Chef Marcos Choice Inc. case question #1

CHEF MARCO'S CHOICE, INC. - QUESTIONS Write a report to the upper management of Chef Marco's Choice, Inc. that explains what happened in the Premium Grade product line. Use the report writing guide from the course website. Explain the decision made and the basis of the decision. To support your conclusions in the report, perform the analysis and answer these questions: Q. 1. Prepare a budgeted income statement for Premium Grade Ovenware for 2007 if the engineers' redesign efforts had worked as originally planned. Use these assumptions: a. First quarter sales of 1,500,000 units will be achieved each quarter in 2007 b. The selling price for 2007 will remain 10% below the price charged from 2002-2006, and there were no sales price increases during the 2002-2006 period. c. Variable cost of goods sold averaged about $5.55 per unit of ovenware from xhibit 2002-2006 " al-3 d. Variable production costs will be reduced by 35% due to the new design. e. The fixed cost of production in 2006 contained one-time, increased costs (about les and expense $4,000,000) for the design changes. For 2007, fixed costs are expected to be about 3.5% higher than 2005. seural Semio a las 1. Marketing costs contain both fixed and variable elements, however, it is budgeted based on spending 7% of expected sales revenue. 9. Other fixed costs are expected to increase about 2.5% over 2006. Would the product manager have met his profit target of 25% return on sales in 2007 for the product line with the redesign? EXHIBIT ONE Chef Marco's Choice, Inc. Premium Grade Ovenware Product Income Statement For the years ended December 31, 2002-2006 r the years at Income Steware 2005 Sales Sales in units Cost of Goods Sold 2006 $78,599,808 5,239,987 $ 81,874,800 5,458,320 2004 $ 86,184,000 5,745,600 2003 $ 75,600,000 5,040,000 2002 $67,500,000 4,5*00,000 Variable Fixed 29,081,929 27,865,240 $ 21,652,639 3 1,112,424 23,221,033 $27,541,343 31,026,240 21,701,900 $33,455,860 27,972,000 19,729,000 $ 27,899,000 24,975,000 18,100,000 $24,425,000 Gross Profit Attributable costs Marketing Other (primarily fixed) Product line profit 6,140,610 5,894,986 2,517,537 4,758,750 5,774,328 2,317,150 5,140,800 2,106,500 2,502,522 1,915,000 before GAA allocation $13,240,117 16.84% Return on Sales $ 18,898,211 23.08% $25,364,382 29.43% $ 20,651,700 27.32% $17,751,250 26.30%