Homework SourseAD previously answered ANSWER E F AND WRITE A MEMO Introduc
(A-D previously answered) ANSWER E & F. AND WRITE A MEMO
Introduction: Having the ability to effectively communicate is one of the most important skills a business executive can possess. As French businesswoman and author Mirelle Guilliano has said, “Intelligence, knowledge or experience are important and might get you a job, but strong communication skills are what will get you promoted.” My own business experience supports this statement. By the time individuals have a few years of experience, they have great technical skills and can assemble, analyze, and categorize data to make solid business decisions. In the end, however, they are often unable to communicate the results of their analysis effectively. When I speak to senior executives and inquire about educational needs, the conversation invariably turns to communications. In accounting, by necessity, we focus on financial and quantitative data, but it is important to remember that as accountants we must be able to present the results of our analysis or studies to management. Through effective communications, accountants can truly impact business decisions and make their careers soar. The best way to get better at anything is to practice. That’s the basis for this assignment – to practice written communication.
Situation for Analysis: Grayslake Novelty produces and sells a small novelty item through tourist shops in Chicago and other northern Illinois locations. Last year the company sold 198,400 units. The income statement for Grayslake Novelty for last year is shown below:
Sales
$992,000
Less: Variable Expenses
545,600
Contribution Margin
446,400
Less: Fixed Costs
180,000
Net Operating Income
$266,400
While the company has been profitable, as shown in the above income statement, sales began falling near the end of last year and have continued to decline this year. There is concern that new competitors are beginning to take market share from Grayslake Novelty. As a result, Sarah Burroughs, the company president, has asked you to provide some information to assist her in making decisions about the company’s strategy for this product. These alternatives should be evaluated individually as stated. You are free to offer your own alternative based on any of the parameters given in the data.
Required:
a. While the company is currently profitable, the president wants to know the contribution margin and the breakeven in both units and dollars using last year’s level of sales. Additionally, compute the margin of safety, margin of safety ratio, and degree of operating leverage based on last year’s sales.
b. One of the possible strategies (Alt 1) is to reduce the current price by 8%. Using last year’s level of sales, what is the new contribution margin and break-even in units and dollars based on the price reduction? Additionally, compute the margin of safety, margin of safety ratio, and degree of operating leverage based on last year’s sales.
c. A second strategy (Alt 2) is to reduce the current variable cost by 0.20 per unit. The company has identified available efficiencies that can be implemented without any additional changes to the current cost. What is the new contribution margin and break-even in units and dollars based on the variable cost reduction of 0.20 per unit? Additionally, compute the margin of safety, margin of safety ratio, and degree of operating leverage based on last year’s sales.
d. A third strategy (Alt3) is to decrease the current price by 8% and reduce the variable cost per unit by 0.20. What is the new contribution margin and break-even in units and dollars based on making both changes? Additionally, compute the margin of safety, margin of safety ratio, and degree of operating leverage based on last year’s sales.
e. A fourth strategy (Alt 4) under consideration is to invest in more automated equipment for the manufacturing process. This investment will reduce variable costs by 0.65 per unit, primarily reducing the direct labor. At the same time, this will increase the fixed costs by $50,000. What is the new contribution margin and break-even in units and dollars based on this change in operating structure? Additionally, compute the margin of safety, margin of safety ratio, and degree of operating leverage based on last year’s sales.
f. A final strategy (Alt 5) is to change the current structure for the company’s sales person. The current fixed cost includes the salary of Grayslake’s one sales person at $60,000 per year. The company’s marketing study suggests that sales could be increased by 20% if the company hired an additional sales person; paid both individuals $40,000 fixed salaries; and a 0.25 commission per unit sold. What is the new contribution margin and break-even in units and dollars based on this change? Additionally, compute the margin of safety, margin of safety ratio, and degree of operating leverage based on last year’s sales as the starting point for this change.
Submission Instructions:
Write a business memo (format is in the second document of this assignment) addressed to the president recommending the best course of action based on your analysis. In your memo, discuss changes in break-even points, and impacts to the operating leverage. Including a table summarizing your findings would be appropriate. The company’s long-range plan is to grow sales to 250,000 units in the next two to three years. In your memo, summarize the advantages and disadvantages of each of the alternatives. Critically evaluate the alternatives based on current market conditions and any impact each alternative may have on the long-range plan.
Clearly state your recommended course of action explaining why your recommendation is the best for the company. Your memo should be at least one page, but no longer than two full pages. You may also attach an Excel spreadsheet that shows all your calculations or you may embed your computations into the memo using tables. The calculations supporting your data and analysis must be included.
1
(A-D previously answered) ANSWER E & F. AND WRITE A MEMO
Introduction: Having the ability to effectively communicate is one of the most important skills a business executive can possess. As French businesswoman and author Mirelle Guilliano has said, “Intelligence, knowledge or experience are important and might get you a job, but strong communication skills are what will get you promoted.” My own business experience supports this statement. By the time individuals have a few years of experience, they have great technical skills and can assemble, analyze, and categorize data to make solid business decisions. In the end, however, they are often unable to communicate the results of their analysis effectively. When I speak to senior executives and inquire about educational needs, the conversation invariably turns to communications. In accounting, by necessity, we focus on financial and quantitative data, but it is important to remember that as accountants we must be able to present the results of our analysis or studies to management. Through effective communications, accountants can truly impact business decisions and make their careers soar. The best way to get better at anything is to practice. That’s the basis for this assignment – to practice written communication.
Situation for Analysis: Grayslake Novelty produces and sells a small novelty item through tourist shops in Chicago and other northern Illinois locations. Last year the company sold 198,400 units. The income statement for Grayslake Novelty for last year is shown below:
Sales
$992,000
Less: Variable Expenses
545,600
Contribution Margin
446,400
Less: Fixed Costs
180,000
Net Operating Income
$266,400
While the company has been profitable, as shown in the above income statement, sales began falling near the end of last year and have continued to decline this year. There is concern that new competitors are beginning to take market share from Grayslake Novelty. As a result, Sarah Burroughs, the company president, has asked you to provide some information to assist her in making decisions about the company’s strategy for this product. These alternatives should be evaluated individually as stated. You are free to offer your own alternative based on any of the parameters given in the data.
Required:
a. While the company is currently profitable, the president wants to know the contribution margin and the breakeven in both units and dollars using last year’s level of sales. Additionally, compute the margin of safety, margin of safety ratio, and degree of operating leverage based on last year’s sales.
b. One of the possible strategies (Alt 1) is to reduce the current price by 8%. Using last year’s level of sales, what is the new contribution margin and break-even in units and dollars based on the price reduction? Additionally, compute the margin of safety, margin of safety ratio, and degree of operating leverage based on last year’s sales.
c. A second strategy (Alt 2) is to reduce the current variable cost by 0.20 per unit. The company has identified available efficiencies that can be implemented without any additional changes to the current cost. What is the new contribution margin and break-even in units and dollars based on the variable cost reduction of 0.20 per unit? Additionally, compute the margin of safety, margin of safety ratio, and degree of operating leverage based on last year’s sales.
d. A third strategy (Alt3) is to decrease the current price by 8% and reduce the variable cost per unit by 0.20. What is the new contribution margin and break-even in units and dollars based on making both changes? Additionally, compute the margin of safety, margin of safety ratio, and degree of operating leverage based on last year’s sales.
e. A fourth strategy (Alt 4) under consideration is to invest in more automated equipment for the manufacturing process. This investment will reduce variable costs by 0.65 per unit, primarily reducing the direct labor. At the same time, this will increase the fixed costs by $50,000. What is the new contribution margin and break-even in units and dollars based on this change in operating structure? Additionally, compute the margin of safety, margin of safety ratio, and degree of operating leverage based on last year’s sales.
f. A final strategy (Alt 5) is to change the current structure for the company’s sales person. The current fixed cost includes the salary of Grayslake’s one sales person at $60,000 per year. The company’s marketing study suggests that sales could be increased by 20% if the company hired an additional sales person; paid both individuals $40,000 fixed salaries; and a 0.25 commission per unit sold. What is the new contribution margin and break-even in units and dollars based on this change? Additionally, compute the margin of safety, margin of safety ratio, and degree of operating leverage based on last year’s sales as the starting point for this change.
Submission Instructions:
Write a business memo (format is in the second document of this assignment) addressed to the president recommending the best course of action based on your analysis. In your memo, discuss changes in break-even points, and impacts to the operating leverage. Including a table summarizing your findings would be appropriate. The company’s long-range plan is to grow sales to 250,000 units in the next two to three years. In your memo, summarize the advantages and disadvantages of each of the alternatives. Critically evaluate the alternatives based on current market conditions and any impact each alternative may have on the long-range plan.
Clearly state your recommended course of action explaining why your recommendation is the best for the company. Your memo should be at least one page, but no longer than two full pages. You may also attach an Excel spreadsheet that shows all your calculations or you may embed your computations into the memo using tables. The calculations supporting your data and analysis must be included.
1
(A-D previously answered) ANSWER E & F. AND WRITE A MEMO
Introduction: Having the ability to effectively communicate is one of the most important skills a business executive can possess. As French businesswoman and author Mirelle Guilliano has said, “Intelligence, knowledge or experience are important and might get you a job, but strong communication skills are what will get you promoted.” My own business experience supports this statement. By the time individuals have a few years of experience, they have great technical skills and can assemble, analyze, and categorize data to make solid business decisions. In the end, however, they are often unable to communicate the results of their analysis effectively. When I speak to senior executives and inquire about educational needs, the conversation invariably turns to communications. In accounting, by necessity, we focus on financial and quantitative data, but it is important to remember that as accountants we must be able to present the results of our analysis or studies to management. Through effective communications, accountants can truly impact business decisions and make their careers soar. The best way to get better at anything is to practice. That’s the basis for this assignment – to practice written communication.
Situation for Analysis: Grayslake Novelty produces and sells a small novelty item through tourist shops in Chicago and other northern Illinois locations. Last year the company sold 198,400 units. The income statement for Grayslake Novelty for last year is shown below:
Sales
$992,000
Less: Variable Expenses
545,600
Contribution Margin
446,400
Less: Fixed Costs
180,000
Net Operating Income
$266,400
While the company has been profitable, as shown in the above income statement, sales began falling near the end of last year and have continued to decline this year. There is concern that new competitors are beginning to take market share from Grayslake Novelty. As a result, Sarah Burroughs, the company president, has asked you to provide some information to assist her in making decisions about the company’s strategy for this product. These alternatives should be evaluated individually as stated. You are free to offer your own alternative based on any of the parameters given in the data.
Required:
a. While the company is currently profitable, the president wants to know the contribution margin and the breakeven in both units and dollars using last year’s level of sales. Additionally, compute the margin of safety, margin of safety ratio, and degree of operating leverage based on last year’s sales.
b. One of the possible strategies (Alt 1) is to reduce the current price by 8%. Using last year’s level of sales, what is the new contribution margin and break-even in units and dollars based on the price reduction? Additionally, compute the margin of safety, margin of safety ratio, and degree of operating leverage based on last year’s sales.
c. A second strategy (Alt 2) is to reduce the current variable cost by 0.20 per unit. The company has identified available efficiencies that can be implemented without any additional changes to the current cost. What is the new contribution margin and break-even in units and dollars based on the variable cost reduction of 0.20 per unit? Additionally, compute the margin of safety, margin of safety ratio, and degree of operating leverage based on last year’s sales.
d. A third strategy (Alt3) is to decrease the current price by 8% and reduce the variable cost per unit by 0.20. What is the new contribution margin and break-even in units and dollars based on making both changes? Additionally, compute the margin of safety, margin of safety ratio, and degree of operating leverage based on last year’s sales.
e. A fourth strategy (Alt 4) under consideration is to invest in more automated equipment for the manufacturing process. This investment will reduce variable costs by 0.65 per unit, primarily reducing the direct labor. At the same time, this will increase the fixed costs by $50,000. What is the new contribution margin and break-even in units and dollars based on this change in operating structure? Additionally, compute the margin of safety, margin of safety ratio, and degree of operating leverage based on last year’s sales.
f. A final strategy (Alt 5) is to change the current structure for the company’s sales person. The current fixed cost includes the salary of Grayslake’s one sales person at $60,000 per year. The company’s marketing study suggests that sales could be increased by 20% if the company hired an additional sales person; paid both individuals $40,000 fixed salaries; and a 0.25 commission per unit sold. What is the new contribution margin and break-even in units and dollars based on this change? Additionally, compute the margin of safety, margin of safety ratio, and degree of operating leverage based on last year’s sales as the starting point for this change.
Submission Instructions:
Write a business memo (format is in the second document of this assignment) addressed to the president recommending the best course of action based on your analysis. In your memo, discuss changes in break-even points, and impacts to the operating leverage. Including a table summarizing your findings would be appropriate. The company’s long-range plan is to grow sales to 250,000 units in the next two to three years. In your memo, summarize the advantages and disadvantages of each of the alternatives. Critically evaluate the alternatives based on current market conditions and any impact each alternative may have on the long-range plan.
Clearly state your recommended course of action explaining why your recommendation is the best for the company. Your memo should be at least one page, but no longer than two full pages. You may also attach an Excel spreadsheet that shows all your calculations or you may embed your computations into the memo using tables. The calculations supporting your data and analysis must be included.
1
is allowed to answer initial 4 questions in case of multi part questions An expert Part 1 Particulars Sales Less: Variable Part 2 Particulars Per unit Amount Per unit 5.00 $992,000,00 S $545,600.00 S 4.60 2.75 Less: Variable S 545,600.00 S Contribution Margin Less Fixed Costs $446,400.00 ontribution Margin S 367.040.00 180,000 00 87 040 00 1.85 180,000,00 Less Fixed Costs ating Income rating Income ribution Margin reakeven Point 2.25/s n Margin1.85/4.60 40,21% 2.25 80000 units 1.85 97297 units 7.566 $992000-S S 912640-5 447566)/ of of Ratio 912640 0.51 ($ 992000-$ S 912640-$447566)/ of 118400 4.60 Part 3 Part 4 Particulars Particulars Less: Variable Contribution Margin Per unit 92,000,00 5920 5.00 2.55 S 912 640 00 4 60 2.55 2.05 Less: Variable $ 505,920.00 S Contribution Margin Less: Fixed Costs S406,720.00 180,000.00 S226.120 00 rating Income 06.080.00 Income bution Margin 2.55/5 51.00% Contribution Margin 2.05/4.60 44 57% Breakeven Pointa 2.05 367,347 ($ 992000-$ (S 912640-$ of 0.51 n of $ 992000-$ ($ 912640- of 1011 4.60 Solution
Part E Particulars Amount Per Unit Sales $992,000 $5 Less: Variable expenses $416,640 $2.10 Contribution Margin $575,360 $2.90 Less: Fixed Cost $230,000 Net Operating Income $345,360 Contribution Margin Ratio $2.90/$5 58% Break Even Point 230000/$2.90 79,310 units $396,552 Margin of safety ratio ($992000-$396552) /$992000 60% Margin of safety ($992000-$396552) /$5 119,090 units Part F Current sales 198400 units 20% increase in sales 39680 units Total sales 238080 units Particulars Amount Per Unit Sales $1,190,400 $5 Less: Variable expenses $714,240 $3.00 ($2.75+$0.25) Contribution Margin $476,160 $2.00 Less: Fixed Cost $200,000 Net Operating Income $276,160 Contribution Margin Ratio $2/$5 40% Break Even Point 200000/$2 100,000 units $500,000 Margin of safety ratio ($1190400-$500000) /$1190400 58% Margin of safety ($1190400-$500000) /$5 138,080 units
