Summary After analyzing Vermont Teddy Bear’s existing and new strategies, we highly encourage the company to adopt the new strategy. As we compute and compare the sales, profit, contribution margin, and operating leverage of existing strategy with those of the new strategy, we found that the new strategy enables the company generate more sales profit and lower the operating risk, despite having to spend an additional amount on radio ads and 1-800 number.
However, after adopting the new strategy, we also confirm that the company has potential risk of generating a loss if the sales remain the same. 2. Problem identification In the beginning two years, the company spent $900,000 on fixed costs, but annual sales were only $1. 7 million. The low sales barely covered all costs and the company was at risk of losing money. The management team realized that they must develop a new marketing strategy to help increase their demand and sales while retaining flexibility in production and avoiding inventory build up.
Breakeven volume (Total fixed costs / Unit contribution margin): = 900,000 / 33 = 27273 units (old) = 1,900,000 / 33 = 57576 units (new) Breakeven revenue (Total fixed costs / Contribution margin %): = 900,000 / . 6 = $1,500,000 (old) = 1,900,000 / . 6 = $3,166,667 (new) Operating Leverage (Contribution margin / Operating income): = (1,700,000 – 679,998) / {(33*30909) – 900,000} = 8. 5 (old) = (8,030,000 – 3,212,000) / {(33*164,000) – 1,900,000} = 1. 37 (new) Table 3 (shows what would happen if new strategy didn’t increase sales): New strategy New strategy (sales remain same) Sales (Total Revenue).
The Business plan on Continental Airlines Strategy Costs Company
1. Continental Airlines, like other companies in the airline industry, is a volatile organization. However, Continental has many strengths that have allowed it to prevail through tough times and avoid complete ruin. The CEO of Continental Airlines played an important role in reviving the company. His "Go Forward Plan" vocalized the strategy of the company and focused on every aspect of the ...
Table 1 explanation: The company decided to spend an additional $1 million on fixed costs towards launching radio ads and acquiring 800 numbers. It was a very effective way to advertise their products and after they adopted the new strategy, operating income dramatically increased from $120,002 to $2,918,000 while the number of units sold increased from 30909 units to 146,000 units. Their new strategy that spend more money on advertising was successful. Table 2 explanation Table 2 shows the result of adopting a new strategy and compares to the existing strategy through financial ratios.
Due to new strategy, they were able to increase the sales and this table illustrates the effect it had on the company’s financial statement. Under new strategy, they exceeded the break even volume by additional 88,424 and therefore, increasing the contribution margin. According to textbook page 76, “operating leverage describes the effects that fixed costs have on changes in operating income as changes occur in units sold and contribution margin. ” Under existing strategy, operation ratio was 8. 5 which was about 8 times higher than the new strategy. This means that changes in sales will have high impact on operating income.
Therefore, operating income is highly depended on number of units sold. Compare to existing strategy, new strategy shows low degree of operating leverage. Low number means that there is low risk of operating loss and therefore our group concluded that adopting a new strategy to increase sales was highly effective relative to the additional fixed cost. Table 3 explanation: Table 3 shows comparison between the new strategy and situation without increasing sales number. This also answers question No. 1. If the strategy had been adopted, however, it did not increase sales.
We would end with same sales as before, $1. 7 million. Total variable costs would be $679,998 because it did not increase sales number, thus, total variable costs would not be increased, same as old strategy. Total fixed costs remains the same as the new strategy, thus, total fixed costs increased to $1. 9 million. As a result, the company would end up having net operating loss of $879,998 because of the intensive total fixed costs. Graph 1 explanation: Graph 1 provides a visual image of how the company’s operating income increased dramatically after implementing the new sales strategy.
The Term Paper on Positioning and Communications Strategy for a New Weight Loss Drug
Excessive weight has become one of the major issues in today's world. This leads to all sorts of health riskssuch as coronary heart diseases, high blood pressure, diabetes, sleep apnea and many more. Furthermore, a research has shown that death rates from cancer were 52% higher in men and 62 % higher in women with excessive weight than in people with normal weight (Eugenia E. Calle 2003). A large ...
The blue shaded area represents the amount of operating income before the sales strategy was adopted, while the red shaded area represents the amount of operating income one year after the adoption of the new sales strategy. The purple shaded area shows the operating loss area if zero units were sold in either situation. Likewise the letters M and N represent the potential losses that would occur if zero units were sold in either situation and are also equal to the total fixed costs incurred. We can see that the potential operating loss area increased after the new sales strategy was put into place because the fixed costs were much higher.
From the graph we can also see that there was a much higher risk of operating loss in the old strategy because the operating income area was much smaller than the operating loss area. After the new sales strategy, the risk of operating loss decreased dramatically and the new operating income area became much larger than the operating loss area. The graph also shows how close the company’s sales were to the breakeven point before and how sales increased well above the breakeven point after adopting the new strategy.
Looking at the graph we can also predict the company might have initially incurred a loss after they first implemented the new strategy because their sales may not have been able to cover the additional $1 million of fixed costs needed to be paid upfront. 5. Recommendations Our group recommends Vermont Teddy Bear’s Inc to adopt the new strategies that demonstrated above. we currently calculate the company’s sale, profit ,contribution margin, and operating leverage with existing and new strategies. By comparing the existing and new strategies, we found that the company is actually make more profit if adopt the new strategies.
The Essay on Strategic Sale Disinvestment Companies Sold
Other than Modern Food Industries (India) limited, only minority stakes in different PSEs were sold before the year 2000. The Government has since modified its policy to emphasise on strategic sales. The disadvantages of sale of minority stakes by the Government have been found to be as follows: Lower realisation's because the management control is not transferred. Moreover, it signals lack of ...
Therefore, our group recommends the company should spend an additional money on fixed cost to launch the radio ads and acquiring the 1800 number to advertise their products after they adopted the new strategies. Case questions: 1. Was Vermont Teddy Bear a profitable operation? How do you rate their decision to invest in radio ads and the 800 numbers? What would have happened if their strategy did not increase sales? a) Profit = TR- TC = 1,700,000-900,000-679,998 = $120,002 TVC= 30909 units sold * $22 variable cost per unit = 679,998 TFC=$600,000 + $300,000 =$900,000
Our group recommends Vermont Teddy Bear’s Inc to adopt the new strategies that demonstrated above. we currently calculate the company’s sale, profit ,contribution margin, and operating leverage with existing and new strategies. By comparing the existing and new strategies, we found that the company is actually make more profit if adopt the new strategies. Therefore, our group recommends the company should spend an additional money on fixed cost to launch the radio ads and acquiring the 1800 number to advertise their products after they adopted the new strategies.
