Business Proposal Company Overview Everest Technology Computer Business Proposal

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Business Proposal Company Overview

Everest Technology Computer is a new company that intends to manufacture computer and its accessories. Since the company will operate in competitive market environment, Everest Technology needs to understand the costs structure to increase revenue and maximize profits.

The objective of this paper is to provide a business plan that will assist the Everest Technology to increase revenue and maximize profits. The next section discusses the strategy that Everest Technology will employ to increase revenue.

Strategies to Increase Revenue

Everest Technology will use several techniques to increase revenue: The strategies are as follows:

Cost cutting measure

Increase the unit price

Increase in sales

One of the best strategies that Everest Technology could employ to increase revenue is to decline costs since cost reduction is easier to implement than price rise. The equation below reveals the four factors that affect profitability:

Equation Profit = "Revenue - (Variable costs + Fixed (capacity) costs)."

Typically, costs predictable are easier to control. Thus, an appropriate method to increase revenue is to implement the cost cutting measure, which will assist the company to increase profits. .Thus, the company could reduce costs in the areas such as selling and distribution, purchasing, administration, production, research and development. Cost reduction in these areas will produce a corresponding increase in revenue.

Moreover, the company could save the fixed costs by cutting the costs of anything that does not generate revenue. For example, the company could reduce the costs on rent, travel, interests on payable and communication. Using cost reduction analysis, the company will generate 5% increase in profit margin because 5% reduction in the fixed costs will lead to the 5% increase in profit margin everything else being equal. This is revealed in Table 1.

Table 1: Increase in Revenue through Fixed Cost Reduction

Initial

Option 1

Sales

Cost

70

65

Fixed

30

25

Unit Variable Cost

0.4

0.4

Variable

40

40

Taxes and Insurance

10

10

Profits

20

25

Profit Margin

20%

25%

Another method the company could employ to increase revenue is by reducing the variable costs unit through outsourcing, cheaper outsourcing, and off shoring and improve efficiency. Typically, 5% decline in variable costs would lead to 2% increased in the profit margin everything else being equal. This is revealed in Table 2.

Table 2: Increase in Revenue through Variable Cost Reduction

Initial

Option 2

Sales

Cost

70

68

Fixed

30

30

Unit Variable Cost

...

With this strategy, 5% increase in sales will lead to the 3% increase in the profit margin as being revealed in Table 3. However, this strategy is not advisable because customers might switch to competitors with the increase in price.( Landsburg, 2002).
Table 3: Increase Revenue by increasing Price Strategy

Initial

Option 3

Sales

Quantity

10

10

Price

10

10.5

Cost

70

68

Fixed

30

30

Unit Variable Cost

0.4

0.4

Variable

40

40

Taxes and Insurance

10

10.5

Profits

20

24.5

Profit Margin

20%

23%

Alternatively, the company could increase revenue by increasing the sales while the fixed costs remain constant as being revealed in Table 4. The company will realize 1% increase in profit margin by increasing sales.

Table 4: Increase Revenue By increasing Sales

Initial

Option 4

Sales

Quantity

10

10.5

Price

10

10

Cost

70

72

Fixed

30

30

Unit Variable Cost

0.4

0.4

Variable

40

42

Taxes and Insurance

10

10.5

Profits

20

22.5

Profit Margin

20%

21%

1.2: Determination of Profit-maximizing Quantity

The basic assumption of a firm is to maximize profits. Thus, Everest Technology will realize profit when revenue is greater than costs as being revealed below:

Profit = Revenue -- Cost

Alternatively, the company will maximize profits when marginal revenue is equal to marginal costs. As being revealed in fig 1, the profit maximizing quantity (Q) is reached when marginal costs are equal to the marginal revenue. Typically, marginal profit is realized when marginal revenue is greater than the marginal cost. If the marginal revenue is greater than the marginal cost the company should produce greater quantity. On the other hand, if marginal costs are greater than the marginal revenue, the company should produce lesser output. However, when marginal profit is zero, this is the point where marginal revenue is equal to the marginal cost and this is the quantity where the company will maximize its profit. As being reveled in the Fig 1, the company maximizes…

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