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I can't believe its potatoes.

Extracts from this document...

Introduction

I can't believe its potatoes I can't believe its potatoes (ICBIP) are a crisp manufacturing company established in 1999 and competing with other famous brands such as Tesco value crisp and Before eight crisps. Currently the company offers three products in unique flavor and color: red cinnamon, blue black pepper and yellow ginger. Its currents details are as follows: Products red cinnamon blue- black pepper yellow ginger (All numbers are in �) Existing sales 8000 10000 12000 Selling price 8.00 9.00 9.00 Variable cost Materials 1.10 1.70 2.80 (potatoes@ �0.5 per kg) Labour 2.45 2.55 2.00 (@ �2 per hour) Fixed cost allocation 3.00 3.70 3.75 ------------ ----------- ------------ Total cost 6.55 7.95 8.55 ------------ ------------ ------------Contribution per bag 1.45 1.05 0.45 Expected Sales 7000 6000 8000 Over the years ICBIP have witnessed decline in their sales as their competitors are providing higher customer satisfaction and value for the money. The manager of ICBIP, Ross Beckham is trying to fix the problems associated with red cinnamon and blue black. However manager has alerted the company that yellow ginger is their weakest product as it is making a very substantial profit compared to other products. Consequently Beckham has come up with possible solutions: 1. ...read more.

Middle

(iii)} 8000 = 7903.5715 -------------------- 8000 = 98.794643% Situation might be after the advertisement and promotion Breakeven point Form eq. (ii) 75 + 4.8 x = 7x 75 = 2.2x X = 34.09 Therefore total sales 238.6363 Margin of safety {From eq. (iii)} Percentage margin of safety = 10000 - 238.6363 ------------------------- 10000 = 97.61364% On the basis of the calculation decrease in price will give net gain of �1360, which is a good profit margin. On the other hand, reduction of sales solution displays the decrease in contribution of �6665 which quite high and company may face more losses. Moreover the overall profit of ICIBP from the normal activity without any solutions suggested is �44800. Last solution of spending advertisement the total sales of company will be 238.6363 and before it was 96.428565 but margin of safety is quite high in both the cases. In conclusion it's better to eliminate solution of sale reduction, as company will loose out �6665. It is not advisable to discard yellow ginger, as in usual business practice it is earning the sales of �44800. Furthermore spending on advertisement and promotion doesn't show enough profits for the company and hardly makes any impact. ...read more.

Conclusion

It gets tricky actually because students are required to calculate normally how ICBIP operates by allocating its labour hours and find the profit. There after students have to compare with other solutions to see whether this is appropriate solution or business should carry on the way it is. In advertisement and promotion solution students are required to calculate and compare the breakeven and margin of safety for both before and after invest in advertisement to decide option is the best for manager. For the second part students had to suggest which would be profitable use of limited supply. This part is difficult then the first one, key to this question was to find contribution per kg and then finding the demand. The logic behind the second half is that with limited supply contribution can be maximized through per unit of limitations. The most important when solving the sum is that students have to assume that 1kg of potatoes is required to make one packet of crisp. With this students will not be able to solve the problem. Also after finding out two ways of calculating the use of potatoes a good student would compare his/her answers and comment on it. Managerial Accounting and Finance Module no.: BS2512 Student no.: 0226318 Tutor: Barry Morse Word count: 1601 Date: 1/12/03 1 ...read more.

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