Question
TrailPacker is thinking of cutting costs by using a different fabric (raw material) supplier. Their variable material spelling is expected. costs would decrease by 30%
TrailPacker is thinking of cutting costs by using a different fabric (raw material) supplier. Their variable material spelling is expected.
costs would decrease by 30% (only variable material costs - not all variable costs). The quality of the fabric is lower, so TrailPacker estimates that their additional fixed scrap costs related to the fabric quality would be $25,000 per month. They would not change the pricing of their backpacks.
Note: Use the initial data provided for all questions. Ignore the special sale and aluminum frame data from Parts 2 & 3.
A) a revised monthly Contribution Margin Income Statement to include the revenues, costs and profits of using the different raw material (fabric) supplier.
B) If their sales end up decreasing because of the change in quality, how much of a reduction in sales (dollars and units) could TrailPacker handle and still keep their net operating income the same as before the supplier change? Show your data in a Contribution Margin Income Statement.
C) a memo to the CFO that presents the pros and cons of the potential supplier change. Include the potential impacts on revenue, costs, and operating income, as well as any other factors or consequences of this decision. Be sure to include quantitative evidence and backup as well as any qualitative analysis.
Per Unit Volume 50 20,000 Sales 100,000 Variable Materials 7*20000 140,000 Variable Labor 11*20000 220,000 Variable Overhead 6*20000 120,000 Variable Cost Totals 26*20000 520,000 Variable Marketing 2*20000 40,000 Contribution Margin 24*20000 480,000 Fixed Cost: Fixed Overhead 20,000 Fixed Marketing 80,000 Fixed Costs Total 280,000 Operating Income 480000-280000 200,000
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