Woodworker's Journal 1983-7-1, страница 16

Workshop Income (Cont'd)

But hold on, there's no way that one dealer in antique furniture can move that quantity. Bill will either have to find other markets for step-chairs or he will have to diversify his product line and meet his volume needs by producing other items. Furthermore, even if Bill could find additional market outlets for step-chairs, that $40,000 gross isn't as much as it sounds.

Let's pursue the matter of step-chair cost a bit further. Here are Bill's costs for 400 of them, based on the cost figures we calculated in the November/December issue:

Labor (5 hours per chair @$10 per hour) $20,000.00

Materials (400 chairs @$21.45) 8,580.00

Operating expenses 1,970.00

Replacement of tools and truck, per year 3,600.00

Miscellaneous 2,400.00

Profit (12% on $18,000 investment) 2,160.00

Total $38,710.00

Subtracting $38,710 from $40,000 gross income leaves $1,290, but there are those new business expenses, remember, the ones that didn't apply when Bill was doing woodworking as a sideline? Bill figured those at $10,000 and came out $8,710 in the hole in his calculations.

To put it another way, Bill now has to get $121.78 per step-cnair ($48,710 divided by 400) in order to break even on costs, make $10 an hour in wages and get a yield of 12 percent on his $18,000 investment. He thought it doubtful that he could charge that much more. So raising the price obviously was not the answer.

Assuming for the moment that Bill can sell any quantity of step-chairs for $100 each, but can sell no step-chairs for $121.78, he has to find a way to get the cost per chair down

to a price at which they will sell, preferably down to $100 or less.

One way to cut costs would be to reduce the expenditure for labor that goes into each chair. How could that be done? One way would be to reduce the hours required per chair. If he builds them 20 at a time instead of four at a time. Bill figures, it will take only four hours per chair, but he'll need more shop space than he has now. Besides, that reduces the cost per chair by only $10, to $111.78...not enough.

Another way to reduce labor costs would be to hire someone at $5 an hour to build step-chairs. At four hours per chair at $5 per hour the cost per chair comes down to $91.78, but that gets Bill into the role of employer, which adds $10,400 to Tabor costs, which reduces Bill's income and also has implications for the amount of investment capital and working capital required. Even more step-chairs will have to be made and sold if Bill is to get out of the business what he needs.

Can Bill sell that many chairs? Where? At what price? Should other items in addition to chairs or instead of chairs be considered in the product line? Those will have to be marketed. Should he sell his products retail instead of wholesale?

Suddenly Bill is confronted with a lot more alternatives, which we will explore in future issues, together with a big question we haven't dealt with at all yet. Bill's dream was to do woodworking for a living. Now, with all these chairs to sell and with the probability of having at least one employee to manage, just now much woodworking is this business going to allow Bill to do? Will he be the full-time woodworker that he wants to be or is he going to have to be a fulltime business man who must be content with watching over the woodworking and worrying about how it gets done and sold?

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