ARTEMIS SPORTSWEAR COMPANY [HYPOTHETICAL]: COST AND PROFIT ANALYSIS [APPLIED RESEARCH PAPER]
Artemis Sportswear Company [hypothetical] has experienced downward pressures on profit margins. Company management has ordered an assessment of factors affecting the company's productivity with an end objective of reducing operational expenses and, in turn, increasing profit margins.
Because Artemis Sportswear Company is not a real company, primary sources concerning the company's operations cannot be cited in this analysis. Operational data and other information attributed to the hypothetical company in this analysis reflect an amalgam of data relevant to real companies engaged in sportswear manufacturing.
The source of much of the pressures on profit margins at Artemis Sportswear Company is centered in the cost of goods sold, as opposed to marketing or administrative expenses. Within the cost of goods sold classification, the principal source of cost anomalies appears to be labor costs, when comparisons are made in relation to the company's competitors.
Thus, the thesis of this cost and profit analysis is that, in order to improve profit margins, the company must reduce direct labor costs. The question that must be answered then concerns the most appropriate strategy through which such cost reductions may be realized. The two principal options are (a) reducing domestic direct labor costs or (b) transferring production to lower cost foreign locations.
Artemis Sportswear Company manufacturers sports clothing for both men and women, although approximately 60 percent of the company's production is for women. The sports clothing manufactured by the company is marketed (a) under the company's own brand names and (b) under the brand names of other sportswear companies for which Artemis Sportswear Company produces sports clothing as a finished goods supplier. Contract production for other sportswear companies accounts for appr...