BW manufacturing company Case study PDF

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BW manufacturing case study...

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Vikna Varma Gopalak Gopalakrishnan rishnan Ragul Ja Jayakrishnan yakrishnan Hari Pra Prasad sad Rajend Rajendran ran Archibold Arkhurs Arkhurstt

Executive Summary The BW group was a manufacturing company, started by Inez Wallace and Oliver Blanchard and was involved in the manufacturing of gas grills of three primary models that grew subsequent years of operations. In addition to that, it also provides financial services through leasing and loans, providing as an option for those customers, who cannot afford to make Full payments on immediate basis. It also diversifies into international operations due to which its exploits opportunities through selling in International markets. It also plays a competitive roll with Weber, Ducane, Coleman, Sunbeam, and Holland, which also makes various grills , smokers and kettle Due to external factors affecting negatively, such as, being dominated by other grill manufacturing companies in the same segment . This limits sales potential and the possibility of gaining new customers. With the upcoming blooming offer of BW’s grill , there’s no better time than now to step up . The company is competing with other leading companies , therefore the company’s expenses are in fluctuations, which will determine the operating exposure to BW. In order to evaluate these exposures, the complete analysis of transactions related to sales and manufacturing operations need to be considered. The current strategy of BW is more likely to reduce the price of one of its grill variant . it offers customers to avail the grill at a more affordable price thus making it widely used .Due to various offers that is being offered by BW manufacturing company the client has seen the growth in their sales by up to 53.33%,

Since, BW’s operations are carried out with several other company around the locality which means that the company is not only open to changes in its domestic economic factors but also due to changes in other economies. Therefore, it can be concluded that this range may not be appropriate for BW in the longer-run. By introducing such offers in market BW manufacturing company significantly boost local sales and improve brand recognition and it will also open its doors to international customers

Analysis: Consequences of dropping the production of Grill A by BW manufacturing company:

Sales

Grill A Grill B 12000000 13200000

Grill C 16000000 Sales

DIRECT COSTS Materials

1360000

1200000

Labour INDIRECT COSTS

1680000

26880000

400000

480000

400000 640000 480000 480000 1760000 960000 880000 9040000

480000 3600000 360000 360000 840000 720000 240000 7080000

Labor(variable) Labor(fixed) Supervision Energy(variable) Energy(fixed) Depreciation Head office support other TOTAL COSTS

After dropping A

1400000

cost of the product

800000 Gross Marin SG &A OTHER COSTS 100000 OPERATING 100000 INCOME 200000 400000 INTEREST EXPENSE 400000 INTEREST Income 1000000 600000 Income before tax 200000 income tax 3000000 Net income

2920000 0 1832000 0 1088000 0 9350000 2100000

-570000 420000 150000 -840000 2338000 -3178000

After dropping the production of grill A it bis noted that the revenue obtained is $29200000 which is roughly 29.12% before dropping the production of Grill A .it can also be observed that there is decrease in gross margin of about $7520000 with the operating income of $-570000 considering the fact that SG&A and also other costs are constant it yields a negative income before tax of about -$840000 . Hence we can conclude that the conditions are not favored when production of Grill A is dropped .There fore the company should produce the grill A to meet its average running cost .

After effects off reducing the price of Grill C to $75 and also expecting to increase 20000 more units of production

Revenues DIRECT COSTS Materials Labor INDIRECT COSTS Supplies Labor(variable) Labor(fixed) Supervision Energy(variable) Energy(fixed) Depreciation Head office support other TOTAL COSTS TOTAL PROFIT

Grill C price drop When sales price is $80 $16,000,000

When sales price is $75 $16,500,000

$1,400,000 $800,000

$1,540,000 $880,000

$200,000 $400,000 $400,000 $200,000 $400,000 $400,000 $1,000,000 $600,000 $200,000 $600,000

$220,000 $440,000 $40,000 $200,000 $440,000 $400,000 $1,000,000 $600,000 $200,000 $6,320,000

$10,000,000

$10,180,000

By dropping the price of grill C by $5 We can see 3.125% increase from previous sale which is $500000 when price of Grill C is dropped to $75. It is also noticed that there is increase in total cost by 53.33% when compared to previous sales. Hence this would have a very positive impact on the net sales by about $180000 .

Impact of BW changing the advertising the focus from Grill A to Grill C Impact of BW changing the advertising focus from Grill A to Grill C

Revenues DIRECT COSTS Materials Labor INDIRECT COSTS Supplies Labor Supervision Energy Depreciation Head office support other TOTAL COSTS TOTAL PROFIT

difference net difference between Grill A and Grill C C 800000 700000

Grill A $10,500,000

Grill C $16,800,000

Grill A 1500000

$1,190,000 1470000

1470000 840000

170000 210000

70000 40000

100000

490000 750000 640000 900000 1760000 960000 880000 9040000

210000 820000 200000 820000 1000000 600000 200000 6160000

70000 50000 0 60000 0 0 0 560000

10000 20000 0 20000 0 0 0 160000

60000 30000 0 40000 0 0 0 40000

1460000

10640000

940000

640000

30000

As the third option by raising the production of volume Grill C to 210000 units and reducing the grill A from 80000 units to 70000 units and As told in the case study BW decide to change its advertising focus from Grill A to Grill C .According to the data shown above it can be observed that there will be a drop in the revenue of both the grill types by $1500000 and $800000 for grill A and Grill C respectively. BW also experienced that there will be decrease in profit of Grill A and C as listed in Difference Table

Lower price grill C to $75 &30000 units increase in grill C volume &10000 units decrease in Grill A volume

Before advertising price change Grill A Grill C Sales DIRECT COSTS Materials Labour INDIRECT COSTS Supplies Labor Supervision Energy Depreciation Head office support Other Subtotal TOTAL COSTS TOTAL PROFIT operating income

operating income differ

Grill A

After advertising price change Grill C

12000000

16000000

10500000

17250000

1360000 1680000

1400000 800000

1190000 1470000

1610000 920000

560000 800000 640000 960000 1760000 960000 880000 6560000 9600000

200000 800000 200000 800000 1000000 600000 200000 3800000 6000000

490000 750000 640000 900000 1760000 960000 880000 6380000 9040000

230000 860000 200000 860000 1000000 600000 200000 3950000 6480000

2400000

10000000

1460000

10770000

12400000

operating income

Before advertising price change subtract

12230000

After advertising price change 170000

In this last option they company should lower the price of Grill C to $75 and BW decided to change its advertising focus to Grill C it means increase the quantity of grill C to 30000 units with the total quantity of 230000 at the same time they company reduce the volume of Grill A by 10000 units From the above calculation we can see that strategy is affecting the operating income .The difference in operating income before and after changing the advertising focus from Grill A to Grill C is 170000. Hence it can be concluded that there is decrease by 1.370% in operating income when compared to previous marketing strategy.

Conclusion:

Thus by introducing the current strategy ,BW is more likely to reduce the price of one of its grill variant . it offers customers to avail the grill at a more affordable price thus making it widely used .Due to various offers that is being offered by BW manufacturing company the client has seen the growth in their sales by up to 53.33%, which is $180000. This could possibly lead the manufacturing company to stand a ground amongst rest of the competitive company in the locality. While all other options had a huge impact in operating cost as well as overall Revenue . Since, BW’s operations are carried out with several other company around the locality which means that the company is not only open to changes in its domestic economic factors but also due to changes in other economies. Therefore, it can be concluded that this range may not be appropriate for BW in the longer-run. By introducing such offers in market BW manufacturing company significantly boost local sales and improve brand recognition and it will also open its doors to international customers...