MBA 6100 Case Study #1 Spring2020 Block 1
Each question refers to the same initial data. Treat each Part individually. Ignore income taxes. Assume no beginning or ending inventories.Unless stated otherwise, all calculations and income statements should be based on a one-month period. Calculations and backup should be completed and submitted in Excel. Use proper Contribution Income Statement formatting – example below. Analysis can either be typed into cells in Excel (formatted to be easily legible) or typed into a text box in Excel.One Excel file is to be submitted for this case study. No additional files (Word documents or otherwise) will be accepted or graded. This case study is worth 100 points total.
Contribution Margin Format Example:
Data for all questions: TrailPacker producesrugged backpacks for outdoor sports (hiking, rock climbing, etc.) Theirbackpacks are sold at many specialty outdoor stores across the country. The cost of manufacturing and marketing theirbackpacks, at their normal factory volume of 20,000 backpacks per month, is shown in the table below.TrailPacker sells these backpacks for $50 each.TrailPacker is making a small profit, but they would prefer to increase their Operating Income.
Hint: Fixed costs are shown on a per-unit basis in the table based on normal volume. However, fixed costs as a total do not change when volume changes, so you will need to determine total fixed costs first.
Data for all Questions:
Part 1:(24 points)
Part 2: (20 points)
An online superstore has offered to purchase 15,000 backpacks(one time in one month) if the sales price was lowered to $40 per backpack for that one-time sale. (This specific sale is all or nothing – they will not purchase less than 15,000 backpacks).TrailPacker’s maximum capacity is 25,000 units, and this special sale would not impact the sales price of TrailPacker’s normal sales to their usual customer base.
Hint: Compare your new contribution margin income statement(s) including the special sale to the company’s normal contribution margin income statement (from Part 1).
Part 3: (24 points)
TrailPacker is thinking of increasing sales by offering backpacks with aluminum frames. The investment needed for adding aluminum frames to their manufacturing process would increase fixed overhead costs by $50,000 per month. The variable materials cost (only variable material costs – not all variable costs) would increase by $15.00 per backpack. Market research estimates that the aluminum frame backpacks would sell for $70each, and volume would increase 10%.
Part 4: (32 points)
TrailPacker is thinking of cutting costs by using a different fabric (raw material) supplier. Their variable material costs would decrease by 30% (only variable material costs – not all variable costs). The quality of the fabric is lower, soTrailPacker estimates that their additional fixed scrap costs related to the fabric quality would be $25,000 per month. They would not change the pricing of their backpacks.
Note: Use the initial data provided for all questions. Ignore the special sale and aluminum frame data from Parts 2 & 3.
Note: Your letter will be included in your Excel document – either in the Excel cells or in a text box.
Hint: The analysis is expected to be thorough. Expect to present approximately 400 words, and support your analysis with data (either given or calculated). Remember that this is a letter to the CFO, so proper grammar and spelling is expected.