Impact of Inflation on Profits of Company
Added on 2019-10-09
11 Pages1983 Words217 Views
Executive summarya)BackgroundTo celebrate the Glastonbury festival, the Kaleidoscope and Orange Company designed the‘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 onthe profitability of the company due to changes in the rate of inflation and the change in the saleslevels. 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 because whenthe inflation rises year by yea, the cost of labor and other variable costs increases, which causethe net profit to decline as compared to the profit that the company would have earned if the rateof inflation would have remained stagnant.e)Lessons LearnedThe inflation has impact on the profits of the company and the net profits depend heavily on theprices of product and the number of units sold. f)Recommendations1
It is recommended that the company should plan the prices of the product by considering the rateof inflation so that it does not have to give up much share of its profit and the company shouldprioritize the remove of bad results from the 1000 simulations2
ContentsIntroduction.................................................................................................................................................4About the company and product.............................................................................................................4Issue........................................................................................................................................................4Purpose...................................................................................................................................................4Methodology...............................................................................................................................................5Task 1.......................................................................................................................................................5Effect on the net profit due to changes in planned sales volume and product price...........................5Analysis................................................................................................................................................6Scenario 1: Profitability of the new carving knife when inflation is predicted to be 2.5% during the second year and 3% thereafter:...............................................................................................................7Scenario 2: When the Company decides to sell 3% more units per year as well as increase the current selling price by 10% per year, then the effect on the ‘net profit after tax’ for each year will be as follows:....................................................................................................................................................7Analysis................................................................................................................................................9Task 2: Spread sheet Simulation Model.......................................................................................................9Conclusion.................................................................................................................................................11Recommendations.....................................................................................................................................11References.................................................................................................................................................123
Introduction About the company and productTo celebrate the Glastonbury festival, the Kaleidoscope and Orange Company designed the‘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. Apartfrom this, these tents have various other features like the central wireless control hub installed inthe tents that controls the energy generated and used. The tents give an amazing experience ofcampaigning. IssueNow, the company has fixed the prices of the tents as per the costs that it estimated. But, afinancial planning model needs to be developed so that the company can determine the impact onnet profits when this planning is changed in regard to the volume of sales and the price of theproduct (Carino and Ziemba, 1998).PurposeIn line with this, various scenarios will be discussed in this report that will highlight the impacton the profitability of the company due to changes in the rate of inflation and the change in thesales levels. Then the company has introduced new product in the market which is the ‘Rainwear’ that hasventing approach and keeps the person safe from the rain as well as exertion. Since the product isnew in the market, therefore, a risk analysis has been done and a report is prepared for thespreadsheet simulation model and accordingly the recommendations have been made for theworst and best results obtained in a simulation of 1000 trials, the mean profit and itscorresponding risk, and the findings have been interpreted. 4
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