Maryon has asked you to provide her with a report on her business profitability and improvement ideas. You are required to:
1. Analyse the profitability of the three products. In order to do this you will need to:
a. Calculate the total gross profit for each of the three products, and indicate which product is the most profitable;
b. Calculate the contribution margin per unit for each of the three products and indicate whichprod uct is the most profitable;
c. Determine if the least profitable product line should be dropped to improve profitability
Note: If a product line is dropped salaries of production staff, warranty costs and consumables of the production facility will reduce by 30%; whilst insurance and utilities (water and electricity) will reduce by 25%.
2. Analyse the profitability of the company. In order to do this you will need to:
a. Calculate the break-even point in units and dollars, assuming the current sales mix;
b. Calculate the number of each pair of shoes that needs to be sold in order to achieve a target operating profit of $150,000 (assuming the current sales mix);
Write a report recommending one management accounting technique that Maryon could adopt to improve her shoe business. These can focus either on costing systems or approaches to measuring and managing performance, but they must be relevant and appropriate to this case. Clearly explain how this technique could be used by Maryon to add value. Do you think she will have problems implementing your suggestions?
Given that Maryon has no accounting background, you need to consider how you will communicate your suggestion in the most effective manner using a written report. You should include:
- A short description of the technique
- The reasons why it is appropriate for Maryon’s Shoes (use information in the case)
- A description of how using the technique can add value to this business (using information in the case)