s Questions Assume a The second phase of the Ghosn plan does

s Questions Assume: a. The second phase of the Ghosn plan does not b. The target operating profit for 2000 is 100 billiorn come into effect until after the year 2000 yen. c. Nissan earns 70 per cent of its revenues from vehicle sales and that other operations break even and will do the same in 2000. d. Average prices of vehicles sold are kept at the same level as 1999. Taxes are not included in the figures given. 1 Calculate the average price of vehicles sold. 2 Calculate average variable costs for 1999 and the 3 Calculate the size of the overall Japanese vehicle 4 If Nissan can reduce its variable costs in vehicle target, estimate the effect on profit and return orn target for 2000. market in 1999. production by 5 per cent in 2000 compared with its sales Explain any assumptions in the above analysis.

Solution

1

Calculation of average prices of vehicle sold in 1999

Sales revenue (in Japanese yen) - 6.3 trillion or 6300000 million

Units produced-1.3 million

Average price( in Japanese yen) =630000 million/1.3 million = 4846154 or 4.846 million.

2

Calculation of variable cost of Nissan in 1999

Sales Revenue(in yen)

6300000

million

loss

-30000

million

Revenue generated from sales of automobile is 70% of total sales which is 6300000 million japanese yen. The balance 30% sales is generated from other income. Thus Total sales is 70% of total sales=6300000 million

Therefore total sales is (6300000 million*100)/70 which is equal to 900 billion japanese Yuan

Variable cost =sales-Profit-Fixed cost

=900+30-Fixed cost

= 930 billion^*

^* This figure is to be further deducted from fixed cost viz finance/interest cost, depreciation, executives’ salary ,figures of which are not given

Variable cost =sales-Loss-Fixed cost

= 633 billion*

^* This figure is to be further deducted from fixed cost viz finance/interest cost, depreciation, executives’ salary ,figures of which are not given

Calculation of target variable cost in 2000

Profit has been taken as operating profit which is 100 billion japanese yuan

Target Units

1.65

million

Profit

100

Average price/unit(in Japanese Yen)

4.846

million

Revenue target fro sales of vehicles(in Japanese yen)

799.59

billion

Revenue generated from sales of automobile is 70% of total sales which is 799.59 billion japanese yen. The balance 30% sales is generated from other income. Thus Total sales is 70% of total sales=799.59 billion

Therefore total sales is (799.59 billion*100)/70 which is equal to 1142.271 billion

Variable cost =sales-Profit-Fixed cost

=1142.271-100-Fixed cost

= 1042.271 billion^*

^* This figure is to be further deducted from fixed cost viz finance/interest cost, depreciation, executives’ salary ,figures of which are not given

3) Market share of Nissan is 19% in 1999

Vehicles produced( in units is 1.3 million

So total size of vehicle market in Japan( say X) in 1999 is:

19% of X = 1.3 million

X= 6.842 million units

4

Calculation of effect of operating profit if variable cost is reduced is presented in the following table through the use of operating profit ratio which is given by operating profit divided by sales:

Variable cost target as in 2000(In Japanese Yen)

699.59

billion

Variable cost @95% of the above target (In Japanese Yen)

664.61

billion

Operating Profit (In Japanese Yen)

100

billion

Sales revenue (In Japanese Yen)

1142.271¹

billion

Operating Profit (In Japanese Yen)

8.75%

¹ Sales revenue comes from 70% from sales of vehicles and other income

70% of sales(targeted variable cost) is taken from 2000 i.e.799.59 billion comes from sales of vehicles.

Thus total sales is 70 % of X =799.59 billion

=1142.71 billion

Sales Revenue(in yen)	6300000	million
loss	-30000	million