Is the company well positioned to be profitable

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Reference no: EM13837071

The Case Scenario:

You, as a consultant, have been approached by a local business, the Widget Factory, which is seeking to develop models for sustainable profitability.

a) New Product Break-Even Analysis

The Widget Factory has developed a new product, a solar powered beach fan, that it feels has potential in the market, but wants to be assured that it will be financially viable prior to going to the next level of development. The company conducted some preliminary market research and determined that the new product, if/when launched, can be sold at $50.00 per unit.

Internal cost analysis on the manufacturing of the product, based on current assets and resources of the company, reveals the following information (NOTE: The available accounting data is in terms of units):

  • Fixed cost per period: $8640.00
  • Variable cost per unit: $30.00
  • Production capacity per period:  900 units

RESEARCH ANALYSIS QUESTION #1: Should the company proceed with the introduction of this product and if so, how?

b) Corporate-wide Break Even Analysis

The following information is available about the operations of the Widget Factory for the current year (Note: In this instance, the available accounting data is presented in terms of total dollars, not units).

Sales

 

$40000

Fixed costs

$ 12600

 

Variable costs

$ 16000

 

Total cost

 

$ 28600

Net income

 

$ 11400

Capacity is a sales volume of $60000.

RESEARCH ANALYSIS QUESTION #2: Is the company well positioned to be profitable given the parameters outlined above? Why or why not?

The Case Analysis:

In preparing your final report, your team must:

  1. Perform a break-even analysis for each of the data sets above that includes:
    1. an algebraic statement of the revenue function, and the cost function,
    2. a detailed break-even chart
    3. a computation of the break-even point of both data sets as both a percentage of capacity and in dollars.
  2. Present the Break-Even Next for each of the data sets, using the Excel spreadsheet software to formulate the question and generate a program that includes all the cost-volume-profit analysis aspects.
    1. The program should be functioning properly such that we should be able to change the input data [through changing cells] to vary the variables and observe the changes to Total Cost, Total Revenue, & Fixed cost graphically. For example, we could change the Fixed cost, the number of items produced, the cost per unit, selling price per unit, & the variable cost individually, or in combination in cells and see the changes resulting graphically.
    2. Hints : in your Excel Program you can start allocating cells to the input data such as those mentioned above, and then calculate in your "calculation cells", for the outputs such as Total cost, Total Revenue, ...etc.. Following these steps you will want to generate the graph from the output data. Notice when generating a graph you can  allocate a starting quantity of the product [minimum, e.g., 0], then the maximum number of production [e.g., 500 to start the program] and then these values can be varied later. 
  3. Prepare a consulting report for the Widget Factory that includes:
    1. Two detailed responses to the Research Analysis Questions support by your analysis.
    2. An interpretation of the parameters of the analysis presented, including: losses, gains, risks, and the role and significance of the break-even points presented.
    3. A discussion of the implications of market fluctuations, and the potential for them to impact the other parameters of the case.  Include recommendations for the management of the Widget Factory in regards to how they can minimize the impact of market fluctuations, and what they should be aware of when reviewing market data.

Reference no: EM13837071

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