Case 2Roxbury Manufacturing CompanyRoxbury Manufacturing Company is a privately owned business.Products manufactured by Roxbury had been doing very well until the year 2011. The last two years have seen a steady decline in sales and profit. If this declining trend continues, the company might come under financial distress. Income statements for the last two years are given below.Mr.Creighton, the owner of the company is baffled that only a ten percent decline in sales has resulted in a twenty percent decline in profits. He asks you to explain to him how in spite of maintaining efficiency in operations by keeping variable expenses and contribution margin at the same percentage level, he has experienced a greater percentage decline in profits.Case 3Axelrod CompanyAxelrod Company makes three types of t-shirts: Calm, Windy, and Gale. Mr. Brown, the general manager of the Company is disappointed with low sales and low profitability of Gale and is considering dropping the product. He believes that such a move will allow him to focus more attention to other profitable lines. He discusses this with you and asks for your opinion. You gather the following information about last year’s performance of the three products.Clam Windy GaleUnits Sold 25,000 18,750 3,750Selling Price/unit $30 $32 $39Production cost: Direct Materials/unit $10 $10 $15Direct Labor/unit $14 $14 $21There is no variable overhead. Annual total fixed overhead amounts to $168,000 and will remain the same whether the product line is dropped or retained. The fixed overhead rate established by the company was $3.60 per unit. The analysis provided to Mr. Brown on the basis of which he was considering to drop Gale from the line of products sold was as follows: Clam Windy GaleSelling Price/unit $30.00 $32.00 $39.00Direct Materials/unit ($10.00) ($10.00) ($15.00)Direct Labor/unit ($14.00) ($14.00) ($21.00)Fixed Overhead/unit ($ 3.60) ($ 3.60) ($ 3.60)Operating profit per unit $2.40 $4.40 ($ 0.60)Given the foregoing information, what advice will you give to Mr. Brown? Explain the conceptual reasoning behind your advice. Also provide numerical analysis to support your explanation.
Originally posted 2018-07-22 16:53:17. Republished by Blog Post Promoter