Please answer the third question. The first and second questions were answered by an expert. They are located below this Activity.
For this activity, you have been hired as a team of consultants on a multi-year basis for a global washer and dryer manufacturer. They currently offer two core washer and dryer sets: a high-end model and an economic model. You are tasked to complete several calculations 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 of 8 - 12 slides. A copy of the final presentation will be submitted by each member of the group in Unit 7. 1. For your first assignment, management has provided the following revenue and cost information: Economical Set $1,000 per unit Sales price Labor Materials High-End Set $3,500 per unit $875 per unit $1400 per unit per unit $250 $300 per unit Direct fixed costs $25,000 Allocated fixed costs $85,000 per month $16,500 per month $85,000 per month per month They want a better understanding of their business to make budgeting and sales goals decisions and have asked you to determine their: 1. Contribution Margins for each product line 2. Break-even quantities for each product line 3. Break-even quantities to earn $500,000 per year margin on the high-end line (at the current sales price) 4. Break-even quantities to earn $300,000 per year margin on the economical line at the current sales price) They expect the product lines to fully absorb the costs allocated to them. They have also asked that you show each step in your calculations so that they can understand your analysis. (Note: you will be graded on your intermediary values.) Once you have determined these amounts, they have asked that 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 machinery and equipment to set up a line to produce a combination washer-dryer. They have given you the following information to analyze 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 per unit 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 is 10%. They will incur all operational costs in Year 1, though sales are expected to be 55% of break-even. Break-even (considering only direct fixed costs) is expected to occur in Year 2. Variable costs will increase 2% each year, starting in Year 3. 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 you present the information, describe how you performed your calculations, and explain what the results mean. After you have completed the calculations and presented your work, management makes the investment. Explain how the project analyses do or do not support this decision. In either case, what are the factors that should have been considered in management's decision? 3. After the combo washer-dryer has been in production for a few years, you are asked to perform another analysis. You must evaluate the performance of all three product lines as management is concerned with the viability of the washer-dryer combination product. They provide you with the latest annual 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 to drop or keep the washer-dryer combination product and present your findings, including the steps taken to make your determination. You are also asked to evaluate if the costing methodology is appropriate and, if not, recommend alternative methods. Please describe the circumstances of the case study and make the required recommendations. Explain your approaches to the problems, perform relevant calculations and analyses, and justify your recommendations. Evaluate the results and explain what each calculated value means. Ensure your work and conclusions are thoroughly 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 rationale and considering various factors that could impact the recommendations. Answer: Rate answer he 1. Break Even Quantity: For High End Set is 90 units For Economical Set is 226 units 2. Break Even Quantities to earn $500,000 per year margin on the High-End Line is 498 units 3. Break Even Quantities to earn $300,000 per year margin on the Economical Line is 892 units 4. NPV is $6,848.62 IRR is 8.96% The remaining answers are explained in the explanation part. Please refer to the explanation part Explanation: Break even Quantity = Total Fixed Cost / Contribution Margin Per Unit Contribution Margin = Sale Price - Variable Cost Calculation of Contribution Margin Per unit: For High End Set = $3,500 - ($875 + $1,400) = $1,225 For Economical Set = $1,000 - ($250 + $300) = $450 Calculation of Break-even Quantity for each Product Line: 1.For High End Set = ($25,000 + $85,000) / $1,225 = 89.80 = 90 units For Economical Set = ($16,500 + $85,000) / $450 = 225.56 = 226 units 2. Break Even Quantities to earn $500,000 per year margin on the High-End Line: = ($25,000 + $85,000 + $500,000) /$1,225 3. Break Even Quantities to earn $300,000 per year margin on the Economical Line: = ($16,500 + $85,000 + $300,000) / $450 = 892.22 = 892 units Break even quantity specifies a level of out at which the firm neither earn profit nor suffer a loss. It is a position in which total cost is equal to total revenue. For the purpose of High End Set the breakeven quantity is 90 units. Whereas for the purpose of Economic Set the breakeven quantity is 226 units. When they decide to have a particular margin to be earned, then the breakeven quantity will change. For the High End Set breakeven quantity is 498 units and for Economic Set the breakeven quantity is 892 units. Calculation procedure: For calculating break even quantity: Total Fixed Cost / Contribution Margin Per Unit Contribution Margin: Sale Price - Variable Cost Calculation of breakeven quantity, when a particular margin is stated: (Total Fixed Cost + Profit Margin) / Contribution Margin These are the formula used for the calculation purpose. The results simply states that for the High End Set the breakeven quantity at which total cost is equal to total revenue is 90 units. Whereas, when a particular profit margin is said to be maintained then the breakeven quantity has increased to 498 units. Similarly, for Economic Set the breakeven is 226 units and when a particular profit margin is said to be maintained then the breakeven quantity has increased to 892 units. 2. A B 1 Particulars 2 Sale Price per Unit $2,250.00 3 Labor Cost per unit $ 595.00 4. Material Cost per unit $ 795.00 5 Contribution per unit $ 860.00 [Sale Price per Unit - (Labor Cost per unit + Material Cost per unit)] 7 8 Contribution Margin Percentage 38.22% 9 Contribution/Sales Price 10 11 Breakeven Quantity 289.53488 12 Total Fixed Cost / Contribution per unit 6 Formula wise: A B 1 Particulars 2 Sale Price per Unit 2250 3 Labor Cost per unit 595 4 Material Cost per unit 795 5 Contribution per unit =B2-(B3+B4) [Sale Price per Unit - (Labor Cost per unit + Material Cost per unit)] 6 7 8 Contribution Margin Percentage =B5/B2 9 Contribution / Sales Price 10 11 Breakeven Quantity =(20750*12)/B5 12 Total Fixed Cost / Contribution per unit B E 0 1 D F 2 3 246.5 290 348 417.6 501.12 $ 2,250.00 S 2,250.00 S 2,250.00 S 2,250.00 S 2,250.00 S554.625.00 S 652,500.00 S 783,000.00 S 939,600.00 $ 1,127,520.00 $1,390 $1,390 $1,417.800 $1,446.16 $1,475.08 $342,635 $403,100 $493,394 $603,915 $739,192 1 Year 2 Sale Units 3 Sales Price per unit 4 Total Sales (a) 5 Variable Cost per unit 6 Total Variable Cost (b) 7 Less: 8 Direct Fixed Cost (2) 9 Total Cash Flow 10 (a-b-c) 11 12 PV Factor @ 8% 13 PV of Cash Flow 14 NPV 15 IRR $ 249,000.00 S 249,000.00 $ 249,000.00 $ 249,000.00 S 249,000.00 ($150,000) S (37,010.00) S 400.00 $ 40,605.60 S 86,685.25 S 139,328.35 0.9259 S(150,000.00) S (34,267.56) S 0.8573 0.7938 0.735 342.92 S 32,232.73 $ 63,713.66 S $ 0.6806 94.826.88 6,848.62 8.96% Formula wise: B D E F 1 Year lo 1 2 3 4 5 2 Sale Units =D2-D2*15%) 290 =(D2*20%)+D2 =E2+(E2*20%) =F2+(F2*20%) 3 Sales Price per unit 2250 2250 2250 2250 2250 4 Total Sales (a) =C2 C3 =D2 D3 =E2 E3 =F2*F3 =G2 G3 5 Variable Cost per unit) 1390 1390 =D5+(D5*2%) =E5+(E5*2%) =F5+(F5*2%) 6 Total Variable Cost () =C2*C5 =D2*D5 =E2*E5 =F2 F5 =G2*G5 7 Less: 8 Direct Fixed Cost (C) =20750*12 =20750*12=20750*12 =20750*12 =20750*12 9 Total Cash Flow |-150000 =C4-C6-C8 =D4-D6-D8 =E4-E6-E8 =F4-F6-F8 =G4-G6-G8 10 (a-b-c) 11 12 PV Factor @ 8% 0.9259 0.8573 0.7938 0.735 0.6806 13 PV of Cash Flow =B9*B12=C9C12 =D9*D12 =E9*E12 =F9*F12 =G9*G12 14 NPV =SUM(B13.G13) 15 IRR =IRR(B9:69) 1 Project analysis helps the management in understanding which project is profitable and which one is not. In short, we can say it helps the management in decision making. Since the minimum required rate of return was 10% but the computed one is 8.96%. It's not considered to be a profitable investment. Project analysis helps the management in understanding which project is profitable and which one is not. In short, we can say it helps the management in decision making. Since the minimum required rate of return was 10% but the computed one is 8.96%. It's not considered to be a profitable investment. The management has to take decision considering number of factors such as: Certainty associated with the cash flow. Risk associated with the prospective projects. Factors that may affect the cash flow of the project. Alternative available with the management regarding the projects. For this activity, you have been hired as a team of consultants on a multi-year basis for a global washer and dryer manufacturer. They currently offer two core washer and dryer sets: a high-end model and an economic model. You are tasked to complete several calculations 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 of 8 - 12 slides. A copy of the final presentation will be submitted by each member of the group in Unit 7. 1. For your first assignment, management has provided the following revenue and cost information: Economical Set $1,000 per unit Sales price Labor Materials High-End Set $3,500 per unit $875 per unit $1400 per unit per unit $250 $300 per unit Direct fixed costs $25,000 Allocated fixed costs $85,000 per month $16,500 per month $85,000 per month per month They want a better understanding of their business to make budgeting and sales goals decisions and have asked you to determine their: 1. Contribution Margins for each product line 2. Break-even quantities for each product line 3. Break-even quantities to earn $500,000 per year margin on the high-end line (at the current sales price) 4. Break-even quantities to earn $300,000 per year margin on the economical line at the current sales price) They expect the product lines to fully absorb the costs allocated to them. They have also asked that you show each step in your calculations so that they can understand your analysis. (Note: you will be graded on your intermediary values.) Once you have determined these amounts, they have asked that 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 machinery and equipment to set up a line to produce a combination washer-dryer. They have given you the following information to analyze 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 per unit 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 is 10%. They will incur all operational costs in Year 1, though sales are expected to be 55% of break-even. Break-even (considering only direct fixed costs) is expected to occur in Year 2. Variable costs will increase 2% each year, starting in Year 3. 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 you present the information, describe how you performed your calculations, and explain what the results mean. After you have completed the calculations and presented your work, management makes the investment. Explain how the project analyses do or do not support this decision. In either case, what are the factors that should have been considered in management's decision? 3. After the combo washer-dryer has been in production for a few years, you are asked to perform another analysis. You must evaluate the performance of all three product lines as management is concerned with the viability of the washer-dryer combination product. They provide you with the latest annual 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 to drop or keep the washer-dryer combination product and present your findings, including the steps taken to make your determination. You are also asked to evaluate if the costing methodology is appropriate and, if not, recommend alternative methods. Please describe the circumstances of the case study and make the required recommendations. Explain your approaches to the problems, perform relevant calculations and analyses, and justify your recommendations. Evaluate the results and explain what each calculated value means. Ensure your work and conclusions are thoroughly 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 rationale and considering various factors that could impact the recommendations. Answer: Rate answer he 1. Break Even Quantity: For High End Set is 90 units For Economical Set is 226 units 2. Break Even Quantities to earn $500,000 per year margin on the High-End Line is 498 units 3. Break Even Quantities to earn $300,000 per year margin on the Economical Line is 892 units 4. NPV is $6,848.62 IRR is 8.96% The remaining answers are explained in the explanation part. Please refer to the explanation part Explanation: Break even Quantity = Total Fixed Cost / Contribution Margin Per Unit Contribution Margin = Sale Price - Variable Cost Calculation of Contribution Margin Per unit: For High End Set = $3,500 - ($875 + $1,400) = $1,225 For Economical Set = $1,000 - ($250 + $300) = $450 Calculation of Break-even Quantity for each Product Line: 1.For High End Set = ($25,000 + $85,000) / $1,225 = 89.80 = 90 units For Economical Set = ($16,500 + $85,000) / $450 = 225.56 = 226 units 2. Break Even Quantities to earn $500,000 per year margin on the High-End Line: = ($25,000 + $85,000 + $500,000) /$1,225 3. Break Even Quantities to earn $300,000 per year margin on the Economical Line: = ($16,500 + $85,000 + $300,000) / $450 = 892.22 = 892 units Break even quantity specifies a level of out at which the firm neither earn profit nor suffer a loss. It is a position in which total cost is equal to total revenue. For the purpose of High End Set the breakeven quantity is 90 units. Whereas for the purpose of Economic Set the breakeven quantity is 226 units. When they decide to have a particular margin to be earned, then the breakeven quantity will change. For the High End Set breakeven quantity is 498 units and for Economic Set the breakeven quantity is 892 units. Calculation procedure: For calculating break even quantity: Total Fixed Cost / Contribution Margin Per Unit Contribution Margin: Sale Price - Variable Cost Calculation of breakeven quantity, when a particular margin is stated: (Total Fixed Cost + Profit Margin) / Contribution Margin These are the formula used for the calculation purpose. The results simply states that for the High End Set the breakeven quantity at which total cost is equal to total revenue is 90 units. Whereas, when a particular profit margin is said to be maintained then the breakeven quantity has increased to 498 units. Similarly, for Economic Set the breakeven is 226 units and when a particular profit margin is said to be maintained then the breakeven quantity has increased to 892 units. 2. A B 1 Particulars 2 Sale Price per Unit $2,250.00 3 Labor Cost per unit $ 595.00 4. Material Cost per unit $ 795.00 5 Contribution per unit $ 860.00 [Sale Price per Unit - (Labor Cost per unit + Material Cost per unit)] 7 8 Contribution Margin Percentage 38.22% 9 Contribution/Sales Price 10 11 Breakeven Quantity 289.53488 12 Total Fixed Cost / Contribution per unit 6 Formula wise: A B 1 Particulars 2 Sale Price per Unit 2250 3 Labor Cost per unit 595 4 Material Cost per unit 795 5 Contribution per unit =B2-(B3+B4) [Sale Price per Unit - (Labor Cost per unit + Material Cost per unit)] 6 7 8 Contribution Margin Percentage =B5/B2 9 Contribution / Sales Price 10 11 Breakeven Quantity =(20750*12)/B5 12 Total Fixed Cost / Contribution per unit B E 0 1 D F 2 3 246.5 290 348 417.6 501.12 $ 2,250.00 S 2,250.00 S 2,250.00 S 2,250.00 S 2,250.00 S554.625.00 S 652,500.00 S 783,000.00 S 939,600.00 $ 1,127,520.00 $1,390 $1,390 $1,417.800 $1,446.16 $1,475.08 $342,635 $403,100 $493,394 $603,915 $739,192 1 Year 2 Sale Units 3 Sales Price per unit 4 Total Sales (a) 5 Variable Cost per unit 6 Total Variable Cost (b) 7 Less: 8 Direct Fixed Cost (2) 9 Total Cash Flow 10 (a-b-c) 11 12 PV Factor @ 8% 13 PV of Cash Flow 14 NPV 15 IRR $ 249,000.00 S 249,000.00 $ 249,000.00 $ 249,000.00 S 249,000.00 ($150,000) S (37,010.00) S 400.00 $ 40,605.60 S 86,685.25 S 139,328.35 0.9259 S(150,000.00) S (34,267.56) S 0.8573 0.7938 0.735 342.92 S 32,232.73 $ 63,713.66 S $ 0.6806 94.826.88 6,848.62 8.96% Formula wise: B D E F 1 Year lo 1 2 3 4 5 2 Sale Units =D2-D2*15%) 290 =(D2*20%)+D2 =E2+(E2*20%) =F2+(F2*20%) 3 Sales Price per unit 2250 2250 2250 2250 2250 4 Total Sales (a) =C2 C3 =D2 D3 =E2 E3 =F2*F3 =G2 G3 5 Variable Cost per unit) 1390 1390 =D5+(D5*2%) =E5+(E5*2%) =F5+(F5*2%) 6 Total Variable Cost () =C2*C5 =D2*D5 =E2*E5 =F2 F5 =G2*G5 7 Less: 8 Direct Fixed Cost (C) =20750*12 =20750*12=20750*12 =20750*12 =20750*12 9 Total Cash Flow |-150000 =C4-C6-C8 =D4-D6-D8 =E4-E6-E8 =F4-F6-F8 =G4-G6-G8 10 (a-b-c) 11 12 PV Factor @ 8% 0.9259 0.8573 0.7938 0.735 0.6806 13 PV of Cash Flow =B9*B12=C9C12 =D9*D12 =E9*E12 =F9*F12 =G9*G12 14 NPV =SUM(B13.G13) 15 IRR =IRR(B9:69) 1 Project analysis helps the management in understanding which project is profitable and which one is not. In short, we can say it helps the management in decision making. Since the minimum required rate of return was 10% but the computed one is 8.96%. It's not considered to be a profitable investment. Project analysis helps the management in understanding which project is profitable and which one is not. In short, we can say it helps the management in decision making. Since the minimum required rate of return was 10% but the computed one is 8.96%. It's not considered to be a profitable investment. The management has to take decision considering number of factors such as: Certainty associated with the cash flow. Risk associated with the prospective projects. Factors that may affect the cash flow of the project. Alternative available with the management regarding the projects
