Reference no: EM132315530 , Length: word count:3800
The Economic Environment Assignment -
Introduction - In this assessment, you will need to demonstrate how to:
- Effectively manage and maintain key stakeholder relationships and;
- Analyse cost-volume profit for operational efficiencies.
Task 1 - Maintaining relationships with Stakeholders
Learning Outcome - Develop and maintain operational business relationships with internal and external stakeholders in facilitating organisational accountability and transparency in reporting process.
Instructions - This task will apply knowledge of theories on Stakeholder relationships.
1.1 - Identify four stakeholders (two internal and two external) and define the roles they have in reporting organisational accountability and transparency in the organisation.
1.2 - Develop a plan to maintain effective relationships with internal and external stakeholders. Identify six key factors that would contribute to maintain effective relationships to include in your plan.
1.3 - Examine and explain in your own words how each of the two theories below apply to maintaining professional relationships with internal and external stakeholders. A minimum of three points for each theory must be explained.
- Freeman's Normative theory and operational planning.
- Analytic theory and operational planning.
Task 2 - Management of operational processes
Learning Outcome - Apply professional and ethical behaviour in a socially and culturally appropriate manner and utilise relevant costing information to manage process, control costs, and leverage other drivers for operational efficiency.
Instructions - This task requires you to demonstrate knowledge of appropriate use of information to manage operational processes.
2.1 - Identify five (5) areas where cost is involved in operational efficiencies. For each area comment on how costs to the business are affected.
2.2 - Identify six (6) ways to manage business expenses and reduce costs.
2.3 - Evaluate how the Activity-Based, Cost-Cutting Strategy leverages off operational efficiencies.
2.4 - Suggest five (5) ways of controlling cost, taking into consideration professional and ethical behaviours, socially and culturally appropriate factors.
Task 3 - Cost-volume analysis for decision making and planning for operational efficiency
Learning Outcome - Utilise Cost-Volume-Profit Analysis for decision making and planning for operational efficiency.
Instructions - Use Cost-Volume-Profit Analysis to work out a solution for decision-making for each of the two scenarios (1 and 2) provided.
3.1 - What is the Profit Equation?
3.2 - What is the Contribution Margin in Cost-Volume-Profit Analysis?
3.3 - What is meant by the term Break-Even Point?
3.4 - Define the Cost-Volume-Profit Equation.
SCENARIO 1 - If the Three M's Inc. has sales of $750,000 and total variable costs of $450,000 its contribution margin is $300,000.
Assuming the company sold 250,000 units during the year, the per unit sales price is S3 and the total variable cost per unit is $1.80. The contribution margin per unit is $1.20. The contribution margin ratio is 40%. It can be calculated using either the contribution margin in dollars or the contribution margin per unit. To calculate the contribution margin ratio, the contribution margin is divided by the sales or revenues amount.
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The Three M's Inc. Break-even Income Statement
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Revenues (250,000 units x $3)
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$750,000
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Variable Costs (250,000 units x $1.80)
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$450,000
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Contribution Margin
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$300,000
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Fixed Costs
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$300,000
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Net Income
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$0
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SCENARIO 2 - Recilia Vera is Vice President of Sales at the Snowboard Company who manufacturer one model of Snowboards. Lisa Donley is the company accountant. Recilia and Lisa are in their weekly meeting.
Recilia - Lisa, I'm in the process of setting up an incentive system for my sales staff, and I'd like to get a better handle on our financial information.
Lisa - No problem. How can I help?
Recilia - I've reviewed our financial results for the past 12 months. It looks like we made a profit in some months, and had losses in other months. From what I can tell, we sell each snowboard for $250, our variable cost is $150 per unit, and our fixed cost is $75 per unit. It seems to me that if we sell just one snowboard each month, we should still show a profit of $25, and any additional units sold should increase total profit.
Lisa - Your unit sales price of $250 and unit variable cost of $150 look accurate to me, but I'm not sure about your unit fixed cost of $75. Fixed costs total $50,000 a month regardless of the number of units we produce. Trying to express fixed costs on a per unit basis can be misleading because it depends on the number of units being produced and sold, which changes each month. I can tell you that each snowboard produced and sold provides $100 toward covering fixed costs - that is, $250, the sales one snowboard, $150 in variable cost.
Recilia - The $75 per unit for fixed costs was my estimate based on last year's sales, but I get your point. As you know, I'd like to avoid having losses. Is it possible to determine how many units we have to sell each month to at least cover our expenses? I'd also like to discuss what it will take to make a decent profit.
Lisa - We can certainly calculate how many units have to be sold to cover expenses, and I'd be glad to discuss how many units must be sold to make a decent profit.
Recilia - Excellent! Let's meet again next week to go through this in detail.
3.5 - Using the Snowboard Company scenario, work out the Break-Even Point for the product. To do this you will have to work out the Contribution Margin or the contribution per unit first.
3.6 - Using graph form, illustrate the results from 3.5. Note: The scales do not need to be accurate but must be illustrative.
3.7 - Using the Snowboard Company scenario, work out the Contribution Margin and Break-Even Point for the product.
SCENARIO 3 - The subsequent weekly meeting (follow up from the previous week's meeting in 'Scenario 2) between Recilia Vice President, Sales and Lisa, the Company Accountant.
Lisa - Recilia, last week you asked how many units we have to sell to cover our expenses. This is called the break-even point. If each unit produced and sold provides $100 toward covering fixed costs, and if total monthly fixed costs are $50,000, we would have to sell 500 units to break even-that is, $50,000 divided by $100.
Recilia - What happens once we sell enough units to cover all of our fixed costs for the month?
Lisa - Good question! Once all fixed costs are covered for the month, each unit sold contributes $100 toward profit.
Recilia - I think I'm getting the hang of this. It will take 500 units in sales to break even, and each unit sold above 500 results in a $100 increase in profit. So if we sell 503 units for a month, profit will total $300?
Lisa - You've got it!
Recilia - So if our goal is to make a profit of $30,000 per month (target profit), how many units must be sold?
Lisa - It takes 500 units to break even. We also know each unit sold above and beyond 500 units contributes $100 toward profit. Thus we would have to sell an additional 300 units above the break-even point to earn a profit of $30,000. This means we would have to sell 800 units in total to make $30,000 in profit.
Recilia - Wow, I'm not sure selling 800 units is realistic, but at least we have a better sense of what needs to be done to make a decent profit. Thanks for your help!
3.8 - Calculate how many units need to be sold by the Snowboard Company to achieve a profit of $30,000.