Financial Data Analysis Of Pacific Telemat Ltd.

Profit Calculations Under Various Alternatives

The data that is provided in these tables below relates to Pacific Telemat Ltd. whose principle business activity is to manufacture smart phones with dual sim cards. The following tables give us financial information of the company of the last year (Atkinson, 2012).

The profit calculations under various alternatives are shown in the table provided below:

Alternative 1:

In this alternative, the management of the company decided to spend $60000 on advertisement and also it estimated an increase of variable cost by $36 per unit. This resulted in overall extra profits of $242000.

Alternative 2:

In this alternative the volume of sales decreased by 12% and also there was an increase in advertisement expense by $120000 still the company managed to earn $168000 more than what it usually earns under normal circumstances (Berry, 2009.

Alternative 3:

Under this alternative, the managing director is offering to provide a rebate of $40 for the first 2500 phones that would be sold (Boyd, 2013). He also expects that the sales volume will increase by 2000 units which would increase the revenue by $50000.  In comparison to the normal circumstances, the company would be able to earn extra profits of  $330000.

It has been found on observation that the company is able to earn extra profits under all alternatives in comparison to the normal circumstances. A company has to look upon qualitative as well as quantitative factors before choosing any of the alternatives that is stated above (Horngren, 2012) . If the company has to take a decision based on quantitative factors then it would look upon the profits earned. The qualitative factors may include the quality of the product and not compromise with quality in order to reduce the price. It is important for the company to promote the product properly so that there is an increase in the sales volume which would help in earning higher profits (Holtzman, 2013).

1. A company can accept a special order if it has spare capacity left after fulfilling the current demand of production.  In the given case, the total annual production capacity is 90000 units and the after fulfilling the current demand the spare capacity is equal to 30000 units.  However, the acceptance of special offer would require a capacity of 20000 units only. So the special order can be accepted (Noreen, 2015).

The table provided below shows the calculation of bid price:

In this case, the annual production capacity of the company is 75000 units.  The production at the current stage is 60000 units and the spare capacity is only 15000 units.

The company is left with only two choices either to reject the special order completely or to cut down the current production (Seal, 2012). If the company decides to cut down the current production then it would have to bear the loss of $1800000.  

Alternative 1: Proposal by David Groate

The bid price under this situation is shown in the table below:

The above calculation shows that the company can accept the special offer only when it charges $390 per unit or above from each customer.

The annual capacity of production for the company was 90000 units and the spare capacity was of 30000 units. The capacity required to accept the special order was 20000 only. Since, the capacity was left spare after fulfilling the current demand the company must accept the special offer. The acceptance of this special order would help the company to increase its volume of sales which would help in earning higher profits (Siciliano, 2015). The company will not have to incur any sort of extra costs if it produces goods for this special order. It should also take into consideration the profit margin and production cost. The bid price which is calculated $300 per unit is the minimum price that has to be charged to the customers. The company should always consider the product quality and never compromise with it just to reduce the expense because it can hurt the customer base of the company in the long run.

I pursued commerce as my subject in my higher education. In the fields of commerce, we are taught about commercial applications and accountancy.

It has taught me that how a company Is formed and various activities are carried out. There are day to day transactions in the company which are recorded. It is known that the company’s are formed to earn higher profits which will be possible when there is higher cash generation and lower expenses. So, the management of the company has a major role in taking such decisions which might affect the company.

According to me, management accounting is the most useful for my future career because it deals with the decision making process that occurs within the organization. A wrong decision taken up by the management can affect the entire company along with the stakeholders. So, it is important to have basic knowledge of tools of management accounting so that the management is able to take all its decisions efficiently and on reasonable basis.

References:

Atkinson, A. A. (2012). Management accounting. Upper Saddle River, N.J.: Paerson.

Berry, L. E. (2009). Management accounting demystified. New York: McGraw-Hill.

Boyd, W. K. (2013). Cost Accounting For Dummies. Hoboken: Wiley.

Holtzman, M. (2013). Managerial Accounting For Dummies. Hoboken, NJ: Wiley.

Horngren, C. (2012). Cost accounting. Upper Saddle River, N.J.: Pearson/Prentice Hall.

Noreen, E. (2015). The theory of constraints and its implications for management accounting. Great Barrington, MA: North River Press.

Seal, W. (2012). Management accounting. Maidenhead: McGraw-Hill Higher Education.

Siciliano, G. (2015). Finance for Nonfinancial Managers. New York: McGraw-Hill.

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