ACN202 ASSIGNMENT_SEC 4_RAYEEDAH ISLAM_1610550.docx -...

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Submitted by - Rayeedah Islam ID - 1610550 Assignment – Tel Alpina’s Tools: The Entrepreneur’s Dilemma Course Title – Management Accounting Course ID – ACN202 Section – 04 Submitted to – Prahallad Chandra Das Date of Submission – 10/01/2021
Contents Brief Description ............................................................................................................................. 3 Question 1 ........................................................................................................................................ 4 Question 2 ........................................................................................................................................ 7 Breakeven Analysis for the current outsourcing operation ...................................................................... 7 Breakeven Analysis for operating the forge ............................................................................................. 7 Question 3 ........................................................................................................................................ 8 Question 4 ...................................................................................................................................... 10 Question 5 ...................................................................................................................................... 11
Brief Description Before we get into looking at the different aspects of the business and answering the questions, we should have an overall knowledge of important information about the company in question along with its financial performance. While the owner of the business was doing her internship at a well-established mountaineering equipment retailing company, she did adequate research regarding how titanium would be better for piton-manufacturing. She came up with a design that had superior strength and weighed significantly less than the standard steel alloy pitons. She made a contract with a company that could make the product in volumes that Giulia could sell. Giulia started off with a trial order of 1000 units, but she saw her reorder rate went on to 1000 units per month. The retailer paid Giulia $11.00 per unit for the pitons along with the shipping cost, which totals to $11000.00 per order. The forger charged Giulia $9000.00 to produce and pack an order of 1000 pitons, which means she paid $9.00 per piton. On top of that, after taking into account the material waste and recovery, each of her titanium alloy bars were costing her $1.45, which meant that for 1000 bars, she was paying $1450. Let us organize all of this information on a table, we will see that she was making very less profit, almost negligible. Each unit ($) 1000 units ($) Retailer paid (with shipping) 11.00 11000.00 Forger charged 9.00 9000.00 Titanium alloy bars cost 1.45 1450.00 Profit 0.55 550.00 As we can see, compared to the investment made on the pitons, subtracting the manufacturing and product cost, her profitability is very low per month. Yet this is proof that if executed carefully, this business has the opportunity to boom in the future. Question 1
First let us compare how her current business (if continued for one year) versus the customer contract offer fares. We will make calculations for both the scenarios for one year. REVENUE : $ Retailer [(11x1000)x12] 132000 EXPENSE: Forger [(9x1000)x12] 108000 Titanium [(1.45x1000)x12] 17400 Total expense (125400) PROFIT [(11000-9000-1450)x12] 6600 REVENUE : $ Contractor [(10.50x4000)x12] 504000 EXPENSE: Forger [(9x4000)x12] 432000 Titanium [(1.45x4000)x12] 69600 Total expense (501600) PROFIT [(11000-9000-1450)x12] 2400 As we can see on the two tables provided above, the information on each of them gives us an idea of how the business model has been set. The revenue for the business comes from the contractor in both the cases, but as we can see, in the first scenario, where Giulia is supplying for $11.00 per unit for 1000 unit per month, her profit is $6600.00 at the end of the year.

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