Document on Solar Powered Tents
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Added on 2019-10-09
Document on Solar Powered Tents
Added on 2019-10-09
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a)BackgroundTo celebrate the Glastonbury festival, the Kaleidoscope and Orange Company designedthe ‘Solar Powered Tents’ which are also known as the ‘Concept Tent’. These tents arerevolutionary in nature because they have the ability of absorbing the sunlight directly.b)Purpose/ObjectiveThe objective is to analyze the various scenarios in this report that will highlight the impact on the profitability of the company due to changes in the rate of inflation and the change in the sales levels. c)MethodologyThe data has been analysed in Microsoft Excel and reports have been developed.Accordingly, the analysis has been doned)Key Findings and ConclusionsIt has been found that the net profits are highly impacted by the rate of inflation becausewhen the inflation rises year by yea, the cost of labor and other variable costsincreases, which cause the net profit to decline as compared to the profit that thecompany would have earned if the rate of inflation would have remained stagnant.e)Lessons LearnedThe inflation has impact on the profits of the company and the net profits dependheavily on the prices of product and the number of units sold. f)RecommendationsIt is recommended that the company should plan the prices of the product byconsidering the rate of inflation so that it does not have to give up much share of itsprofit and the company should prioritize the remove of bad results from the 1000simulationsContentsIntroduction To celebrate the Glastonbury festival, the Kaleidoscope and Orange Company designed the ‘Solar Powered Tents’ which are also known as the ‘Concept Tent’. These tents are revolutionary in nature because they have the ability of absorbing the sunlight directly. Apart from this, these tents have various other features like the central wireless control hub installed in the tents that controls the energy generated and used. The tents give an amazing experience of campaigning. Now, the company has fixed the prices of the tents as per the costs that it
estimated. But, a financial planning model needs to be developed so that the company can determine the impact on net profits when this planning is changed in regard to the volume of sales and the price of the product (Carino and Ziemba, 1998). In line with this, various scenarioswill be discussed in this report that will highlight the impact on the profitability of the company due to changes in the rate of inflation and the change in the sales levels. Then the company has introduced new product in the market which is the ‘Rainwear’ that has venting approach and keeps the person safe from the rain as well as exertion. Since the productis new in the market, therefore, a risk analysis has been done and a report is prepared for the spreadsheet simulation model and accordingly the recommendations have been made for the worst and best results obtained in a simulation of 1000 trials, the mean profit and its corresponding risk, and the findings have been interpreted. Methodology Task 1Effect on the net profit due to changes in planned sales volume and product priceYearDemand(in units)Selling price(in euros)Fixed cost(in euros)Variable costs(in euros)Rate of inflationRate of TaxRaw materialPackagingDirect labourDistribution1200065100008253-20%22200671000082533%20%32420691000082535%20%42662711000082536%20%Sale price(B1*C1)Total cost(D1+F1)Profit(Sale price-cost)Tax paid (20%)Net profit(profit-tax)1300001001811998223996.495985.6
1474001001813738227476.4109905.61669801001815696231392.4125569.61890021001817898435796.8143187.2Assumption:1. Variable costs are assumed to be same over the four yearsXAnalysisFrom the above table, it can be seen that the net profit is affected when the planned sales are changed and there are changes in the prices of the products. In the first year, the net profit is 95985.6 euros when the 2000 units are sold at the price of 65 euros. This net profit has been calculated after considering the taxes paid by the company and the cost incurred. After this, when the company increases its sales by 10% every year and it also increases the prices of the product by 2 euros every year, then the profits of the company have been continuously increasing. This is because the company earns more when it is able to sell more at the increasedprices. But at the same time, the rate of inflation is also raising so, there will be slight decrease in the profit but then also, the company will earn some amount of profit. Scenario 1: Profitability of the new carving knife when inflation is predicted to be 2.5% duringthe second year and 3% thereafter:With the increase in the rate of inflation, the prices level in the market rises because more money supply is there in the economy; the purchasing power of the people is more. So, they buy goods even at the increased prices. But at the same time, the cost of labour and the raw material rises. With the increase in rate of inflation from 2.5%to 3%, the variable costs of the company will rise and the net profits will decline. Suppose the price of carving knife is 2euros and the 20 units are sold. So selling price is 40 euros. The cost incurred by the company is 20 euros. So, profit is 30 euros. But suppose the rate of inflation rises from 2.5%to 3%. So the price of carving knife will rise to 2.06 and selling
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