BFA612 - Management Accounting: Decision-Making for T-Shirt Printing

This report provides a comprehensive analysis of management accounting and decision-making within a T-shirt printing business context. It examines production and manufacturing costs, including screen printing, transfer pricing, and direct-to-garment printing. The report analyzes profitability based on different order sizes, highlighting the impact of setup costs and pricing strategies. It also evaluates the feasibility of suggested sales targets and proposes a pricing strategy that balances profitability and customer acquisition, considering both large and small orders. The analysis emphasizes the importance of a diversified customer portfolio and differential pricing to ensure long-term financial stability. The report concludes with an initial investment analysis, providing a holistic view of the financial considerations for starting or expanding a T-shirt printing business.

Running head: MANAGEMENT ACCOUNTING AND DECISION MAKING
Management accounting and decision-making.
Name of the student:
Name of the university:
Author Note:

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Executive Summary:
Table of Contents
1. Production and manufacturing costs:.....................................................................................2
2. Analysis of profitability:.......................................................................................................5
3.1 Executive summary:.............................................................................................................6
3.2 Proposed pricing strategy:....................................................................................................6
3.3 Feasiablity of suggested sales by Robinson:........................................................................8
3.4 Initial Investment analysis:..................................................................................................9

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1. Production and manufacturing costs:
The production costs related with manufacture of screen-printed T-shirts generally
depends upon various factors such as Market size, printing machines used in production and
expected quality of the product. The manufacturing costs mainly consists of materials like
silk screens, silk printing ink, T-shirts, overhead related to infrastructure required such as
electricity, lights, floor space and more. The scale of manufacturing cost depends upon size
of the job because printing of T-shirts is job-oriented business. It means that for each job
order, there will be different design and specification of the image going to be printed on the
T-shirts. Therefore, it is quite important to have a large quantity oriented job orders in order
to have more profit in less setup costs. The set up costs usually consists associated with
preparing designs and creating the screens. It will be higher if there is large no. of orders with
smaller quantities and it will be lower in small no. of orders with larger quantities. Preparing
designs and creating designs generally are time-consuming task and requires more time
resulting into increase labor costs. The tasks of screen-printing requires lots of water and
water based inks. The use of toxic based inks is the important aspect to see when it comes to
produce environment friendly T-shirts or use of that toxic inks in water. The toxic nature of
ink will pollute water and will attract major concern of environmental agencies. Sometimes
the process of Screen-printing requires an expertise in order to process a high quality printed
T-shirts that will have a long lasting printing on it. A professional should be employed to
have screen-printing for a durable printed T-shirts.
The costs associated in relation with the infrastructure one must have in order to run this type
of business are namely such as electricity, appropriate floor space, proper lighting, space for
dying of T-shirts, etc.

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The overall production and manufacturing costs depends upon the type of machine
used and type of production process adopted in printing process. Followings are the points to
analyze the costs and their significance in overall cost structure of the product:
1. Screen-printing: It also termed as stencil method of T-shirts printing. In this, design
were printed through use of a fine mesh on fabrics. The mesh allows the colors only
to those parts, which has been mentioned in the design. Only one color can be applied
at a time stating it to a time consuming task. This can result into extra employee cost
to the employer. This printing process requires following materials such as screen,
brushes, and photo emulsion kit, transparent material suitable to print the design,
light, water, high quality inks, and squeegee. The cost structure mainly consists of
artwork to be printed on T-shirt and the fabric on which design has to be processed.
This method is generally automated in nature but requires labors to handle the whole
process. The design required on the T-shirt plays a key role in cost determination. The
more the design would be, the more cost it will result into. Other costs such as rent,
insurance, power, lease of equipments, and wages for the employees should also be
taken into consideration. The screen-printing process takes less time in printing as
compared to the time spend on preparing the designs and creating the screens. This is
actually termed as setup costs in printing process. It is high when there is variety in
quantity demanded in relation to design of the T-shirts.
2. Transfer pricing: It is the process in which the design first printed on flexible non-
textile surface then after the whole design is transferred to a textile. This process is
questionable in the terms that why a person should not use direct printing instead of
transfer printing. The reasons behind it are that it is useful in the production of repeat
orders with small quantity. The storage costs and stock volumes are relatively lower
as compared to other screen-printing process. The major advantages of the transfer

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printing is that it requires less labor force as compared to other methods of screen
printing. Conventional printing includes high employee costs because most of the
printing process is manual in nature while in transfer printing, it requires two
operators to handle the whole tasks. This no. can be decreased to one if there is
multiple machines operating in the process. In digital printing, designs are directly
printed on the fabrics. This result into no screen graving costs associated with other
screen printing process. Less ink use in the printing process results into a decrease in
ink uses.
3. Direct to garment printing (DTG): It is the newest and most acceptable method for
the new comers. It works similar to the office printer. It does complex artwork that is
considered difficult in other printing processes. Because of its specialized in color
mixing, DTG can finish the work in detail and it can offer small details. It offers low
setup costs but usually takes longest to produce. That why it is feasible for small
orders. The DTG printers are relatively costly as compared to other printing
techniques. So, a huge amount of investment is required in order to run the printing
process.

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2. Analysis of profitability:
From the calculation of profitability of the three-year sales forecast, it can be
concluded that the order size of having 500 units is more profitable as compared to other
order size and it is economically more feasible. However, the large orders with relatively less
cost burden as compared to other order size but it has low profitability. The reason behind
such thing is lower price charged for each unit as compared to other alternatives.
The order size of 40 units has relatively higher cost of goods sold as compared to
other alternatives. The main reason behind this is increased setup costs and design costs. In
T-shirt printing business, Setup costs and design costs are generally depends upon the number
of orders made in each category. Number of setups is higher in the order size having 40 units.
Thus, the overall costs is also high.

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3.1 Executive summary:
This section of the report shows the pricing strategy adopted by the company for
different categories of customer such as customers with large and small orders. The report
also indicates impact of cost on the profitability statement of the customer group. The
profitability is largely dependent on the price being quoted for different customer groups. The
cost of order from group with small orders is relatively higher than the cost of order from
customer group with large orders but the profitability is low for customers with large orders.
The main reason behind this is mainly relatively low price charged for large orders as
compared to other customer groups. The profitability is also dependent upon the investment
made by the company. The capital outlay plays a key role in determining the profitability of
the project. In this section, profit feasibility statement has been provided with systematic
allocation of cost relative to the order size and through analysis has been made regarding
behavior of cost according to order size.
3.2 Proposed pricing strategy:
The proposed pricing strategy as mentioned and adopted by Robinson is mainly
dependent upon the order size. Order size plays a key role in determining the price to be
charged from each order because in screen printing business, the orders from every customer
is different and it various in design and quantity. Therefore, differential pricing is generally
feasible where there are large varieties in the nature of the orders being ordered by each
customer group. Robinson has decided to charge different prices for each customer group
based on their specifications. In proposed strategy, Robinson wanted to secure sell in terms of
large orders as well as small orders. However, the price charged for small order should as low
as it is possible to do so. For this purpose, a profitability statement has been prepared to show

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the effect of change in order size on the cost of the product and the effect of expected price to
be charged on the product.
The focus of the business should not be only on customers with large orders as it will
be feasible for a period of time but it can be turn into warning signal to the business and the
profitability will come into question if the company losses any of the large orders from its
hands. Therefore, it is advisable to have a portfolio having mixture of both customer group,
as it will secure the profitability status of the business even if the company losses its large
orders.
Selling products in the niche market secures profit for the company and it is help in surviving
in recession period because in recession period every corporates will be engaged in tightening
their pockets to survive in the recession period. Therefore, it may possible that the company
may lose its large sized orders resulting into a sudden fall in the sales and declining
profitability of the company. The segment of small sized ordering customer groups generally
do not have competition from big companies. Therefore, there is an opportunity of having
less competition and growth perspective if company focuses also on the small orders. The
owner is trying to secure the job orders from small customers. The difference in the price
charged by the company is mainly dependent upon the quantity order by each customer
groups. The bigger the order size would be the lower price would be charged for. The main
intention behind this strategy is to secure the portion of profit that flows from smaller
customers. Small customers are generally large in numbers but total quantity ordered is more
than the orders from big customers. Small customer group generally consists of sixty percent
of total revenue of the company. This means that even they are having small orders; still they
contribute towards major part of total revenue of the company. Therefore, the company
should focus more on making profits from the company.

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As seen from the calculation done above based on certain assumptions, the
profitability of medium order size consisting of 500 units is more as compared to the other
order size. This is because of number of orders that can be placed if the order size is 500
units. The company should focus on differential pricing strategy based on the job order. For
the orders over and above 500 units, the price range should be in between $ 5 to $ 4.5 and for
the orders above 1000 units, price should be in between $ 3.5 to $ 4 per unit. This will result
into low cost burden to the customer as well as moderate profitability for the company.
3.3 Feasibility of suggested sales by Robinson:
The sales figures suggested by Robinson based on the numbers of employees is
feasible depending upon number of factors such as market demand, competition and
marketing policy of the company. As it can be observed that the sales has been increasing due
to extra number of work force employed. This change in sales due to change in work force
reflects that the employees will gather customer for the company. These customers may order
large quantities or small quantities depending upon their requirements. However, extra work
force that have been employed has direct relation with the growth in sales. It means that the
employees are responsible to increase the sales to the extent it is possible. As suggested in the
question, Mr. Robinson will get contracts from large orders from few customer groups and
the employees are responsible for the crowd which usually orders small sized orders but more
profitable to the company. The strategy to attract small orders is to reduce that the company
bears usually when there is no big orders are in the hands of the company resulting into
unproductive work force and overhead. The competition from local players is not so high that
it will destroy revenue for the company. The employees do the whole process of increasing
the sales by meeting those persons who usually makes demand for small orders. The
employees can find new market opportunities and customer segment for the company to

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enhance values for the company. The employment of extra work is mainly intended to secure
more small customers whose job has been mainly rejected by others.
Therefore, from above discussion, it can be concluded that the strategy to increase
sales revenue by employing extra work force will be feasible to the extent when there is
sufficient demand in the market. Otherwise, said strategy will not give expected result and
will hamper the profitability status of the company.
The alternative approach for above strategy should be employing one to two
employees with use of Transfer printing machine in the production process instead of using
DTG printers. In transfer printing, there is less requirement of work force as compared to
other T-shirt printing process. It requires only one person to handle the machine and so
second person will be engaged in securing sales for the company. It will results into smaller
employee costs and more productive production process.
3.4 Initial Investment analysis:
As the screen-printing requires huge cash outlay towards different elements that is
necessary to run the screen printing business properly. The initial investment will be used to
purchase screen-printing machines, to acquire space for the production process and such
other things that is essential to run the business smoothly. As mentioned, Mr. Robinson has a
capital outlay of $ 150,000, which is to be required to conduct the business of the Screen-
printing. Although major part of investment will be directed towards purchase of assets and
acquiring space for production process but still a significant amount of working capital is
required to meet daily requirements of business such as ink cost, labor costs and material
costs. At first year, the capital outlay is sufficient to run the business because all the costs that
are necessary to run the business will be settled within above mentioned capital outlay.
However, from the 2nd year onwards, when the business will be on its expansion then there

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will be need of another financing because expansion will require additional equipment and
machines, which will increase additional cost to the company.
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