Managers can use CVP analysis to evaluate how the operating income of their companies will be affected if the outcomes they predict are not achieved—say, if sales are 10% lower than they estimated. Evaluating this risk affects other strategic decisions a manager might make (2015, p. 79). Because the change of the improvement of new equipment in AWM, Inc., managers will want to know how the profit will change. Will it increase or decrease? “For example, AWM managers might wonder how many units of a new power drill must be sold to break even or make a certain amount of profit. Procter & Gamble managers might ask themselves how expanding their business in Nigeria would affect costs, revenues, and profits. These questions have a common …show more content…
This firm is encountering diminished interest of about all the agricultural products, yet the Universal Harvester reel deals were down more than 70% when contrasted with the earlier year. Our combined gross benefit expanded as a rate of net deals from 24.1% in 2014 to 25.0% of net deals in 2015. This expansion is to a great extent because of cost-cutting measures and effective utilization of stock, basically in our agricultural products segment. AWM, Inc. merged working costs expanded by 4.6%, from $7,060,00 in 2014 to $7,388,000 in 2015. In order for a tremendously in 2016, the operating income will have to change first. For instance, AWM’s has in operating income of $-403,663, so how does they change this negative into a positive? The answer to this question is that they can increase the number of units that’s sold, which will change the contribution margin. Within this change, this will bring up a decision on whether or not to advertising will increase or decrease the sale. Similarly to operating income, the variable cost can be change as well.
Another decision that can be made when expanding this firm is the selling price. Does the company want to reduce the price? Reducing the price will cause a decrease in contribution margin and because the fixed cost doesn’t change, the operating income will go change. This mean this decision might not help the company grow, but determining the target price can be an asset for the business. In 2015, the target price was 7.00
• Net profit margin has been negative and no major patterns over the 9 year period on net profit since the trend of the industry is based mostly on economic factors, and whether or not they secure contracts. Due to high percentage of COGS they are only left with a net profit of $980 or
The company started off producing 20,000 units of mountain bikes. We did not change the production quantity. Last year our forecast sales were 24,000 when we only sold 19,866; therefore we thought it would be best to leave production at 20,000 bikes. Having excess inventory, we concluded that 20,000 units should be enough considering our quality has not changed and our advertising will not increase the sales dramatically. Although we had the choice to produce as much as 30,000 units, we felt as though we did not have sufficient money to increase production. We were interested in allocating the money towards marketing as opposed to production. We realized that without awareness, no matter how many units we make, sales would be inefficient.
The change in the contribution margin for all the products is responsible for the change in profitability.
This proves that the marketing strategy increased mid-week sales from 20% to 30%. This sales mix caused variances in the actual operating income and the budgeted operating income. The flexible budget, flexible-budget variances and sales volume variances provide further analysis into the profitability of the operations.
The company has been functioning well in terms of generating profit and demand so far. However, there will be a 20% increase in demand for the next month of operations as predicted by management, and the production and supply management's problems may come as a problem they can no longer afford.
Although the company did show an increased gross profit of $8,255,000 with $6,358,000 less Net Sales in 2013 versus 2012, that increase is due to the reduction in product Cost of Goods Sold by $14,613,000. Since increases in product price will negatively affect sales, one of management’s primary goals is to keep prices stable. This objective is achieved through implementation of cost cutting programs, investing in more efficient equipment, and automation of more steps in the production process.
If you compare bakery sales in July to bakery sales in September, it shows a 66% increase in sales in just two months. Peyton Approved uses its equity to finance the business than taking out loans. It has a .36% Debt to Equity ratio. The best ratio for the business is the profit margin. In three months the profit margin for Peyton Approved is 53.4%. The company just added a product line of hypoallergenic shampoos. It has been selling these products for one month and the company only turned the product over once during that month. At this time it does not look like adding these products to sales is
The company is weakened mainly by its lack of technological advancement in every area of production. For example, if the company chose to modify their equipment to produce their “Atherley” model as well, it would be able to lower production costs of this model, in turn increasing the profits of this model further. In addition, the Atherley Furniture Company greatest threat is the decreased market for their “Parkdale” model. The “Parkdale” model has the most time consuming and costly production. With lack of a market for this model, the company stands to continue to lose profits. In conclusion, if the company wishes to continue to operate their chair division profitably as well as efficiently, the above issues need to be addressed and corrected.
As upper-level management it is important to understand the key components of cost-volume-profit analysis. Identifying objectives including concepts related to CVP is crucial to the absorption of information.
In addition to affecting profits by adjusting useful life and depreciation; key ratios will also be affected. The net profit margin can be influenced both ways to fit the purpose of business strategy. It could be increased to make it seem more profitable, or it can be influenced in a negative way to write off as much expenses as possible – if the year held disappointing results – in order to show next year more positively in comparison.
(b) Calculate by how much the proposed addition will either increase or reduce operating income. Show all work.
|250000 indirect employees & 9000 vehicle for distribution). |position in profitability due to drop in prices by nearly 30% since 1950’s. |
Also, the gross profit had a lower increase(+9.67%), that means the cost of sales increased more than the revenue increase in term of percentage. There was a 13.16% rose in net operating expense as both selling and distribution costs and administrative expenses increased. One of the reasons why net operating expense increased because the firm had a programme of reinvesting for organic growth which supply chain, IT and store portfolio had improved. The rose of the net operating expense lead to a 2.13% drop in the operating
First, let us look at my situational analysis of Bauer, Inc. A strength of Bauer, Inc. is that we’ve been growing. From period’s -1 to 0, we were able to increase our net profit by 50%. Another strength is in period 0 we were able to enter into the domestic market. This step helped our company sales from periods -1 to 0. One weakness of Bauer, Inc. is that we have been showing loss the last two periods. In period -1 our net profit was -2.4 million dollars and in period 0 it was -1.2 million dollars. A second weakness is Bauer, Inc.’s product is currently a base version model. Consumers will not want to buy a low quality shoe. An opportunity for Bauer, Inc. is that the athletic shoe industry is a huge industry. The industry is made up of over $70 billion dollars worldwide and Bauer, Inc. can tap into that. An additional opportunity is that there are multiple markets to enter into (domestic and foreign). This will allow Bauer, Inc. to sell our shoes to multiple and larger markets and increase our sales. A threat of Bauer, Inc. is that there are 10 other competitors in the athletic shoe industry that can potentially take market share from us. Another threat
At the event of any change to the company may it be negative or positive, profitable or non-profitable their will be an adverse effect to the stakeholders. Such effects are as follows: increase on overall sales of the company will yield increase on shares and earnings to either shareholders, employees and business owners; which in-turn will create profit that could be use for company expansion and purchasing of additional tools to use for improvement; that will lead in helping increase customers service elevating the aid provided to our customers; and also by increasing sales will also mean profit for Lowe’s vendors and suppliers, and so on…