Reference no: EM133069044

Stylish Ltd produced two types of coffee tables, namely Deluxe and Casual tables.  It has recently expanded into the country, Aland.

The competitive environment of Stylish Ltd is changing rapidly.  The coffee table market used to be dominated by two large manufacturers which make simple and cheap coffee table.  There are two other major international manufacturers apart from Stylish.  One of these has already opened a factory in Aland and is producing tables similar to Casual to compete directly with the existing local producers.

The board of Stylish has set the following critical success factors (CSFs) for Stylish Aland's operations:

1. To obtain a dominant market presence

2. To maximise profits within acceptable risk

3. To maintain the brand image of Stylish for above average quality products

The board is considering using the following key performance indicators (KPIs) for each product: total profit, average sales price per unit, contribution per unit, market share, margin of safety, return on capital employed (ROCE) and total quality costs.

The board is considering two new marketing strategies going forward

Plan A is to continue operations as present allowing for 4% growth per annum in volumes for both Deluxe and Casual.

Plan B is to dramatically reduce the marketing spend on Casual and reallocate resources to focus the marketing on Deluxe.  This is expected to lead to an anticipated growth in volume of 15% per annum for Deluxe and flat sales for Casual.

The target operating profit for the Aland's operation in two years' time is set at $140 million and the board wants an evaluation of these strategies in meeting that target.

Stylish operation's information for the most recent financial year as below

	Deluxe Table $ per unit	Casual Table $ per unit
Variable costs
Materials	$89	$78
Labour	$84	$63
Overheads	$53	$33
Distribution costs	$48	$42
Quality costs	$40	$15
Fixed costs ($ million)
Administration costs	$ 18	$ 18
Distribution costs	$ 16	$ 16
Quality costs	$ 6	$ 6
Marketing costs	$ 80	$ 80
Other data ($ million)
Revenue	$580	$871
Capital employed	$278	$308
Total market size (millions)	0.7 units	9.4 units
Aland operation's sales (millions)	0.4 units	0.9 units

Compute the projected operating profits from plan A and plan B in year 2 of the two years' period and enter the largest among the two plans in the answer space belowStylish Ltd produced two types of coffee tables, namely Deluxe and Casual tables.  It has recently expanded into the country, Aland.

The competitive environment of Stylish Ltd is changing rapidly.  The coffee table market used to be dominated by two large manufacturers which make simple and cheap coffee table.  There are two other major international manufacturers apart from Stylish.  One of these has already opened a factory in Aland and is producing tables similar to Casual to compete directly with the existing local producers.

The board of Stylish has set the following critical success factors (CSFs) for Stylish Aland's operations:

1. To obtain a dominant market presence

2. To maximise profits within acceptable risk

3. To maintain the brand image of Stylish for above average quality products

The board is considering using the following key performance indicators (KPIs) for each product: total profit, average sales price per unit, contribution per unit, market share, margin of safety, return on capital employed (ROCE) and total quality costs.

The board is considering two new marketing strategies going forward

Plan A is to continue operations as present allowing for 4% growth per annum in volumes for both Deluxe and Casual.

Plan B is to dramatically reduce the marketing spend on Casual and reallocate resources to focus the marketing on Deluxe.  This is expected to lead to an anticipated growth in volume of 15% per annum for Deluxe and flat sales for Casual.

The target operating profit for the Aland's operation in two years' time is set at $140 million and the board wants an evaluation of these strategies in meeting that target.

Stylish operation's information for the most recent financial year as below

	Deluxe Table $ per unit	Casual Table $ per unit
Variable costs
Materials	$89	$78
Labour	$84	$63
Overheads	$53	$33
Distribution costs	$48	$42
Quality costs	$40	$15
Fixed costs ($ million)
Administration costs	$ 18	$ 18
Distribution costs	$ 16	$ 16
Quality costs	$ 6	$ 6
Marketing costs	$ 80	$ 80
Other data ($ million)
Revenue	$580	$871
Capital employed	$278	$308
Total market size (millions)	0.7 units	9.4 units
Aland operation's sales (millions)	0.4 units	0.9 units

Compute the projected operating profits from plan A and plan B in year 2 of the two years' period and enter the largest among the two plans in the answer space below