For this activity, you have been hired as a team of consultantson a multi-year basis for a global washer and dryer manufacturer.They currently offer two core washer and dryer sets: a high-endmodel and an economic model. You are tasked to complete severalcalculations and present your findings to the company stakeholders.You may use any presentation software (Google Slides, Prezi,PowerPoint, etc.) and your completed presentation should consist of12 – 15 slides. A copy of the final presentation will be submittedby each member of the group in Unit 7.
1. For your first assignment, management has provided thefollowing revenue and cost information:
| High-End Set | | Economical Set | |
|---|
| Sales price | $3,500 | per unit | $1,000 | per unit |
| Labor | $875 | per unit | $250 | per unit |
| Materials | $1400 | per unit | $300 | per unit |
| | | | |
| Direct fixed costs | $25,000 | per month | $16,500 | per month |
| Allocated fixed costs | $85,000 | per month | $85,000 | per month |
They want a better understanding of their business to makebudgeting and sales goals decisions and have asked you to determinetheir:
- Break-even quantities for each product line
- Break-even quantities to earn $500,000 per year margin on thehigh-end line (at the current sales price)
- Break-even quantities to earn $300,000 per year margin on theeconomical line (at the current sales price)
They expect the product lines to fully absorb the costsallocated to them.
Once you have determined these amounts, they have askedthat you:
- present the information
- describe how you performed your calculations
- and explain what the results mean
2. Later, the company is considering the purchase of machineryand equipment to set up a line to produce a combinationwasher-dryer. They have given you the following information toanalyze the project on a 5-year timeline:
- Initial cash outlay is $150,000, no residual value.
- Sales price is expected to be $2,250 per unit, with $595 perunit in labor expense and $795 per unit in materials.
- Direct fixed costs are estimated to run $20,750 per month.
- Cost of capital is 8%, and the required rate of return is10%.
- They will incur all operational costs in Year 1, though salesare expected to be 55% of break-even.
- Break-even (considering only direct fixed costs) is expected tooccur in Year 2.
- Variable costs will increase 2% each year, starting in Year3.
- Sales are estimated to grow by 10%, 15%, and 20% for years 3 -5.
They have asked you to calculate:
- The product’s contribution margin
- Break-even quantity
- NPV
- IRR
Once you have determined these amounts, they have asked that youpresent the information, describe how you performed yourcalculations, and explain what the results mean.
After you have completed the calculations and presented yourwork, management makes the investment.
- Explain how the project analyses do or do not support thisdecision.
- In either case, what are the factors that should have beenconsidered in management’s decision?
3. After the combo washer-dryer has been inproduction for a few years, you are asked to perform anotheranalysis. You must evaluate the performance of all three productlines as management is concerned with the viability of thewasher-dryer combination product. They provide you with the latestannual information by product:
| High-End Set | Economical Set | W/D Combo | Total |
|---|
| Sales | $4,700,000 | $4,060,000 | $880,000 | $9,640,000 |
| Labor | $(1,250,000) | $(1,015,000) | $(235,000) | $(2,500,000) |
| Materials | $(1,885,000) | $(1,220,000) | $(315,000) | $(3,420,000) |
| Direct fixed costs | $(325,000) | $(220,000) | $(250,000) | $(795,000) |
| Allocated fixed costs | $(650,000) | $(650,000) | $(650,000) | $(1,950,000) |
| Net Income | $590,000 | $955,000 | $(570,000) | $975,000 |
You are asked to perform an analysis to determine whether todrop or keep the washer-dryer combination product and present yourfindings, including the steps taken to make your determination. Youare also asked to evaluate if the costing methodology isappropriate and, if not, recommend alternative methods.
Please describe the circumstances of the case study and make therequired recommendations. Explain your approaches to the problems,perform relevant calculations and analyses, and justify yourrecommendations. Evaluate the results and explain what eachcalculated value means. Ensure your work and conclusions arethoroughly supported.
Superior presentations will:
- Describe the circumstances.
- Perform all calculations correctly.
- Articulate how the calculations were performed.
- Evaluate the computations and explain their meanings.
- Make recommendations, supported by well-thought-out rationaleand considering various factors that could impact therecommendations.
