Santa Rosa Jewelry CaseTiffany Nadeau established and

Santa Rosa Jewelry Case

Tiffany Nadeau established and ran a small workshop that manufactured original design quality
jewelry. What began as a hobby for sale in craft shows grew into a small on-line business.
Later, it became a manufacturer for upscale jewelry shops in tourist locations across the
country. To accommodate the greater volume, Ms. Nadeau opened a small workshop in the
historic district of Santa Rosa, California, about 50 miles north of San Francisco. She paid the
following prices for some of her raw material: Gold $1,200 per ounce, Silver $16.50 per ounce.
Gold and Silver prices have been volatile making pricing difficult.
She marketed these creations to gift shops across the United States in batches of 20 assorted
items, for which she charged $2,880 per batch. In turn, the gift shop sold the jewelry at prices
averaging eight times what they paid for the jewelry.
Tiffany had a staff of 11. Ten workers produced the jewelry and Joseph helped with shipping
and cleanup. The production people were paid $30 per hour including benefits and Joseph was
paid $20 per hour for his unskilled labor. Jewelry production varied between a low of 14 and a
high of 26 batches per week, and averaged 1,000 batches per year. Each batch cost $130
(excluding wages) to pack, ship and insure, with Joseph doing all the packing and shipping. It
takes Joe 1 hour to pack and ship one batch. Joe also does other chores, such as sweeping,
vacuuming and cleaning, and he averages 30 hours per week of employment with Tiffany's
workshop, for the 50 weeks per year that he works for Tiffany (with his time split between
packing and shipping of batches and doing weekly cleaning, etc.)
Tiffany spends 10 weeks a year touring the U.S. She attends trade shows in order to sell her
jewelry, and to find suppliers of the components for her products. Her travel, hotel, show fees,
and food costs were $4,200 each week. Workshop rent and utilities cost her an average of
$7,500 per month. Insurance including liability, workers compensation, and unemployment cost
$1,500 per month. Advertising in trade journals and on cost $38,000 per year.
Tiffany works 40 weeks a year at making jewelry, often working over 50 hours per week. She
spends 10 weeks marketing and takes 2 weeks of vacation.
The cost of raw materials averaged $1,900 per batch. It takes Maria and Juanita 20 hours per
batch to manufacture the jewelry. Tiffany does design work, creates the molds for the jewelry
and spends time making the items as needed to meet orders.
Business was brisk, and Tiffany could easily sell every batch that she produced. But she found
herself earning very little money, and after paying her 45% income tax for US and California,
she found herself with almost no money to live on. That led her to ask for your help.
She complained to you that she worked very hard, 50 weeks a year, but ended up broke and
frustrated. Tiffany said that Santa Rosa was expensive even though home prices were less than
half of what they were in San Francisco, some 50 miles to the south. Reasonable homes sold
for $500,000 to $2,000,000. These were about 4 times the price of homes in Croydon, New
Hampshire where her sister lived. With property taxes and insurance, Tiffany thought that she

needed at least $5,400 per month for her mortgage payment. That payment was far beyond
what she can afford. She would need $10,000 per month after tax to afford the mortgage and
have enough left for a moderate lifestyle.
You agreed to analyze her business operations and to advise her how to reach her goal of
earning $120,000 per year, after taxes.
After some calculation and some thought, you conclude that Tiffany has to increase her
revenues, perhaps by achieving greater volume, or perhaps by raising her selling price. Write a
short report directed to Ms. Tiffany Nadeau with your recommendation on how to increase
revenue, supported with a pro-forma contribution income statement which incorporates your
recommendations. You should show all calculations in a Microsoft Excel document. Include a
breakeven analysis for zero profit and a second analysis to achieve an after tax target income of
$120,000 for Ms. Nadeau and provide your conclusion. (The report to Ms. Nadeau can be
written in a Textbox (Textboxes automatically wrap text) in a separate worksheet in the same
Excel document.
Submit one document that contains your calculations, the 2 breakeven analyses, and the report.
Be sure to proofread. A PowerPoint presentation “Santa Rosa Jewelry Hints” has been posted
in this week’s module to get you started.

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14-06-22 | 23:03:59

breakeven analysis; cost and expences= revenues
for 1000 batch sales

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