Financial Analysis Assignment

Case Study 1: Ravi's Frames

Question 1a) Ravi makes and retailsonlyone product, photo frames. She buysthewoodenframes in bulk for$3 eachand it costs another $1 to add cool designs to the product.Last year, Ravisold 2,000 frames for $12apiece. Shepaid $300 a month to rent a sales booth at his local outdoor market, along witha sales commission of $1 per framesold (hersister made all the sales on commission).Complete Ravi’s Frames’contribution income statement.b)Raviis wondering what herbreak-even point is. Calculate both the break-even revenue and sales volume.c) Next year, Raviis planning to sell 3,000 frames. What will be his margin of safety?d) Prepare a Cost-Volume-Profit graph for Ravi’s Frames. Label the axes, lines, loss and profit areas, and break-even point clearly on your graph.Question 2Ben is starting college next month. He currently has a 1997 Chevy Corsica, purchased a year ago for $2,000. The Corsica’s annual insurance totals $2,000 and fuel expense (to and from college)is estimated at $200 per month. Heestimates that the Corsica will have repair costs of $500 per year for the next four years. Ben expects the Corsica to be worthless by the time he graduates college.Benis considering selling the Corsica for $1,000 and purchasing a 2010 Honda Accord for $7,000. By doing this, he will be comfortably work as a SkipTheDishes driver, generating $1,200 in monthly revenues (approximately 70 hours of workper month). Because of the higher mileage, Ben expects to pay $800 a month for fuel and $300 per quarter for repairs and maintenance.TheAccord’s insurance will be $210per month. Benbelieveshe will be able to sell the Accord for $2,000 fours years from now.Advise Ben on buying the Accord, discussing all relevant factors. ACCT 621: Assignment2Question 3Kayleigh, a second-year business owner, has learned a bit about budgeting butneeds some more insight. At the start of the year, she made a budget for selling 2,000 umbrellas, her mainproduct. Kayleigh’s prices varybased on the weather (she increases prices on rainy daysand offers discounts on sunny days), but she budgeted at an average sale price of $8per umbrella. It is now near the end of the year and Kayleigh expects the final sales number to total2,200 umbrellas at a price of $7 each.She suspects that her variable expensesfor umbrellapurchase, designadditions,and marketing, budgeted at a total of $10,000, are over by 10%. However, she considers the increased coststo be direct resultsof higher sales volumewhich is a good thing.Kayleighbelieves she fixed costs for her store have remainedon budget. She decided not to track fixed costs for umbrellas since she does notknow if things like employee salary, store rent, etceteracan be allocated accurately.Give Kayleigh some advice on budgeting, including discussion of how flexible and static budgets can impact her specific situation. Also, analyze her business situation and make recommendations.Question4Joey is trying to make sure he meets the standards he has set forlabour expenses at his business. He believes each product can be built in 2.33 man-hoursand each man-hourshould cost $20. He is considering the following optionsfor his six workers:Option A-hourly wageswith small bonusesOption B-hourly wages with large bonusesHourly wage: $19Hourly wage: $17Annual hours per worker: 2,000Annual hours per worker: 2,200Expected production: 5,150 unitsExpected production: 6,200 unitsExpected product defect rate: 1%Expected product defect rate: 2.5%Expected performance bonuses: $0Expected performance bonuses: $75per 100 unitsExpected year-end bonuses: $1,000 per workerExpected year-end bonuses: $3,000 per workerAnalyze and discuss the pros and cons of each option. Makerecommendationsto Joey (feel free to make other business recommendations, not limited to salary structure)