Kwik Lube Case Study Compute the loss for Kwik Lube stations during the last two years using trend analysis. How accurate can results claim to be? With a -.01 bias and a negligible tracking symbol, the forecast analysis substantiates Dick Johnson’s assertion that the presence of competition cut directly into Kwik Lube’s profit. A trend analysis was conducted and projects sales in the amount of $1,419,445 and $1,530,445 for 2006 and 2007, respectively. Comparing the gross sales forecast to actual sales, this results in a loss of $309,445 in 2006 and $420,445 in 2007.
1. Sell steel rings until mid-September utilizing the excess labor over the summer till the plastic rings are introduced. Then scrap all remaining steel rings and steel inventory, and sell only plastic rings. By scrapping the 15,100 finished rings left on hand by mid-September, PWI would lose a net income of about $16.7 million assuming a selling price of $1350, using the opportunity cost associated with labor savings, and assuming that during the summer the extra labor was used to create a surplus of steel rings at 30% incremental cost. The loss in net income is in effect a sunk cost whereby PWI has already paid the expenses for making the product i.e.
After discussing the pricing problem, Magers want to keep the 100 series price for $2.45, which is right. Even though the sales volume would increase to 1,000,000 from 750,000 by reducing the selling price from $2.45 to $2.25 per 100 pieces, the company would not make profit. Since the cost per 100 pieces for 100 series is $2.29, which bigger than $2.25. If the company sold at $2.25, the company lost money. Also, in the short run,
This percentage is obtained by dividing the margin of safety in dollar terms by total sales. Following equation is used for this purpose. [Margin of Safety = Margin of safety in dollars / Total budgeted or actual sales] Example: Sales(400 units @ $250) | $100,000 | Break even sales | $87,500 | Calculate margin of safety | Calculation: | Sales(400units @$250) | $100,000 | Break even sales | $ 87,500 | | --------- | Margin of safety in dollars | $ 12,500 | | ======= | Margin of safety as a percentage of sales:12,500 / 100,000= 12.5% | It means that at the current level of sales and with the company's current prices and cost structure, a reduction in sales of $12,500, or 12.5%, would result in just breaking even. In a single product firm, the margin of safety can also be expressed in terms of the number of units sold by dividing the margin of safety in dollars by the selling price per unit. In this case, the margin of safety is 50 units ($12,500 ÷ $ 250 units = 50 units).
So we can interpret that in the year 2013, the risk of the firm is getting lower as the ratio goes down. As the definition says that higher the ratio, greater the ability of the firm to pay its bills. This tells that Coca-Cola is not really improving their liquidity and efficiency, because their current ratio dropped from the previous year. As of September 29, 2013, and September 30, 2012, the Company had a weighted average interest rate of 6.1%, 5.9% and 6.1%, respectively, for its outstanding debt and capital lease obligations. The Company’s overall weighted average interest rate on its debt and capital lease obligations was 5.8% for YTD 2013 compared to 6.1% for YTD 2012.
This increase can be explained, for the most part, by the discontinuation of muffler-exhaust systems and oil pans at the end of model year 1988. This resulted in a huge decrease in direct labor costs – the case refers to roughly 90 jobs lost – of about 46%. Seeing as how the overhead costs also decreased but not as fast (about -29%), it is only logical for the overhead allocation rate to rise. 2. Gross margin is the difference between the sales revenue and the cost of goods sold.
Under the high competitive and fast-evolving electronic industry, no change means fall behind. The Financial Report from 1991 to 2000 indicated the sales increased, while the gross profit decreased. It means cost of good sold increased year by year. According to the case, Best Buy offering a self-serve mode rather than pay commissions to sales in order to reduce their SG&A, but Circuit City still kept the same one in its sales model, which resulting in increase the sales cost and declines in operating profit. Also, the worst part of this sales model is to ignore the customer’s needs.
What is most revealing about this analysis is that the impact of decrease in GDP seems to be decreasing over time. In Chart 2 the scatter plot shows the output growth and the change in unemployment from 1949 to 2006. The points for 2003 through 2006 all reside far beneath lie the estimated regression line. Across this time period, the relationship between unemployment and GDP growth was nearly zero. This fact contradicts the normal functioning of Okun’s law that would normally display a negative correlation between unemployment and GDP.
Apparently when bales are transferred to shredding plant there is no difference between formed and purchased bale. If the Depot OH costs are allocated per bale then the costs per item for a period of 1979-1980 decrease from $8.56 to $7.53 for formed bales and from 5.32 to 4.29 for purchased bales. 2. As Artic Insulation Inc. started to purchase more bales rather than form it Direct Labor costs fall proportionally to the amount of bales formed and rise for purchased bales. At the same time amount allocated to indirect labor rise 8% compare to 21% increase in the amount of processed bales.
The policy of reducing debt made MC leave the company with just $36 million cash which was well under the number of 1990 ($283 million cash ). MC’s stock prices fell more than two-thirds from $33.38 in 1989 to $10.50 in 1990, resulting in a drop of $2 billion in market capitalization; even if in 1991 it went up to $16.50. Another consequence was an important decrease of Times interest earned from 2.6 in 1989 to 1.4 in 1990 and 1.5 in 1991 which triggered a depreciation of bond rating from A3 in 1989 to Baa3 in 1991 quite close to junk bonds. For the future this is a strong signal of the MC financial crisis situation. Most liquidity and solvency indicators show that the group would have not been unable to cover its current obligations/liabilities and was close to bankruptcy.