What Types Of Costs Might White Suggest For Potential Savings Based On Your Answer?
Question 1: Given the fact pattern above, identify whether White should seek reductions in variable or fixed costs for the greatest impact on the forecast. Cost profit analysis for the Swiss Manufacturing company indicates declines in sales volume, but its margin of safety will be positive. Moreover, the analysis expresses that the company will not achieve its desired level of operating and net income due to decline in sales volume and the president of the company suggest some cost saving will be beneficial. First of all, cost volume profit analysis is well thought-out to be analysis not that the actual one. Fixed cost is always fixed and there is no use to reduce the fixed cost. But there is an exception. The degree of operating leverage
…show more content…
But look out for fixed cost for the cutback. Hence, if the fixed costs are reduced the Company may accomplish the desired levels of the net income, which shall additionally help out in improving the forecasting of the Company.
Question 2: What types of costs might White suggest for potential savings based on your answer? Name three costs that could be addressed, and rationalize your response. Types of costs which White might suggest for reduction for potential savings are as follows:
a. Salary These are one of the largest components of fixed costs, which are to be paid whether or not manufacturing takes place. A business having permanent employees on the payroll is not only paying their basic salary and benefits when sales are down, but are also accountable for covering payroll expenses. Instead of hiring permanent staff, the company should hire temporary workers to gain flexibility to trim down the staff without difficulty consequently dropping its fixed …show more content…
Lease building and equipment Leasing building and equipment will save large portions of fixed cost and the company can avoid large direct amount. The entire the costs incurred in leasing can be paid off in the same year for tax reasons; where large equipment purchase has to be capitalized and written off over a number of years (Small business viewpoint, 2010). The company will also not need to be concerned about disposing of the equipment and losing money in the process in case the equipment requires an upgrade.
c. Cost of Warehouse A manufacturing company stores raw materials, units in process and completed units until they are sold. This storage of inventory in large amounts adds to company’s fixed costs. Fixed cost can be saved by reducing the amount of inventory in stock. Consolidating inventory can reduce the size of warehouse or storage facility needed for rent thus saving rent expense.
Question 3: What parts of the value chain might be negatively impacted by White’s decision in the current period? How will this impact the company in the future? Name three ways the company may be impacted by the decision to cut cost.
The parts of the value chain which shall be affected by the white decision in the current period
But look out for fixed cost for the cutback. Hence, if the fixed costs are reduced the Company may accomplish the desired levels of the net income, which shall additionally help out in improving the forecasting of the Company.
Question 2: What types of costs might White suggest for potential savings based on your answer? Name three costs that could be addressed, and rationalize your response. Types of costs which White might suggest for reduction for potential savings are as follows:
a. Salary These are one of the largest components of fixed costs, which are to be paid whether or not manufacturing takes place. A business having permanent employees on the payroll is not only paying their basic salary and benefits when sales are down, but are also accountable for covering payroll expenses. Instead of hiring permanent staff, the company should hire temporary workers to gain flexibility to trim down the staff without difficulty consequently dropping its fixed …show more content…
Lease building and equipment Leasing building and equipment will save large portions of fixed cost and the company can avoid large direct amount. The entire the costs incurred in leasing can be paid off in the same year for tax reasons; where large equipment purchase has to be capitalized and written off over a number of years (Small business viewpoint, 2010). The company will also not need to be concerned about disposing of the equipment and losing money in the process in case the equipment requires an upgrade.
c. Cost of Warehouse A manufacturing company stores raw materials, units in process and completed units until they are sold. This storage of inventory in large amounts adds to company’s fixed costs. Fixed cost can be saved by reducing the amount of inventory in stock. Consolidating inventory can reduce the size of warehouse or storage facility needed for rent thus saving rent expense.
Question 3: What parts of the value chain might be negatively impacted by White’s decision in the current period? How will this impact the company in the future? Name three ways the company may be impacted by the decision to cut cost.
The parts of the value chain which shall be affected by the white decision in the current period