Essay: Report On Business Profitability And Improvement Ideas." (59 Characters)

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) 

1. 

(a) From the above calculation it can be seen from the gross profit that Classic High heel is the most profitable as the gross profit margin of that product is 26% as compared to the 16% for Practical flat and 8% for casual sneaker.

(b) Contribution margin per unit for Casual sneaker is $29.42, for Practical flat is $ 45.03 and Classic high heel is $ 75.17. Therefore, Classic high heel is more profitable.

(c )

It can be seen from the above table that if the least profitable unit is discontinued to improve the profitability, then the profit will increase from 16% to 25%

Total profit = 117,188.52

Required profit = 150,000

More profit required = $ 26,793.23

As the Classic high heel item is more profitable, then the company shall opt for producing more this tem to achieve the shortfall of profit amounted to $ 26,793.23. Therefore, the sale shall be increased by = $ 26,793.23/$ 220 = 121.79 or 122 numbers.

The management accounting techniques assist the business leaders to measure and increase the level of profit with minimization of operating costs (Liu & Santos, 2015). The scope of the analytical technique is large and covers the certification value for the accounting organization. Among various techniques for management accounting the one that Maryon can use is the break-even analysis (Morano & Tajani, 2017).

The break-even analysis enables the member of the management to assess how much the for a product or service they require to sell to cover the operating costs and turn into the profit. This includes the calculation of expected sales volume with fixed costs and variable cost. Though the measurement calculation is simple, determination of fixed cost and variable cost  requires careful analysis. Insurance, administration cot and rent are among the crucial expenses that are needed to be taken into consideration. However, if the break-even analysis is performed properly then it will assist the management is forecasting the profit budget with the expected expenditures (Lee et al., 2017).

This approach is perfect for Maryon as they deal with various items that has various profit margin and costs. Therefore, to assess the profitability of each product, the break-even analysis of each product is necessary to forecast the cost and profit (Hatch et al., 2017).

If the cost and profit can be analysed in better way then it will definitely add value to the business as the owner will be able to analyse which product is to continue an dwhich is required to be discontinued.

References 

Hatch, M. D., Daniels, S. D., Glerum, K. M., & Higgins, L. D. (2017). The cost effectiveness of vancomycin for preventing infections after shoulder arthroplasty: a break-even analysis. Journal of Shoulder and Elbow Surgery, 26(3), 472-477.

Lee, M., Hong, T., Koo, C., & Kim, C. J. (2017). A break-even analysis and impact analysis of residential solar photovoltaic systems considering state solar incentives. Technological and Economic Development of Economy, 1-25.

Liu, J., & Santos, G. (2015). Decarbonizing the road transport sector: Break-even point and consequent potential consumers' behavior for the US case. International Journal of Sustainable Transportation, 9(3), 159-175.

Morano, P., & Tajani, F. (2017). The break-even analysis applied to urban renewal investments: A model to evaluate the share of social housing financially sustainable for private investors. Habitat International, 59, 10-20.