Section $2$ Government Grant

Jason has recently come across a new government grant program that is part of an initiative to improve the productivity of Canadian companies and promote employment. The program provides eligible manufacturing companies with the opportunity to receive a forgivable loan to further the production of the company's $$best$$ single product. Since the grant will only be given to support the production of a single product, all companies that apply must base their application on a single product. The following criteria are used to assess eligibility:

The grant will only be given to support one product per qualifying company.

The grant must be used for products that are popular and in demand.

The demand for a product is measured by the following variances:

Sales Price $/$ Market Volume $/$ Market Share.

The grant is only given to support products that are profitable.

The following conversation took place on January $18,2023,$ between Jason Alexander $($CEO$)$ and Tara Alexander $($Controller$).$

Jason: Tara, I would like to you look at our numbers and determine if we qualify for the government grant we discussed last week.

Tara: Not a problem, is there any area you would like me to focus on$?$

Jason: I think the best approach would be to look at each of the products individually and then determine which products would put us in the best running to receive the grant.

Tara: Would you like me to suggest one product that we should base our grant application on$?$

Jason: No$,$ I think it would be best to rank the products from $1($best$)$ to $4($worst$).$

Tara: Okay, that seems straightforward, how will I determine the ranking?

Jason: You will have to prepare a qualitative and quantitative assessment and use this to support the recommendation that you make. This of course will be based on the criteria that are outlined in the grant application.

Tara: Is there anything else you would like me to do$?$

Jason: We have not looked at the negotiated transfer pricing policies within the company in a long time, so although it is not asked for in the grant application, I would like you to do a qualitative assessment of our transfer pricing strategy and provide a recommendation which will allow us to maximize our efficiency as an organization.

Tara: Where can I find all the information for this report?

Jason: You can find it in Appendix II$.$

Tara: Awesome, thank you so much for the guidance.

Jason: I am sure you will knock this report out of the park!

Jason: Oh$,$ and Tara, could you ensure that you prepare a professional document, I will be out of town this coming week and we will be submitting your report without any modifications. Points will be taken away for poor formatting, confusing presentation, incorrect calculations, and missing components.

Tara: Not a problem, I will prepare a professional document that will be used for the grant application and will ensure that I have everything laid out in a manner that is easy to read, understand, and makes sense.

Tara: Excellent! I got this!

Jason would like you to assume the role of Tara Alexander and put together an application for the government grant. Ensure you have a strong understanding of the grant criteria, and you provide Jason with ALL of the deliverables he requested.

$2022$ Actual Numbers

Socks

Shorts

Pants

T$-$shirts

Jackets

Sales Price

$15\mathrm{.}99$

$32\mathrm{.}99$

$44\mathrm{.}99$

$27\mathrm{.}99$

$119\mathrm{.}99$

Variable Costs

$11\mathrm{.}14$

$14\mathrm{.}86$

$23\mathrm{.}57$

$22\mathrm{.}82$

$38\mathrm{.}56$

Contribution Margin

$4\mathrm{.}85$

$18\mathrm{.}13$

$21\mathrm{.}42$

$5\mathrm{.}17$

$81\mathrm{.}43$

Fixed Costs

$1,100,000$

$1,250,000$

$684,500$

$635,050$

$2,135,000$

Industry Sales $($units$)$

$550,000$

$168,500$

$327,000$

$550,000$

$139,950$

$2022$ Budgeted Numbers

Socks

Shorts

Pants

T$-$shirts

Jackets

Sales Price

$15\mathrm{.}99$

$35\mathrm{.}99$

$40\mathrm{.}99$

$25\mathrm{.}99$

$105\mathrm{.}99$

Variable Costs

$10\mathrm{.}05$

$17\mathrm{.}51$

$18\mathrm{.}75$

$19\mathrm{.}85$

$56\mathrm{.}1$

Contribution Margin

$5\mathrm{.}94$

$18\mathrm{.}48$

$22\mathrm{.}24$

$6\mathrm{.}14$

$49\mathrm{.}89$

Fixed Costs

$1,085,000$

$1,223,500$

$658,000$

$546,650$

$1,966,010$

Industry Sales $($units$)$

$195,000$

$280,000$

$325,000$

$625,000$

$380,000$

Expected LSI Sales $($units$)$

$98,000$

$80,000$

$60,000$

$100,000$

$50,000$

Margin of Safety

$1,698,552$

$(1,823,968)$

$12,966,203$

$2,117,929$

$(925,103)$

Notes

Each product is manufactured in its own department $($ex: socks are manufactured in the $$sock$$ department$)$

Each department has its own manager, building and support staff.