Marlin Company Case Study
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Executive Summary
Marlin Company is a company that produce three products – sinks, mirrors and vanities. The company has created a budget sales report to predict the sales of the coming month. They planned to reach a total sale of $500,000 with $36,400 operating income, planned breakeven point to be $430,000.
The actual sales report that they have reached the goal of $500,000 in total sales, however, they have a operating loss of 8,600. By comparing the actual sales with budget sales, we found a shift in sales from high margin contribution products – vanities, sinks to low margin contribution product – mirrors.
The shift in sale has caused a high variable expense and low total profit for the month. Because of the change of sales mix, breakeven point has increased to $520,000, and they only have a total sale of $500,000, way below the breakeven point.
It is recommended the company to change their selling strategy. Consider Giving a higher commission paid to sales person for selling high margin contribution products, for example vanities; give less commission for sales of low margin contribution product such as mirrors.
Moreover, the company can adjust the price of each product according to the price elasticity of each product to make them more profitable.
Comparing the Budget Sales with Actual Sales
Marlin Company sells three products – sinks, mirrors, and vanities. The following two tables show the different between planed budget sales by product and in total for the coming month and the actual sales by product for the coming month.
Planned Budget Sales
Product
Mirrors
Vanitites
Total
Percentage of total sales
Sales
$240,000
$100,000
$160,000
$500,000
Variable expenses
72,000
80,000
88,000
240,000
Contribution margin
$168,000
$20,000
$72,000
$260,000
Fix expenses
$223,600
Operating income
$36,400
Given the information of actual sales by product are: sinks, $160,000; mirrors, $200,000; and vanities, $140,000. Total sales are as expected: $500,000.
Actual Sales
Product
Mirrors
Vanitites
Total
Percentage of total sales
Sales
$160,000
$200,000
$140,000
$500,000
Variable expenses
48,000
160,000
77,000
285,000
Contribution margin
$112,000
$40,000
$63,000
$215,000
Fix expenses
$223,600
Operating income
$(8,600)
From above data we can see, even though the total sales are the same for two tables, the actual operating income for this month is a loss of $8,000 instead of a profit of $36,400. The variable expenses is a lot greater than planned. Contribution margin drops from $260,000 to $215,000, and result in a lower contribution margin ratio of 43%. The planned contribution margin ratio is 52%
Comparing the Breakeven Point
Computing