You learned in a recent professional course in Master-Accountant Institute, that strategic profitability analysis is a tool to determine how successful a business operating is implementing its strategy, and tactics.

You have been hired by Dellito Corp, a manufacturer of high-quality furniture. Dellito has been considering buying another company to continue increasing its market share. A month ago, Mr. Wood, the CEO of Dellito Company, received a call from Mr. Brokito a business broker, who offered him to buy HI Tree Corp.

Hi Tree Corp invests large sums of money in advertising with the objective of positioning itself as a different company in the marketplace. The objective is that Hi Tree can have a higher price tag on its products. On average, its furniture command a premium price over its competitors.

You learned that the following are Hi Tree strategic goals:

• Market share: Managers project that the market size will be $ 350 million. Hi Tree target share was 1% of the market in dollar terms, that is equivalent to 0.75% of the 1,500,000 pieces of furniture.
• Gross margin objective was set at 30% of sales.
• Marketing expenses were projected at 10% of total revenues.
• Cash flow: $ 500,000 in cash flow from operations.
• ROE goal was 20%.

Hi Tree Corp Profit Projection vs Actual Results for 2020

Using analysis of variance (or differences) of the table above, what would be your recommendations as consultant to Mr. Wood. Explain extensively why. You MUST use numbers to back up your explanations.

Profit Plan-2020 Actual Income Statement-2020 $ 4,300,000 $ 4,450,050 $ Sales Cost of Goods Sold Raw materials Wages Other manufacturing costs Gross margin Administrative, Selling and General Expenses Marketing expenses Interest expenses Net Income before taxes Income tax Net Income 1,595,000 505,000 480,000 $ 1,720,000 505,000 516,000 64,000 $ 635,000 222,000 $ 413,000.00 1,686,672 514,696 490,650 1,758,032 488,500 520,700 76,200 672,632 235,421 437,211 $ $