Reference no: EM133083444
The Van Horn Manufacturing Company Cost Control Basics - Case Study
Van Horn is an Industrial Manufacturer that faces a number of cost control challenges. Please follow the Case and answer the challenges to help well informed Van Horn´s Mgmt Decisions
Incremental Costing
Calculate:
a. Incremental sales revenue
b. Incremental variable costs
c. Incremental fixed factory costs
d. Total incremental costs
e. Incremental net cash receipt
Should Van Horn accept the new order?
Non-quantitative Considerations.
What do you think about this?
What would be your reasoning here?
Dropping on Unprofitable Product.
Analyze the proposal in terms of cashflows affected, Per Unit / Total for
(1) "CF effects of Forgone Sales of Estate Movers" vs "CF effects of Additional Sales of Suburban Movers"
(2) Find the CF effects of Sales receipts / on Costs / Total
In view of these results, what would be your decision?
The Use of Averages
Please make your own averages analysis to confirm if this new business would be acceptable or if it will only incur in losses, assuming that the present estimates are valid
Identifying the increment
What would be your decision regarding customers of Group D?
Group D customers are profitable or unprofitable for Van Horn?
What would you suggest to do with Customers of Group D?
The incremental cost figure applies to each portion of the total volume or just to the volume provided by potential new customers?
Different Costs for Different Purposes
In the previous challenge just answered above, if Van Horn is considering discontinuing the servicebusiness entirely, the average incremental cost would be closer to $9.75or closer to $8.75?
Cost-Volume-Profit Analysis
State these estimates algebraically. Total revenue, R, at volumeV is:
(1) R: $.....V, in which V stands for the number of mowers sold.
Total divisional cost, C, at volume V is:
(2) C: $......... + $....V
The division will break even at the volume at which R = C. How many movers Van Horn needs to sell for break-even?
Contribution Margin.
State these estimates algebraically.
The contribution margin is $...... a unit.
The break-even point can be located by finding out how many mowers must be sold to produce a total contribution margin equal to the anticipated fixed costs.
Break-even volume is: ...................................................
Break-even in monetary terms is reached at: .................................
Margin of Safety
The estimated margin of safety therefore was: ...................... mowers
Break-Even and Profit-Volume Charts
1. If fixed costs are at planned levels and no sales are made, the divisionwill lose: $....................
2. As volume increases from zero, the contribution margin from saleswill cover more and more of the fixed costs until at a number of ...............-mowersales volume the division will just break even.
3. At the anticipated sales volume of 50,000 mowers in year X, the divisionwill earn $600,000 income and themargin of safety will be ............. mowers.
4. If volume exceeds or falls short of the planned level, income is likely toincrease or decrease by an amount of $........... times the excess or shortfall in the numberof mowers sold.
Are the mower division's operations next year X appearing to berisky / un-risky?
Justify the reasoning of your answer
A Van Horn´s Sales Manager proposal to spend an extra $150,000advertising the mower line can be justified only if management can reasonably expect the advertising to increase sales by more than ............... units(show your calculation).
At a 2,000-mower volume:
First. Calculate the incremental cash flow: $..................
Second. What is the incremental break-even volume ............... mowers
Third. What is the margin of safety .............. mowers
If volume turns out to reach to 3,000-mower volume upper limit:
First. Incrementalcash flow will be $..................,
Second. Is it greater or lower than the $.............. Van Horn would earn at a 2,000-mower volume?
Calculate the new average contribution margin$ .................
Calculate the new break-even volume: ................... mowers
The change in product mix, reduces or increases the safety margin? ........... (Yes / No)
What is the new safety margin? .................. mowers
What is the income that additional sales bring in $......, on the average, insteadof $30
What is the minimum requirement of $1 million (or 10%)after tax nature for Van Horn´s mgmt, a kind of fixed cost or a kind of variable cost?
Can we find the volume at which Van Horn's operations will just meet itsincome target by solving the same equation as before? ....... Y/N
What is the new R or Break-even then? $ .........................
Attachment:- Case Study.rar