Net X Case Study PDF

Preview

Summary

Jenner S. Alberto BSA2CASE STUDYCase title : NET – X INC.Point of View : Mr. Villavecer,Statement of the Problem:What price rate should be stablished in order to reach the minimum net income level that will convince Jonathan Villavicer and Monica Aguinaldo to resign from their current jobs in order ...

Description

Jenner S. Alberto 2

BSA CASE STUDY

Case title: NET – X INC. Point of View: Mr. Villavecer, Statement of the Problem: What price rate should be stablished in order to reach the minimum net income level that will convince Jonathan Villavicer and Monica Aguinaldo to resign from their current jobs in order to work full time for Net – X?

Objectives: To be able to analyze the financial data needed for the business.

Areas of Consideration:

ources

INTERNAL ENVIRONMENT It has sufficient workforce

Operations during

STRENGHT WEAKNESS Need to hire additional employees if workhours is longer than 15hrs.

All computers will be maximized At peak hours

Marketing the

50% capacity off peak.

Located near target consumers

2 floor of nd

building which is hard to locate at when on the road Accounting to

None

Lack of knowledge due Being a new business owner

EXTERNAL ENVIRONMENT Political/Legal fees may be

OPPORTUNITY THREAT None Taxes and Local overlooked by the owner.

Economic Aspect lower prices

Enough number of

Rivals offers

Computer Units for customers Socio Cultural

Is available to anyone who Wants to use the computer

None

Alternative Actions: Cost Analysis All operating costs of Net-X, Inc., including the allocation of capital expenditures for the month, are fixed. Monthly payments such as rent, telephone, and water expenses are constant from period to period. Although electricity cost is variable with respect to the number of operation hours, it is considered fixed because there are established opening and closing times that will be followed so that electric billings would be virtually identical from month to month. Also, salaries and wages are fixed since employees are expected to work for the same number of hours every month. Lastly, depreciation for capital expenditures is constant for the duration of the useful lives of the capital assets. The cost drivers for all of these costs are different from the revenue driver (computer hours usage). The Work Force Supervisors are effectively paid P9,350 each per month, including fringe benefits. This cost will be eliminated once Mr. Villavicer and Ms. Aguinaldo take over the business. Instead, their profit sharing will provide a salary of P8,500 each plus a ratio of 7:13, respectively, for the remainder. Each staff will be working one eight hour shift per day, six days a week. Only one staff is assigned on off-peak hours except for Saturdays and Sundays where two staffs are present. Two staff crews will be assigned on peak hours, thus incurring night differential premiums for both staffs every day. The total available supply of work hours per week is 192 (4 staff x 8 hours a day x 6 days a week). While the total hours to be covered for operations is 105 (15 hours a day x 7 days a week). Sensitivity analysis The expected total computer usage of Net-X for the month is 6,000 hours using a relevant range of 20 computers and 9,000 for 30

computers; thus, following its planned schedule of operations of 15 hours daily from 9am to 12am. The relevant information for different scenarios are as follows.

1. Villavicer’s fixed monthly income P25,000 Aguinaldo’s fixed monthly income P40,000 2. Variable Cost Electricity Fringe Benefits

P60/hr P2/hr P62/hr

27,000/mo 900/mo P27,900/mo

Fixed Cost Rent P10,500/mo Total Depreciation P19,972.23/mo Telephone P 1,500/mo Water P 400/mo 2 Supervisors Salary P17,000/mo 4 Staff Crew Salary P28,080/mo____ P77,452.23/mo Breakeven Price Rate = 77,452.23 + 27,900 = P105,323.23 BEP Price Rate =P105,323.23/{30[(5x20)+(10x20/2)]} = P17.55/hr

3. Will the business profit at P20.00 price rate? P20 x 5 = P100 � P100 x 20 = P2000/day (peak) P20 x 10 = P200 � P200 x (20/2) = P2000/day (off peak) = P4000/day or P120,000/mo P120,000 – P105,323.23 = P14, 647.77 � income So the business will be profitable at P20/hr price rate

4. What price rate should be established in order to reach the minimum net income level that will convince Villavicer and Aguinaldo to resign from their current positions and in order to work fulll time in Net-X? Sales = Desired Profit + FC + VC = P71,428.60 + 77,452.23 + 27,900 = P176,780.83 P176,780.83/30days = P5892.69 P5892.69/[(5x20)+(10x20/2) = P29.26 or P29/hr 65% of income for Aguinaldo 35% of income for Villavicer RECOMMENDATION: Short Term The first alternative is more pratical if we will look at the computations. It is good but it is not the best solution for the problem of Villavicer and Aguinaldo. The second alternative can be said as impractical. We can say that computer gaming business is profitable but the income they can get in this business is lesser than that of the income they are earning in their current jobs. Increasing the price rate to about P29 or P30 cannot be considered a solution to the problem because as mentioned in their market study, their market is only willing to spend P20 to P25 only. If they decide to go above the marketable price, the number of their

costumers might go down. As a consultant, I choose the third alternative as the best solution which encourages Villavicer and Aguinaldo to enter the network gaming business while continuing to work in their current jobs since they have two supervisors at four staff crew that will work for the business. By doing this, they will be receiving their salaries from their original jobs and at the same time, they will be receiving an additional income from the new business. Long Term After having raised enough profits in the first year, Mr. Villavicer and Ms. Aguinaldo can now expand their operations by acquiring additional 10 computers to fully maximize their capacity. Since there are more computers available for rent, an increase in demand can be created by lowering the price to P20.00 per hour. This strategy will earn enough profits for the partners to resign from their previous jobs and work full time as supervisors of the company

Plan of Action: 1. Assuming that Villavicer and Aguinaldo still have no enough money expand the network gaming business, first, they should earn enough money from their current jobs and the current income of the business in order to have enough capital for the business expansion to accumulate much better income in the future. 2. Second, they have started with 20 computer units as they have planned and hire trusted supervisors and staff crews, these people may be close friends of the two or relatives, in charge of the computer shop so that they can work in their original jobs without worrying too much about their network gaming business. 3. If the network gaming business will be profitable after some time, the management can decide to have additional computer units of about 10

since the area can accommodate a maximum of 30 units. This may also increase their net income....