Performance analysis of Clipboard Tablet CT

Module SLP

Introduction

This paper analyses Clipboard Tablet (CT) performance, and provides a revised strategy for the four-year plan that was initially developed. Notably, the analysis will be based on Cost-Volume-Profit (CVP). The revised strategy takes into account prices, research and development allocation percentage, together with any rational product discontinuations for the X5, X6, and X& tablets for each of the years ranging from 2012 to 2015. The analysis considers the break-even point of the each of the products in the financial years both in terms of revenue generated and the sales units. In addition, the analysis outlines the contribution margin for the tablets in the 2012, 2013, 2014, and 2015 financial years and the margin of safety.

Preceding Analysis SLP 2

The set product prices of the three individual tablets together with the research and development percentage allocation are illustrated as below:

Tablet

Set Product Prices

R&D Allocation

X5

X6

X7

Based on the market rates, X5 has a market price of $285, X6 has a market price of $430 and finally X7 has a market price of $190.

Revenue

X5

X6

X7

Total Revenue

X5

X6

X7

2.76E+08

2.42E+08

4.7E+08

5.54E+08

6.12E+08

9.18E+08

5.28E+08

1.02E+09

2.75E+08

4.81E+08

Total Profit

X5

X6

X7

Total profit

X5

X6

X7

1.4E+08

1.54E+08

-2.3E+07

2.07E+08

2.85E+08

-1.3E+07

1.67E+08

3.21E+08

1.28E+08

Cost-Volume-Profit Analysis

Cost-volume-profit (CVP) analysis is utilized to make a determination as to how alterations in costs and volume have an impact on the operating income of a company as well as the net income. In conducting this analysis, there are different assumptions that were undertaken including the follows:

1. Variable costs per unit of the tablets are constant

2. Sales price for every unit of the tablets is constant

3. Total fixed costs for the tablets are constant

4. All commodities that are produced are sold

5. The costs are only influenced owing to the changes in activity

6. Since the company retails more than one tablet, they are sold in the similar mix (Drury, 2013).

CVP is a way of ascertaining the manner in which changes in both variable costs and fixed costs and sales volume have an impact because companies can have an improved understanding on the general performance. Notably, the analysis encompasses looking at the number of units that have to be sold in order to break even to reach a particular profit threshold or the margin of safety. A key component of the CVP analysis the contribution margin, which is the total revenue generated less the total variable costs. In the same manner, contribution margin per unit refers to the selling price for every unit less the variable cost for every unit. These two elements are very important tools when taking into consideration the effects of volume on the income and profit generated. In this regard, the contribution margin for every unit provides insight on the amount of revenue from the retailed units can be applicable toward fixed costs. Subsequent to retailing adequate units to cover all fixed costs, then the contribution margin for every unit from the other remaining sales are deemed profit. Second, break-even analysis makes it possible for a firm to compute the margin of safety on the basis of the generated revenues and the linked costs. Examining dissimilar price levels associated to different levels of demand, a firm employs break-even analysis is to ascertain what level of sales are necessitated to encompass the total fixed costs (Wentworth and Cafferky, 2014).

The following tables illustrate the cost-volume-profit analyses of tablets X5, X6, and X7 for the 2012, 2013, 2014, and 2015 financial years. The tables outlines the contribution margin, net earnings, break even analysis, and margin of safety for the three products in each of the financial years.

Cost Model (2012)

X5

X6

X7

Sales volume

Sales price/unit

Variable Cost / unit

Fixed Costs

Revenue

Variable Costs

Contribution margin

Fixed costs

Net earnings

$ -15,145,952.00

Breakeven Analysis

Fixed Cost / CM * Sales

Fixed Cost / CM * Sales (units)

Margin of Safety

Sales - Breakeven / Sales

Cost Model (2013)

X5

X6

X7

Sales volume

Sales price/unit

Variable Cost / unit

Fixed Costs

Revenue

Variable Costs

Contribution margin

Fixed costs

Net earnings

$ -5,477,741.00

Breakeven Analysis

Fixed Cost / CM * Sales

Fixed Cost / CM * Sales (units)

Margin of Safety

Sales - Breakeven / Sales

Cost Model (2014)

X5

X6

X7

Sales volume

Sales price/unit

Variable Cost / unit

Fixed Costs

Revenue

Variable Costs

Contribution margin

Fixed costs

Net earnings

Breakeven Analysis

Fixed Cost / CM * Sales

Fixed Cost / CM * Sales (units)

Margin of Safety

Sales - Breakeven / Sales

Cost Model (2015)

X5

X6

X7

Sales volume

Sales price/unit

Variable Cost / unit

Fixed Costs

Revenue

Variable Costs

Contribution margin

Fixed costs

Net earnings

Breakeven Analysis

Fixed Cost / CM * Sales

Fixed Cost / CM * Sales (units)

Margin of Safety

Sales - Breakeven / Sales

Margin of safety can be delineated as the amount of sales level or output can fall prior to a business reaching its breakeven point. In the 2012 CVP analysis, it can be noted that X7 tablet has a -68 percent margin of safety, which implies that the sales fall below the break-even sales and signifies a net loss. As pointed out in SLP 1, the reality is that the failure of this product to launch properly is the biggest reason that the outgoing CEO is outgoing. At the end of the day, there was a lot of share left on the table with this product, and that clearly is a pricing issue more than anything. At the present moment, an X7 tablet is sold for $190. In 2012, the sales units made were 165,568, which was not sufficient as it gave rise to net losses. The sufficient number of units needed to break even was 245,301.

The main strategy for resolving this issue is to decrease the retailing price of the X7 tablet. This is owing to the reason that the low sales are linked to the perspective of the product being high-priced. Therefore, based on the theory of demand, when the price of a commodity is decreased, the demand for the commodity increases. Therefore, by decreasing the price of the tablet, it is expected that the sales units will increase, which will also increase the revenue generated. This strategy appears to be more ideal because the market performance of the X7 tablet seems to improve in the forthcoming years. Notably, the margin of safety of the tablet improved from -68% in 2012 to -17% in 2013, 1% in 2014 and further up to 17% in 2015. The inference of this is that discontinuation of the product is not necessary but rather the reduction in the sales price seems to be more ideal and pertinent.

An additional recommended strategy is for CT to decrease the prices of X5 and X6 tablets and subsequently discontinue the production of these products. The sales performance of these two tablets were outstanding in the 2012, 2013 and 2014 financial years. Notably, the contribution margin of X5 improved from $222,4242,962 in 2012 to $289,658,942 in 2013. However, in the following two years the contribution margin of the commodity declined to $250,178,849 in 2014 and further down to $130,109,707 in 2015. In the same manner, the contribution margin of the X6 tablet increased from $199,794,824 in 2012 to $330,914,261 in 2013 and further up to $366,429,458 in 2014. However, in the 2015 financial year, the contribution margin of the tablet significantly declined to $173,312,006. The contribution margin of the X6 tablet improved from 81% in 2012 to 89% in 2013 to 90% in 2014 but considerably declined to 78% in 2015. Taking this into consideration, it is recommended for CT to decrease the price of the X5 and X6 tablets and thereafter discontinue their production. This is for the reason that the demand and inclination of the products have declined and therefore will probably generate losses in the forthcoming years.

Based on market performances, the issue with the X5 is that it is fairly far along in the product life cycle. This has implications for things like R&D and pricing, which are the two major variables. The X6 appears to decline before its time, leaving market share on the table. This is an interesting factor that could relate to either of the key variables. Based on the market summary information, the research and development allocations for the X5, X6, and X7 tablets are 33%, 34%, and 33% respectively. Based on the cost-volume-profit analysis conducted, it is recommended for CT to increase the amount of research and development for the X7 product in order to have cheaper manufacturing costs and also better consumer inclined features that will increase demand for the product, decrease the variable costs incurred and in general increase the revenue generated. The improving market performance for the X7 tablet indicates that there is bound to have increased demand in the forthcoming financial years. Therefore, it is imperative to decrease the cost incurred in its production and make it outstanding in the market to increase the sales and revenues generated.