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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
$ 285.00
33%
X6
$ 430.00
34%
X7
$ 190.00
33%
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
2011
2012
2013
2014
2015
X5
276,159,075
469,563,809
611,502,211
528,155,442
274,676,048
X6
243,073,200
554,269,513
918,020,206
1,016,546,240
480,801,048
X7
0
31,461,253
45,068,365
64,305,057
91,167,056
Total Revenue
X5
X6
X7
2011
2.76E+08
2.42E+08
0
2012
4.7E+08
5.54E+08
31461253
2013
6.12E+08
9.18E+08
45068365
2014
5.28E+08
1.02E+09
64305057
2015
2.75E+08
4.81E+08
91167056
Total Profit
2011
2012
2013
2014
2015
X5
43,991,298
139,504,962
206,738,942
167,258,894
47,189,707
X6
37,579,840
154,134,825
285,254,260
320,769,459
127,652,006
X7
0
-23,065,952
-13,397,740
270,435
19,356,593
Total profit
X5
X6
X7
2011
43991298
37579840
0
2012
1.4E+08
1.54E+08
-2.3E+07
2013
2.07E+08
2.85E+08
-1.3E+07
2014
1.67E+08
3.21E+08
270435
2015
47189707
1.28E+08
19356593
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
1,647,592
1,288,999
165,568
Sales...…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.
Results and Conclusion
CVP analysis takes into account the cost, volume and profit generated by a firm. A key aspect of analysis is the breakeven point, which is the level of activity necessitated to break even. This makes it possible to determine the level of operating activity at which the revenues generated are able to cover all of fixed and variable costs, giving rise to zero profit. The strategy to be taken is to decrease the selling price of tablet X7. Taking into consideration that in 2012, the net earnings generated are a loss of $15,145,952 and a loss of $5,477,441 in the 2013 financial year, one of the options could be a strategic move of discontinuing the production of the X7 tablet. However, this does not appear to be an ideal approach because in the subsequent financial years, the product line generated net incomes of $414,593 in 2014 and $27,276,592 in 2015. Therefore, the suggested strategy is for CT to pronounce a decrease in the price of the X7 tablet. Based on the law of demand, with all factors remaining constant, a decrease in the price of a commodity is expected to cause an increase in the demand for a commodity. Therefore, this will prompt increased sales of the tablet and therefore increase the revenue generated. Lastly, it is also recommended for CT to increase the R&D allocation percentage for X7 tablet. This is to decrease the variable costs for the product to make it more affordable in the market and increase the sales…
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