Harrington: Cost and Variable Costs

1062 WordsMar 10, 20135 Pages
Harrington Case Analysis Issue Stagnant sales performance has caused Harrington Collection to explore new avenues for improved performance, including the launch of a new active-wear line. Recognizing an emerging trend of low price and rapid style turnover in the women’s apparel market, along with tremendous growth in the active-wear segment, Harrington needs to work strategically to capture this profitable market opportunity. After careful analysis, it was determined that Harrington should implement a new active-wear line. Financial Analysis While doing the financial analysis it is important to calculate the unit price first. Using the wholesale price rather than the retail price, the calculated unit price is $95. Next, we…show more content…
In addition, by outsourcing the production in Mexico, it can not only decrease costs, but also provide the possibility to respond more swiftly to changes in demand. With this in mind, it is strongly suggested that Harrington launches a new active-wear line. Appendix A Start Up Costs: | | | Start-up Costs (Pants Plant) | $ 1,200,000 | | Start-up Costs (Hoodie and Tee-shirt Plant) | $ 2,500,000 | | Equipment (Pants Plant) | $ 2,000,000 | | Equipment (Hoodie and Tee-shirt Plant) | $ 2,500,000 | | Launch-PR, Advertising | $ 2,000,000 | | Fixtures for Company Stores | $ 2,500,000 | Total Start-up Costs | $ 12,700,000 | Annual Depreciated Start-up Costs | $ 2,540,000 | | | | Annual Ongoing Operating Costs-Fixed: | | | Overhead (Pants Plant) | $ 3,000,000 | | Overhead (Hoodie and Tee-shirt Plant) | $ 3,500,000 | | Rent (Pants Plant) | $ 500,000 | | Rent (Hoodie and Tee-shirt Plant) | $ 500,000 | | Management/Support | $ 1,000,000 | | Advertising | $ 3,000,000 | Total Fixed Operating Costs | $ 11,500,000 | | | Direct Variable Costs: | Hoodie | Tee-shirt | Pants | | Sew and press | $ 3.25 | $ 2.00 | $ 2.85 | | Cut | $ 1.15 | $ 0.40 | $ 0.70 | | Other variable labor | $ 3.20 | $ 2.40 | $ 3.05 | | Fabric | $ 9.10 | $ 2.20 | $ 7.50 | | Findings | $ 3.85 | $ 0.50 | $ 2.30 | Total Variable Cost | $ 20.55 | $ 7.50 | $ 16.40 | | | | | Direct variable costs translated

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