Grade 45/50 (good work)
Worksheet -3
Part 4 -2
Katria Jenkins
Budget Planning and DSS System for Curryrus.com
March 14, 2012
Curryrus.com
This is an analysis for a company named Curryrus.com that manufactures a single product, specialty curry sauce. They are interested in developing a 12 month budget and performing an analysis. The executive summary for Curryrus.com is as follows:
The current forecast of sales for Curryrus.com shows 5% growth monthly starting in June. This means that sales numbers will be up in the latter half of the year. It is important to also note that there will be an increase in production costs due to an increase in direct labor costs starting in July. Meanwhile, it has been decided that 6,000 units will be produced monthly. This in conjunction with sales will result in inventory supplies greater than 500 units with the exception of December, when it is estimated there will be an ending inventory of 480. Additional costs that the company will incur include advertising, labor and leasing. Labor and leasing will remain consistent throughout the year while advertising costs will increase at 2.5% of gross sales starting in February. After considering the revenues that will be brought in from forecasted sales and the forecasted costs, profits will be realized every month. However, between January to August profits will be below $25,000.
If prices are increased by 10%, it is predicted that demand will decrease by 10% giving Curryrus.com will have a very different financial prospect. The increased price will result in decreased demand, thus meaning decreases in the number of units sold. This will ultimately mean that less revenue is brought in every month. Production will remain the same at 6,000 units per month resulting in ending inventories greater than 500 units every month throughout the year. If production costs remain the same and all other costs remain the same, Curryrus.com will experience profits less than $25,000 between January and May, and will experience a loss beginning in June, with the amount of loss growing every month between June and December. This will result in a significant loss for the year for Curryrus.com. Therefore, pricing should be considered carefully to ensure profitability for the company.
1 (a). There is only one month that experiences an ending inventory below 500 units—December. This is likely caused by the increasing demand for the product, which is seen through the increase in sales. Because there is a flat rate of inventory being produced, good
every month and increase in sales would result in more inventories being used. With sales increasing in June there has been a continual increase in the amount of inventory being used, resulting in fewer inventories being available at the beginning of the month. Thus, as products are being sold the inventory is depleting causing the inventory to drop below 500 in December.
1 (b). Profits are below $25,000 per month from January to August. This is due to a couple of reasons. Firstly, sales are stable at 5,500 units per month, which then increases. An increase in sales means an increase in revenues. This will have positive affects upon the company’s profits. The second reason for the increase in profitability is that as sales are increasing there is less ending inventory. This means that inventory costs are decreasing, which again has positive affects upon profitability. These two factors combined work to increase profitability and are why profitability is below $25,000 per month.
3. If prices are increased by 10% and demand is decreased by 10% the company is faced with the prospect of realizing a loss for the year. This is due to the fact that revenues are decreased and inventory costs are increased due to decreased demand. Even though the company is able to realize more revenues per unit, the decrease in units sold has adverse effects upon profits, resulting in profits below $25,000 from January to May and a loss every month from June to December
4. SpicesrUS.com must consider Curryrus.com’s sensitivity to price. The What-IF analysis shows that even a slight increase of 10% in price can result in a loss for the year. Therefore, the company must carefully consider whether moving the process to the US or importing from India is cost effective and must carefully analyze the impact that any rises in cost would have on the profitability of the company.
look at macro issues like
Language problems
Product/culture compatibility
Political situation
Grade=-2
Appendix A: Grading Criteria
Requirements / Maximum Points / Your PointsExecutive Report / 4
1. Worksheet (Spreadsheet)
- Base case
- 1(a) rate of return
- 1(b) Inventory falls below 500 (red color)
- 1(c) profit falls below 25,000 (blue color)
Q2 COUNT / 5
Q3
- what-IF worksheet & discussion
Q4 Discussion / 3
TOTAL / 50