EDI Case
Executive Summary
Our team performed a contribution analysis and determined that Energy Devices, Inc. is currently operating at a loss because the breakeven point is much higher than the number of units sold. Due to the low number of products sold, it is unlikely the company will be able to succeed. A total contribution analysis and cost-volume-profit analysis will aide in better budgeting, which is one factor that will improve profitability.
Another factor you should consider is your current pricing strategy and who your market is. Retail stores, like Lowes and Home Depot, are a good option, but you should also consider tapping into the market of contractors and architects. Look at your competitors and how they price their product to the markets. A sensitivity analysis shows how effective a small price change can be.
Without knowing if there are any traceable fixed costs, we recommend focusing on advertising thermostats. We cannot advise dropping shower nozzles at the moment because our analysis shows that the product has a positive contribution margin. If you were able to provide us with the unknown information need pertaining to traceable fixed costs, we could better advise you on which product is most profitable and any products you may need to consider dropping.
Explanation of Procedures
Our team evaluated the information that you provided to us using a cost volume profit analysis. The main tool in evaluating the provided information was the breakeven analysis. We started by determining the contribution margin for each product line. This allows us to see if the price you are charging for each product covers its variable costs to you. This number does not reflect whether the product also covers the fixed costs associated with selling your products. Our next step was to determine the sales mix of your products. Shower nozzles are responsible for 53.33% of your sales, thermostats are responsible for 33.33% of sales, and storm windows only
Our team performed a contribution analysis and determined that Energy Devices, Inc. is currently operating at a loss because the breakeven point is much higher than the number of units sold. Due to the low number of products sold, it is unlikely the company will be able to succeed. A total contribution analysis and cost-volume-profit analysis will aide in better budgeting, which is one factor that will improve profitability.
Another factor you should consider is your current pricing strategy and who your market is. Retail stores, like Lowes and Home Depot, are a good option, but you should also consider tapping into the market of contractors and architects. Look at your competitors and how they price their product to the markets. A sensitivity analysis shows how effective a small price change can be.
Without knowing if there are any traceable fixed costs, we recommend focusing on advertising thermostats. We cannot advise dropping shower nozzles at the moment because our analysis shows that the product has a positive contribution margin. If you were able to provide us with the unknown information need pertaining to traceable fixed costs, we could better advise you on which product is most profitable and any products you may need to consider dropping.
Explanation of Procedures
Our team evaluated the information that you provided to us using a cost volume profit analysis. The main tool in evaluating the provided information was the breakeven analysis. We started by determining the contribution margin for each product line. This allows us to see if the price you are charging for each product covers its variable costs to you. This number does not reflect whether the product also covers the fixed costs associated with selling your products. Our next step was to determine the sales mix of your products. Shower nozzles are responsible for 53.33% of your sales, thermostats are responsible for 33.33% of sales, and storm windows only