493 3,765 $ Deduct: Ending Work in Process Inventory Cost of Goods Sold 16,000 28,258 0 $ 28,258.33 Report for Paw Pets Manufacturing After our first month of business, we calculated the actual operating costs and income earned. At the beginning of the month, we purchased $20,000 in materials and consumed $16,000 or 80% of those materials. This left $4,000 in materials to use in the following month. Our anticipated cost of materials was $9.10 for collars, $12.10 for leashes, and $14.50 for harnesses. Without projected sales per day of each item, our expected material cost for twenty days (five days a week, four weeks) was $19,536. Meaning we used $3,536 less than predicted in materials. Our projected direct labor was as expected at $8,493. For overhead costs, we anticipated $165 in sewing machine depreciation, $750 in rent, $1200 for scissors, thread, and cording, and $8 in price tags, totaling $2,123. So, our overhead was $1642 more than expected. Overall, our actual cost of goods sold was $28,253, $1894 less than expected. This difference is attributed to the overestimated cost of direct materials and the underestimated cost of overhead. Income Statement Milestone Three - Income Statement Revenue: Collars Leashes Harnesses $ 14,400 12,320 12,500 Total Revenue: Cost of goods sold Gross profit Expenses: General and administrative salaries Depreciation Rent Utilities and insurance Scissors, thread, and cording Loan $ $ $ 2,450 165 750 600 $ 1,200.00 550 39,220 28,258 10,962 Report for Paw Pets Manufacturing Total Expenses $ 5,715.00 Net Income/Loss $ 5,246.67 When we conducted our market analysis, we anticipated selling 600 collars at $20 each, totaling $12,000. We sold 720 collars at $20 each by the end of the month, resulting in $14,400. We projected 560 leashes at $22 each, totaling $12,320 in revenue, and that was the amount realized at the end of the month. Lastly, we projected and met 500 harnesses at $25 each, resulting in $12,500 revenue. The total revenue we earned was $39,220, $2,400 more than expected. As previously mentioned, our cost of goods sold was $28,258, $1893.97 less than expected. Our gross profit was determined by subtracting our cost of goods from revenue totaling $10,962, a $4,294 increase over our projected gross profit. Our expenses are fixed costs, so the increase in sales did not affect the price; therefore, our projected expenses were the same as our realized expenses totaling $5,715. When our end-of-month costs are subtracted from our gross profit, we receive our company net income of $5,246.67, a $4,294 increase than anticipated. Overall, the company did better than expected in this month’s net income. Variances Milestone Three - Variance Analysis Data for Variance Analysis: Budgeted (Standard) Budgeted (Standard) Actual Hours/Qty Actual Rate Report for Paw Pets Manufacturing Hours/Qty Rate Labor 800 $ 16.00 900 $ 16.50 Materials 600 $ 9.10 720 $ 10.00 Variances for Collar Sales Variance Favorable/ Unfavorable Direct Labor Time Variance (Actual Hours - Standard Hours) x Standard Rate $ 1,600.00 Unfavorable Direct Labor Rate Variance (Actual Rate - Standard Rate) x Actual Hours $ 450.00 Unfavorable Direct Materials Quantity/Efficiency Variance (Actual Quantity - Standard Quantity) x Standard Price $ 1,092.00 Unfavorable Direct Materials Price Variance (Actual Price - Standard Price) x Actual Quantity $ 648.00 Unfavorable Our company conducted a variance analysis at the end of the month with the following results. We budgeted for 800 hours at $16.00 per hour; however, our collar maker put in 900 hours, and we increased their rate to $16.50 for the added labor. There is a difference of $1600.00 more indirect labor time variance and $450 more indirect labor rate variance. Our company budgeted 600 in raw materials at $9.10, when we hit 720 and the direct material increased to $10. This led to a difference of $1092 more indirect material efficiency and a $648 Report for Paw Pets Manufacturing increase in direct material price variance. These increases are attributed to the collar maker working 9 hours a day instead of eight to meet the increased demand. As a result of the added hours, their salary was also raised. Lastly, our raw material cost boosted, which caused the higher direct material cost per collar. Significance of Variances The variance analysis displays the actual costs associated with our company compared to the forecasted costs of our collars. (Warren & Tayler, 2020) Because all the actual costs surpassed the standard prices, each is considered an unfavorable cost variance. These results have given our company the knowledge that if we continue at this rate, our business will not be profitable. In the future, we would increase the price of each of our items to bring in additional revenue. We want to conduct another variance analysis at the end of next month to see the results of our company's increased prices. With the help of investors, we could use better equipment to cut production time down, making more products in less time. This would help cut out direct labor costs down while increasing our revenue. Additionally, we would be open to shopping the market for more cost-efficient materials that fit our company. Reducing the price of materials would also help boost our overall revenue.