Analysis of Three Plans for Increasing Profit of Go-Go-Grow Company

This document provides an analysis of three plans proposed by different managers to increase the profit of Go-Go-Grow Company. It includes a table showing net profit amount based on last year's information and break-even and margin of safety calculations for each plan. The document also discusses factory capacity and the background of the author before MBA.

ACC00724 (Accounting for Managers) S3, 2018
Name of the Student
Name of the University

Table of Contents
Question 1:...................................................................................................................3
Question 2:...................................................................................................................7
Question 2(i)..............................................................................................................7
Question 2(ii).............................................................................................................8
Question 3:...................................................................................................................8
Question 3 (i).............................................................................................................8
Question 3 (ii)............................................................................................................8
Question 3(iii)............................................................................................................9
Bibliography................................................................................................................10

Question 1:
Based on last year's information:
Sales 12000
Selling Price $ 460.00
Sales Revenue $ 55,20,000.00
Cost of goods sold:
Variable manufacturing costs $ 22,08,000.00
Fixed manufacturing costs $ 3,60,000.00 $ 25,68,000.00
Gross margin/gross profit $ 29,52,000.00
Operating expenses:
Variable operating costs $ 4,32,000.00
Fixed operating costs $ 6,00,000.00 $ 10,32,000.00
Net operating income $ 19,20,000.00
The above table is showing the net profit amount basis last year’s information. It
indicates that if the organisation able to maintain 12000 sales level, then the profit
will be $19,20,000.00
However, as per the CEO, Sherri Watkins, the production manager, the sales
manager and the marketing director has designed three individual plans which are
discussed as below.
Plan 1: The production manager, David Groate
Sales 15600
Selling Price $ 460.00
Sales Revenue $ 71,76,000.00
Cost of goods sold:
Variable manufacturing costs $ 34,32,000.00
Fixed manufacturing costs $ 3,60,000.00 $ 37,92,000.00
Gross margin/gross profit $ 33,84,000.00
Operating expenses:
Variable operating costs $ 6,21,600.00
Fixed operating costs $ 6,00,000.00 $ 12,21,600.00
Net operating income $ 21,62,400.00
Break-Even and Margin of Safety Calculations
Fixed Cost $ 3,60,000.00
Variable cost/unit 220
Selling Price/unit $ 460.00
Break-Even Point 1500

Break-Even Sales $ 6,90,000.00
Margin of Safety 90.38%
The plan devised by the production manager, David Groate, suggests making
improvements to the quality of the product. These quality improvements would
increase the variable costs by $36 per unit. This would be accompanied by a
$60,000 national advertising campaign which he expects would boost sales volume
by 30%. Considering these changes it has found that the company will be able to
attain a profit level of $21,62,400.00. Here, the break-even point is 1500 units with
margin of safety 90.38%.
Profit at different Sales
Level
$ 21,62,400.00
1170
0
$ 13,66,800.00
1248
0
$ 15,25,920.00
1326
0
$ 16,85,040.00
1404
0
$ 18,44,160.00
1482
0
$ 20,03,280.00
1560
0
$ 21,62,400.00
1638
0
$ 23,21,520.00
1716
0
$ 24,80,640.00
1794
0
$ 26,39,760.00
The plan devised by the sales manager, Kirsten Arnold, believes that the product is
unique, but not yet well known enough. Based on her market research, she feels that
advertising should be increased by $120,000 and that the product would also be able
to bear an increase in price of $60 with sales volume reduced by 12% from the
current levels. Considering these changes it has found that the company will be able
to attain a profit level of $20,88,000.00. Here, the break-even point is 1071 units with
margin of safety 89.85%.
Plan 2: The sales manager, Kirsten Arnold
Sales 10560

Selling Price $ 520.00
Sales Revenue $ 54,91,200.00
Cost of goods sold:
Variable manufacturing costs $ 19,43,040.00
Fixed manufacturing costs $ 3,60,000.00 $ 23,03,040.00
Gross margin/gross profit $ 31,88,160.00
Operating expenses:
Variable operating costs $ 5,00,160.00
Fixed operating costs $ 6,00,000.00 $ 11,00,160.00
Net operating income $ 20,88,000.00
Break-Even and Margin of Safety
Calculations
Fixed Cost $ 3,60,000.00
Variable cost/unit 184
Selling Price/unit $ 520.00
Break-Even Point 1071
Break-Even Sales $ 5,57,142.86
Margin of Safety 89.85%
Profit at different Sales Level
$ 20,88,000.00
7920 $ 12,96,000.00
8448 $ 14,54,400.00
8976 $ 16,12,800.00
9504 $ 17,71,200.00
10032 $ 19,29,600.00
10560 $ 20,88,000.00
11088 $ 22,46,400.00
11616 $ 24,04,800.00
12144 $ 25,63,200.00
12672 $ 27,21,600.00
13200 $ 28,80,000.00
The plan devised by marketing director, Jess Sutherland, wants to undertake a
promotion campaign where a $40 rebate is offered to the first 2,500 phones sold.
She expects that the rebate program would boost sales by an additional 2,000 units
if spending on advertising was increased by $50,000. Considering these changes it
has found that the company will be able to attain a profit level of $22,95,000.00.
Here, the break-even point is 1304 units with margin of safety 90.44%.

Plan 3: The marketing director, Jess Sutherland
Sales 14000
Selling Price @ $40 rebate $
420.00
Selling Price $
460.00
Sales Revenue $ 63,40,000.00
Cost of goods sold:
Variable manufacturing costs $ 25,76,000.00
Fixed manufacturing costs $ 3,60,000.00 $ 29,36,000.00
Gross margin/gross profit $ 34,04,000.00
Operating expenses:
Variable operating costs $ 5,54,000.00
Fixed operating costs $ 6,00,000.00 $ 11,54,000.00
Net operating income $ 22,50,000.00
Break-Even and Margin of Safety
Calculations
Fixed Cost $ 3,60,000.00
Variable cost/unit 184
Selling Price/unit $ 460.00
Break-Even Point 1304
Break-Even Sales $ 6,06,376.20
Margin of Safety 90.44%
Profit at different Sales
Level
$ 22,95,000.00
1050
0
$ 14,55,000.00
1120
0
$ 16,23,000.00
1190
0
$ 17,91,000.00
1260
0
$ 19,59,000.00
1330
0
$ 21,27,000.00
1400
0
$ 22,95,000.00
1470 $ 24,63,000.00

0
1540
0
$ 26,31,000.00
1610
0
$ 27,99,000.00
1680
0
$ 29,67,000.00
1750
0
$ 31,35,000.00
The total costs brought about by any business comprise of settled expenses and
variable expenses. Settled expenses will be costs that continue as before paying
little heed to generation yield. Regardless of whether a firm makes deals or not, it
must pay its settled expenses, as these expenses are free of yield. Instances of
settled expenses are lease, representative pay rates, protection, and office supplies.
An organization should even now pay its lease for the space it involves to maintain
its business tasks independent of the volume of item produced and sold. Albeit,
settled expenses can change over some undefined time frame, the change won't be
identified with generation.
Variable expenses, then again, are reliant on creation yield. The variable expense of
creation is a steady sum for each unit delivered. As volume of creation and yield
builds, variable costs will likewise increment. On the other hand, when less items are
delivered, the variable expenses related with generation will thusly diminish.
Instances of variable expenses are deals commissions, coordinate work costs, cost
of crude materials utilized underway, and utility expenses.
An organization can expand its benefits by diminishing its absolute expenses. Since
settled expenses are additionally testing to cut down (for instance, decreasing rent
may involve the organization moving to a less expensive area), most organizations
try to lessen their variable expenses. Along these lines, diminishing expenses more
often than not implies diminishing variable expenses.
An organization that tries to expand its benefit by diminishing variable expenses may
need to eliminate fluctuating expenses for crude materials, coordinate work, and
publicizing. Notwithstanding, the cost cut ought not to influence item or
administration quality as this would adverse effect deals. By decreasing its variable
costs, a business builds its gross overall revenue or commitment edge.
Question 2:
Question 2(i)
[a] The Go-Go-Grow’s annual factory capacity is 90,000 units.
Annual Sales [Existing] 60000 units

Capacity yet to be utilised 30000 units
20000 units
Direct Materials 150 $ 30,00,000.00
Direct Labour 75 $ 15,00,000.00
Variable Manufacturing overhead 35 $ 7,00,000.00
Variable selling and administrative $ -
Total Incremental Cost 260 $ 52,00,000.00
Existing profit Level for 60000 units
Sales @ 720/unit $ 4,32,00,000.00
Cost of goods sold @ 360 $ 2,16,00,000.00
Profit % 50.00%
Minimum Bid to maintain same
profit level
Sales price / unit $ 520.00
Total Bid $ 1,04,00,000.00
[b] The Go-Go-Grow’s annual factory capacity is 75,000 units.
Annual Sales [Existing] 60000 units
Capacity yet to be utilised 15000 units
20000 units
Direct Materials 150 $ 30,00,000.00
Direct Labour 75 $ 15,00,000.00
Variable Manufacturing overhead 35 $ 7,00,000.00
Variable selling and administrative $ -
Total Incremental Cost 260 $ 52,00,000.00
Loss of existing sales @ 720*5000
units
$ 36,00,000.00
Total Cost $ 88,00,000.00
Minimum Bid to maintain same profit
level
Sales price / unit $ 880.00
Total Bid $ 1,76,00,000.00
Question 2(ii)
It has seen that the Go Go Grow Company can utilise 60000 units capacity
considering their 5000 units monthly sale. Now, before accepting the proposal of
Mantel, the company needs to assess the situation first. Since, 90000 units is the
annual capacity, 30000 units capacity will be underutilised. However, the fixed cost
will be the same whether it sales 60000 units or 90000 units. Considering this, when
there is an opportunity of additional sales of 20000 units, which can be
accommodate easily with current level of capacity, the organisation can easily go for
this additional sales. Thus, it can be said that Go Go Grow can consider the contract
with Mantel.
Now, as per given information the above section has shown the total cost for 20000
units in addition to 60000 annual sales. The above section has shown that $

52,00,000.00 will be the minimum bid. At this point the company will be in no profit
no gain situation. Under such circumstances, depending on the market, and
competition, the company can set a profit percentage. Taken for example, if the
company plans to earn current level of profit from this additional sales, which is at
50%; then the minimum bid should be $1,04,000.00 or the per unit sales price will
be $520.00
Question 3:
Question 3 (i)
Background before MBA:
I am from India (Chandigarh), completed my bachelor’s degree from Punjab
University in Commerce (B. Com). After completing my bachelor’s, I joined a Multi-
National Company IBM (International Business Machine) based in Chandigarh only
and worked there as a Quality Analyst for 6 years. Later I got married and left the
job and prepared for my IELTS exam in year 2017. Furthermore, I cracked the exam
and got good bands and opted to study in Southern Cross University, Melbourne
Campus.
Question 3 (ii)
My earlier educational background has influenced me in understanding this subject
as while studying bachelor’s I have done the subject Financial Account, Cost
accounting, Economics, Management accounting, Business Management and
Income Tax and Law due to which I have the basic and root knowledge of
accounting that is how to manage Balance sheets, Trial Balance, Ledger flow and
cash flow statements etcetera.
Question 3(iii)
The capital budgeting technique will be considered as the most important tool. The
key capacity of the money related administration is the choice of the most gainful
collection of capital assumption and it is the most imperative region of basic
leadership of the monetary chief in light of the fact that any move made by the trough
around there influences the working and the benefit of the firm for a long time to
come.
Centrality of Capital Budgeting Decisions
The hugeness of capital planning can be stressed mulling over the exact idea of the
capital consumption, for example, overwhelming interest in capital ventures, long
haul suggestions for the firm, irreversible choices and confuses of the basic
leadership. Its significance can be shown well on the accompanying different
grounds:
1. Indirect Forecast of Sales. The interest in settled resources is identified with future
offers of the firm amid the existence time of the benefits acquired. It demonstrates
the likelihood of extending the creation offices to cover extra deals appeared in the
business spending plan. Any inability to make the business estimate precisely would

result in over venture or under interest in settled resources and any incorrect figure
of benefit needs may lead the firm to genuine monetary outcomes.
2. Comparative Study of Alternative Projects. Capital planning makes a relative
investigation of the elective ventures for the substitution of advantages which are
wearing out or are in risk of getting to be out of date to make the most ideal interest
in the substitution of benefits. For this reason, the gainfulness of every task is
evaluated.
3. Timing of Assets-Acquisition. Legitimate capital planning prompts appropriate
planning of benefits securing and enhancement in nature of advantages bought. It is
expected to hit nature of interest and supply of capital merchandise. The interest of
capital merchandise does not emerge until the point that deals encroach on
beneficial limit and such circumstance happen just discontinuously. Then again,
supply of capital merchandise with their accessibility is one of the elements of capital
planning.
4. Money Forecast. Capital speculation requires generous subsidizes which must be
organized by endeavouring decided activities to guarantee their accessibility at the
perfect time. In this way it encourages money figure.
5. Worth-Maximization of Shareholders. The effect of long haul capital venture
choices is broad. It secures the premiums of the investors and of the endeavor since
it keeps away from over-venture and under-interest in settled resources. By choosing
the most productive ventures, the administration encourages the riches
augmentation of value investors.

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