Results
As previously discussed, contribution margins identify how much is available from the sale of each unit that can be used to pay for variable cost and fixed costs and still provide a profit for the company (Merritt, 2014). While conducting research and completing the Capsim Management Simulation experiment, quantitative data has been assessed to aid in determining if a high contribution rate leads to profitability. Using the Capstone Courier Report data for years 2014- 2022 (simulation rounds 1-8); team Chester had the following contribution margins which are presented in the graph and table provided below. Figure 2: Contribution Margin results
Table 1: Team Chester’s Contribution Margin calculation Sales Variable Cost Contribution
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This paper attempted to explain Chester’s Capsim results in relation to high contribution rates leading to profitability in a simulated business. Chester’s results illustrated that high contribution rate leads to profitability. Research suggests that practices designed to increase the contribution margin will likely result in improved profitability, liquidity and debt structure. Chester agrees with results in this study because Chester managed to strategically make decisions that allowed the company to finish the competition with zero debt and profit. Maintaining major investments in product segments, pricing modification and increased marketing raised the variable cost each year but it assisted in increasing the contribution margin and profits because customers were buying the updated products for each segment. For instance, in round 0 Chester started the simulation with a contribution margin of 28.3% which was calculated by selling $101,073,437 in merchandise and spending $72,513 in variable costs but after making decisions in regards to product segments, pricing, and modification, etc. the variable cost increased to $88,183 which led to increasing sales by $25,830 to earn $126,903 in round 1. This also resulted in a 2.2% increase of the contribution margin to 30.5% from round
Rocket-Blast, LLC, a beverage maker, has seen its profit margins reduced which presents a real problem for the company going forward (Precord & Macdonald, nd). Management has decided that operating costs must be reduced in order to increase profit margins to
Star Appliance is looking to expand their product line and is considering three different projects: dishwashers, garbage disposals, and trash compactors. We want to determine which project would be worth doing by determining if they will add value to Star. Thus, the project(s) that will add the most value to Star Appliance will be worth pursuing. The current hurdle rate of 10% should be re-evaluated by finding the weighted average cost of capital (WACC). Then by forecasting the cash flows of each project and discounting them by the WACC to find the net present value, or by solving for the internal rate of return, we should be able to see which projects Star should undertake.
MCI's capital requirements for the next 3 years are x,y and z. (see exhibit A). These values are based on a number of different assumptions. (See exhibit B). The forecast is not without a level of uncertainty. Specifically there are regulatory decisions where the outcome is not clear at this time. This could impact profit margin plus or minus seven percentage points. (See exhibit c)
Harvard Business School case 274-116. Cooper Industries, Inc. Retrieved on August 31, 2008, from University of Phoenix, Resource, FIN/545 web site: https://mycampus.phoenix.edu/secure/resource/resource
Supply and demand plays an intricate role in the amount, price, and availability of products and services. The applying supply and demand concepts simulation guides users through making decisions for Goodlife, a management company for 2 bedroom apartments in Atlantis. The simulation names the user the property manager; responsible for vacation residents, new pricing for units, and advertising. The property manager makes decisions in circumstances including the changing of supply cure, demand curve, microeconomics, macroeconomics, and the equilibrium of price and quantity. All of these decisions move the business along as conditions change around it.
The benefits of these assumptions are that while maintaining the current growth rate of 13%; we can maintain our COGS. One of the major factors contributing to the firm’s poor profit margin is operating expenses.
As competition intensifies and pressure from retailers to get better margins increases, Clique Pens’ margins have dropped 6% in the past 3 years. Trade deals for retailers are the main reason our margins have steadily shrunk and our customers are not getting the benefits. Market development funds (MDF) are the key to bring our margins back up, while keeping retailers happy and their margins intact, we can increase our profit margins by 3%, to 2011 levels, while giving our customers a better deal.
Each division’s performance had been judged on the basis of its profit and return on investment for several years. The said practice creates competition among the company’s divisions because each makes sure that it is more profitable than the others. As such was the case, there was high possibility that one division was enjoying profit at the expense of the other(s).
Hammond Cards, Inc. is a small player of the greeting cards industry in the United States of America due to the fact that their annual revenues equate to less than 1% of the industry leaders as described in the case. In their effort to stimulate growth, however, Wendy Hammond has employed me to analyze the potential acquisition of another company, Creative Designs. My analysis will firstly look at the main issue behind this acquisition and then further break it down into sub-issues that I will address individually. Since both of these companies follow a different strategy I will evaluate the two different companies and discuss the implications of their strategies on the merger. I will then perform various cost analysis to determine the cost structures of the two firms which will help me identify whether Wendy’s intentions can be carried out. In my analysis I will aim to figure out the practical capacity of the firms and get an indication on whether their current operations are using the optimal level of capacity and minimizing waste. This data will help me with my strategic recommendation of acquiring Creative Designs and fitting it in with the current strategy of Hammond C...
[6] Colin Drury, Management and Costing Accounting, (7th edition), Chapter 8, Cost-volume-profit analysis, p. 165-173
I am not going to lie this class was my hardest it felt like I didn’t know what was going on at all time. It not like I wasn’t learning anything in there is just that I didn’t really get the class at all. Every time went on Capsim to do work I never get anything do because I didn’t know what I was doing. Is not like I didn’t like the class the class I just us doing the Capsim online was hard for some people because they didn’t know what to do. Next semester I think the class should be thought like microeconomic because more people we will it better. Another idea I was thinking was we could do a field trip to some business meetings even though I know students in college don’t do feel trip. The feel trip will give us an ideal of what a real
Cosmo-cosmetics Co. uses $0.246 out of every sale dollar to cover variable expenses, leaving $0.753 as a contribution margin to cover fixed costs and make a profit. (Note: 75.3% is the contribution margin as a percentage of sales)
Every company has some kind of Revenue and they all have costs that are associated with running the company. It is also true that if a company wants to increase their Revenue, their costs will increase too. It is every company’s goal to maximize revenue and either through Production or Services, and minimize cost. These things are easy to figure out, but actually identifying the production and figuring out how it will increase or decrease with change is very difficult.
Russel Y., Topper S., Akerman L., Oliveira J., Strydom Z.; 2013; Studying Business NSC Business Studies Grade 12; 2013 Edition; Paardekraal; Excom Publishers; 26/05/2014
Never have I ever climbed a mountain peak. As a child, I imagined myself conducting expeditions in deep-frozen pathways, leading amateur explorers to the top of the world, and instructing rookies in surviving harsh blizzards. Even though slightly altered, my childhood dream has been achieved. I led a team of fellow classmates, in my Strategic Management course, to the success summit of a financial competition. Over the course of a semester, I and my teammates were supposed to create and manage a company of the IT industry, in a computer-simulated environment, along with other four rival teams. I dealt with strategy and financial matters of our virtual enterprise, while my colleagues were working on marketing and manufacturing. During the four months of the exercise, I have experienced finance from various aspects: capital budgeting, through selecting favorable investment for upcoming quarters; debt management, by assessing the necessary amount and efficiency of loans; profitability analysis and dividend policy, which had been used to compile the company’s general performance index. Working in a multinational team, which included an American, a Norwegian and a Moldovan, strengthen my negotiations skills, as well as flexibility and cooperation. But above all, this experience intensified my passion for finance. Of course, a pleasant bonus was the fact that, in the end, our company’s financial performance was six times the performance of second-best team.