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Finance & Accounting
Pages 3 (753 words)
Karges Coffee Inc MEMORANDUM TO: Janet Hamilton, President of Karges Coffee Inc. FROM: RE: Evaluation of the various options proposed at the planning meeting DATE: In anticipation of the meeting held recently of the senior management, I would like to bring to your attention the evaluation of various options proposed at the planning meeting: The overall sales value of all the products comes up to $9,600,000 and the contribution margin comes up to $2,880,000 which in turn generates a Profit/Volume Ratio of 0.30.
Assuming no changes to the Home Brewer or Office Deluxe unit sales and unit selling prices, and variable costs will remain same for each model with total fixed costs remaining unchanged. The Office Basic sales units if doubled will result in increase in the overall sales volume, contribution margin and profit of the company. Here we see that by just doubling the sales volume units we see a jump in sales value and contribution margin by more than 150% and the profit has grown by more than 200%. These drastic changes in the sales figure and profit is just because of the extra volumes of the Office Basic model. This means that if we sell 60,000 units of Office Basic we are in a profitable position. The sales volume of Office Basic is the highest among the other models which indicates that increasing the production of Office Basic model will generate far more revenues than if we double the other two models. This analysis helps us in analyzing the revenues and profits on changing a single factor such as sales volume units. ...
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