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A Report on New product – Jute shopping

Student name: SAM SAM – Student ID: 19123456

Course: BUACC2613
Course Lecturer: Dr. Daniel Nguyen
Table of Contents
1. Product design ..................................................................................................................................... 2
2. R&D cost ............................................................................................................................................. 3
3. Cost per unit......................................................................................................................................... 4
4. Direct material cost of January ............................................................................................................ 7
5. Cost of goods manufactured of January .............................................................................................. 7
6. Cost of goods sold statement for the month of January ....................................................................... 8
7. Product price ........................................................................................................................................ 9
8. Downstream activities and costs.......................................................................................................... 9
9. Income statement for the month of January......................................................................................... 9
10. Reference list ..................................................................................................................................... 10
 1. Product design:

The product being selected is jute shopping bag which is made

from a strong organic fiber called jute, extracted from the bark of
white jute plant.

I decided to choose jute shopping bag manufacturing business as I significantly concern about
the impacts of plastic shopping bags upon the environment. Jute bags have outstanding
characteristics over other eco-friendly bags as Jute fabric is a natural renewable resource that is
biodegradable and compostable and surprisingly cheap (Albury Enviro Bags News, 2015). In
addition, manufacturing jute bag on a small scale is likely to be profitable as it does not require
high-end technology for manufacturing. Its light-weight, high durability and softening nature
makes it easily available in markets.
The global jute bag industry is growing and projected to reach a value of US$ 3.1 Billion by
2024 (IMARC Group, 2019). Australian government’s ban on plastic bag uses, the global
increasing concerns on environmental problems, followed by the shift of demand from
traditional synthetic/polypropylene items to natural ones and awareness of the importance of
‘Green Business’ among the consumers opens an opportunity for marketing jute shopping bag in
Australian markets (Akter, 2015).
Jute bag might be the solution for environmental that humanity is facing. Jute fabric can be
naturally break downed and ultimately contributes to enrich soil structure. In addition, planting
jute plants is beneficial as it does not only provide the renewable source of fabric but also
consume large quantity of Greenhouse gas emission (Mohanty, Misra, & Drzal, 2002).
 2. R&D cost
Date Activity Duration

10/09/19 Product decided 2 hours

12/09/19 Product named 15 minutes

14/09/19 Product design and 2 hours

functions

Total 4 hours and 15 minutes

R&D wage will be $25 per hour, which means that total R&D is $106.25 (Payscale, 2019).

3. Cost per unit:

A) Direct materials:
For one unit of jute bag, the following materials are required.
• Jute fabric: Each Jute tote bag (35*39*15) require 1meter of jute fabric which
will be purchased at $3.299 per meter (Cleverpatch, 2019)
• 3 meters of threads for stitching purpose as the price of $0.0038 per meter which
is equaled to $0.011 (Sewing Machines Australia, 2019).
• 0.72 meter of webbing for two handles each bag at the price of $1.12 per meter,
which is $0.818 per unit (Voodoo Rabbit Fabric, 2019).
=> Total Direct material cost per unit is $4.128
 Amount in Recipe
Direct material Cost ($) (meter) Cost ($)

Jute fabric 32.99 1 3.299

Threads 5.30 3
0.011

Webbing 1.12 0.73 0.818

Total DM per unit 4.128

B) Direct labor cost per unit:

The process of producing jute bag will be minimized into three main steps which are Fabric cutting,
assembling and handle sewing and bag cleaning (Step Toward Business, 2019).
Although our business involves the help of heavy industrial machines, the manpower remains
crucial. With the help of fabric cutting machine and industrial sewing machine, the direct labor hour
is limited into minutes. For fabric cutting process, each bag is required 2.5 minutes for measuring
and cutting while 2.5minutes are required for assembling and sewing handles. Bag cleaning will
take labor 30 seconds to finish. In Australia, an average paid rate of $20 per hour will be given for
each seamstress (Payscale 2019).

Hour per unit Rate $

($20 per hour)
Direct Labor per unit Minutes per unit produced
Fabric measuring and
cutting 2.5 0.042 0.8333333
Assembling and handle
sewing 2 0.033 0.67
Bag cleaning 0.5 0.008 0.17
Total direct labor cost
per unit 5 0.083 1.67
 C) Manufacturing Overhead cost per unit:
In order to estimate the Manufacturing overhead cost of my business, the annual overhead cost and
estimated level of activity must be determined. Total estimated annual overhead cost is calculated by the
total of fixed and variable costs per month. For my business, variable costs will be combined in one
category which is utility. Utility is estimated as $2.0 per square foot of factory (Schimd 2019). As 500
square foot area is required for my business, an estimated $1000 of utility cost will be taken into account.
In addition, fixed costs comprise of machinery, factory rent and supervisor salary. For machinery, it is
estimated that our business will incur 6 cutting machines with the price of $379 each (Sewing Machines
Plus, 2019). Industrial sewing machines are at the price of $1,399 each (Sewing Machine Warehouse,
2019). Manufactory rent will be $1,500 per month while supervisor salary is $4,160per month (Spacer,
2019).

Manufacturing overhead Monthly Cost ($)

Variable cost Utilities 1,000

Fixed cost Machinery 9,269

Manufactory rent 1,500

Supervisor salary 4160

Total 15,929

Predetermined Overhead rate = Total estimated annual OH cost/estimated level of activity.

In dollar ($)

Total Manufacturing overhead 15929

Annual Direct labor hour 31200

Predetermined oh rate 0.5105

MOH cost per unit 0.0425

 In dollar ($)
DM per unit 4.128
DL per unit 1.67

MOH per unit 0.043

Total per unit product cost 5.837

4. Direct material cost of March

March
Beginning inventory $5000
Direct materials purchases (40,000 units)
Material available

???: Ending inventory 5000

Direct materials used

5. Cost of goods manufactured of March

Schedule of Cost of Good Manufactured of March

Direct materials used $

Direct labor
OVH applied (40,000 units) (list in detail)
Manufactured Cost Added
Opening WIP $40000
Total Manufactured Costs
???: Closing WIP 40000
Cost of Goods Manufactured
 6. Cost of goods sold statement for the month of March

Cost of goods sold statement for the month of March

Beginning inventory 5000
Direct materials purchases (40,000 units)
Available
???: Ending Inventory 5000
Direct materials used
Direct labor
OVH applied
Manufactured Cost Added
Opening WIP 40000
Total Manufactured Costs
???: Closing WIP 40000
Cost of Goods Manufactured
Opening Finished Goods 40000
FG available for sale
???: Ending Finished Goods 40000
Cost of Goods Sold
 7. Product price
To determine the price of my product, I am using the cost-plus pricing where cost base is full-
absorption manufacturing cost as it includes all costs incurred during the manufacturing process. The
price is equaled to the cost per unit plus markup percentage multiplied by the cost. Targeted mark-up
percentage will be 20% while the cost of per unit is $5.837, which is calculated above.

=> Price = $5.837+ (20% * 5.837) = $7

8. Downstream activities and costs

The nature of our business, which is manufacturing is likely to involve downstream activities such as
marketing, distribution cost. Distribution cost would include costs of storing, handling and shipping
product while marketing costs are the costs of advertising, promoting and selling product.

As for marketing, a targeted of 1.5% of annual sales would be spent (Hessinger, 2018). The per day
manufacturing capacity is calculated as 485 units which means that annual sale is approximately
$800,000. As a result, $1000 on marketing will be spent per month digital marketing and advertising,
including advertising on Google, social media platforms such as Facebook, LinkedIn ad campaigns,
and email marketing (Deskin, 2019). As our business is aiming at minimizing uses of plastic bag
while changing shopping behavior of consumers, no physical form of advertising such as paper flyer
will be issued.

Distribution cost would involve direct selling expenses, product packaging expense, warehousing,
shipping and delivery and commercial and accountancy. Direct selling expense will include salary of
sales personnel, which will be $3,300 a month (Payscale, 2019).
 9. Income statement for the month of March

Income statement for the month of March

Revenues

Cost of Goods Sold

Gross Profit

Administration expenses

EBIT

Tax expense

Net profit

10. Reference list:

• Akter, R. (2015). Jute goods exports to Australia: an analysis of market potentials for
Bangladeshi jute products. International Journal of Management & Business Studies,
5(2), 21-30.
• Albury Enviro Bags News. (2015). Retrieved from
https://www.alburyenvirobags.com.au/alternative-green-shopping-bags-in-
australia-a-green-shopping-bag-selection-guide/

• Cleverpatch. (2019). Natural Jute roll. Retrieved from:

https://www.cleverpatch.com.au/products/by-product/naturals/textiles/natural- jute-
roll-10-metres?fbclid=IwAR2hqaqtagCGspfACrLGo8Xa6D3htlE4cA-
fFeEmJjANDpoC8JtF1eb8dkU
• Deskin. (2019). How much should Manufactures Budget for Marketing in 2019?
Retrieved from: https://www.webstrategiesinc.com/blog/how-much-should-
manufacturers-budget-for-marketing?hsCtaTracking=1805fb21-7356-4ec5-94b4-
e8cd7eb25f55%7C2551ca46-3dfb-47e1-8212-9b769c5596b5
• Hessinger. (2019). How Much Do Small Businesses Spend on Advertising and
Marketing? Retrieved from: https://smallbiztrends.com/2018/04/much- small-
businesses-spend-on-advertising-marketing.html
• IMARC Group. (2019). Jute Bag Market: Global Industry Trends, Share, Size,
Growth, Opportunity and Forecast 2019-2024. Retrieved from
https://www.researchandmarkets.com/reports/4775727/jute-bag-market-global-
industry-trends-share.
• Mohanty, A. K., Misra, M., & Drzal, L. T. (2002). Sustainable bio-composites from
renewable resources: opportunities and challenges in the green materials
world. Journal of Polymers and the Environment, 10(1-2), 19-26.
• PayScale. (2019). Average Research & Development (R&D) Manager Salary in
Australia. Retrieved from:
https://www.payscale.com/research/AU/Job=Research_%26_Development_(R%
26D)_Manager/Salary
• PayScale. (2019). Average Salesperson/ Salesman/ Saleswoman Hourly pay in Australia.
Retrieved from:
https://www.payscale.com/research/AU/Job=Salesperson_%2F_Salesman_%2F
_Saleswoman/Hourly_Rate
• Schmid, G. (2019). Costs business owners need to know. Retrieved from:
https://www.fundera.com/blog/business-startup-costs.
• Sewing Machine Australia. (2019). Bag Closing Thread 6 Ply White. Retrieved from:
https://www.sewingmachinesaustralia.com.au/shop/buy- accessories/sewing-
threads/bag-closing-thread/bag-closing-thread-6-ply-white-box-of-
100.html?fbclid=IwAR0eqU6vtPHP2kOuikMpCQk9pnlwhHobbphBvT8ES1y43W
PPzYdQt_FbVDo
• Sewing Machine Warehouse. (2019). Juki DDL-8700 Industrial Sewing Machine.
Retrieved from:
https://www.sewingmachinewarehouse.com.au/product.asp?id=1328&pid=110&f
bclid=IwAR2hqaqtagCGspfACrLGo8Xa6D3htlE4cA- fFeEmJjANDpoC8JtF1eb8dkU
• SewingMachinePlas.com. (2019). Ricoma iKonix 6, 8 or 10 inch Cutting Machines.
Retrieved from: https://www.sewingmachinesplus.com/ricoma-kc-
series.php?fbclid=IwAR2me8cYiEes7NQH9e4SfqRfHmVSbs8CnmyELMNUPeu3
5ktegERgxj-yG0c
• Spacer. (2019). Small Factory for rent. Retrieved from:
https://www.spacer.com.au/storage/small-factory-for-rent
• Step Toward Business. (2019). Jute bag manufacturing business. Retrieved from:
https://www.steptowardbusiness.com/jute-bag-making-small-manufacturing- business-
 plan/
• Voodoo Rabbit Fabric. (2019). Polypropylene Webbing - 25mm (1") Forest Green.
Retrieved from: https://www.voodoorabbit.com.au/25mm-forest-green- polypropylene-
webbing.html?fbclid=IwAR23gtUYAv-B2490-
m0fjquX4WPBVOIkODHgoNmhYeUjbKwHo44COGP65aM