Case 39 Bolt Industries Ryan Dempsey Introduction Familyrun
Case 39: Bolt Industries Ryan Dempsey
Introduction Family-run business Trailer design and manufacture Forefront of technology Strategic opportunities : Budgeting and standard costing system Expansion through acquisition
Question 1 Identify any weaknesses of the current budgeting and standard costing system. Explain the possible consequences. Make recommendations for improvement.
Weakness Consequence Recommendation 3 Key staff members developing budget • Not their area of • Include function expertise – could managers (who have lead to inaccuracies. the expertise/ • Narrow minded viewknowledge) in the limited knowledge budgeting process. • Review of budget by 3 key staff members. Sales director using judgement for sales estimates/prices • Flawed – subjective rather than objective • Implementing strategic planning procedures to provide reliable data/basis for sales estimates. • Based on previous sales and prices.
Weakness Consequence Recommendation Sales Director Benefits from bonuses even though he develops the budget • Bias from the sales director • Leads to ‘soft’ budgets • No incentive to be efficient • Higher costs due to increased bonuses • Remove sales director from the sales team bonus scheme • % increase in budget according to actual sales • Annual budget review by the board System lacks real-time information • Time lag-inadequate • Implement a system analyses of variances which provides real • Cost centre managers time data miss opportunities for • Ensure system is efficiency gains accessible to relevant personnel
Weakness Consequence Recommendation Non-production overheads have not received much attention in the budgeting process • Inaccurate budget • Possible escalation of costs due to lack of attention • Possible cash flow issues • Non-production overheads should not be increased in line with sales budget • Independent calculation to prevent magnification of bias Old standard costing system • Inconsistent with • Introduce zero-based current operations budget • Possible leading to an • Identify inefficiencies inaccurate cost per • Review by Board of unit Directors
Weakness Consequence Recommendation Absence of strategic planning procedures • Lack of focus in products and pricing • Zero-based budget Forecasting based on previous sales trends • Budget with limited usefulness • Research current market trends • Outsourcing
Question 2 Analyse the potential for an acquisition of a forklift manufacturer in North America. Consider: Profitability Return on Investment Payback Period Breakeven Volume/Value Make a recommendation
Expected Sales Volume Boucher Forklifts Units Probability Weighted Units 18, 000 0. 35 6, 300 16, 000 0. 25 4, 000 14, 000 0. 20 2, 800 12, 000 0. 15 1, 800 10, 000 0. 05 500 15, 400 Weighted Units = Probability X Units
Range of Profitability - Boucher Forklifts Units Revenues (CA$) 18, 000 Variable Fixed Costs (CA$) Profit (€) 252, 000 (175, 680, 000) (45, 400, 000) 30, 920, 000 22, 085, 714 16, 000 224, 000 (156, 160, 000) (45, 400, 000) 22, 440, 000 16, 028, 571 14, 000 196, 000 (136, 640, 000) (45, 400, 000) 13, 960, 000 9, 971, 428 12, 000 168, 000 (117, 120, 000) (45, 400, 000) 5, 480, 000 3, 914, 285 10, 000 140, 000 (97, 600, 000) (3, 000) (2, 142, 857) (45, 400, 000)
Boucher Forklifts – Expected Profitability (CA$) Sales (15, 400*$14, 000) (CA$) 215, 600, 000 Variable Costs: Production ($8, 500 p/u) 130, 900, 000 Selling ($1260 p/u) 19, 404, 000 (150, 304, 000) Fixed Costs: Production 27, 800, 000 Selling 7, 200, 000 Administration 10, 400, 000 Profit (45, 400, 000) 19, 896, 000
Expected Sales Volume – Jackson Engineering Units Probability Weighted Units 18, 000 0. 05 900 16, 000 0. 40 6, 400 14, 000 0. 40 5, 600 12, 000 0. 10 1, 200 10, 000 0. 05 500 14, 600 Weighted Units = Probability X Units
Range of Profitability - Jackson Engineering Units Revenues (US$) Variable Costs (US$) Fixed Costs Profit (US$) Profit (€) (US$) 18, 000 202, 500, 000 (137, 250, 000) (35, 900, 000) 29, 350, 000 23, 480, 000 16, 000 180, 000 (122, 000) (35, 900, 000) 22, 100, 000 17, 680, 000 14, 000 157, 500, 000 (106, 750, 000) (35, 900, 000) 14, 850, 000 11, 880, 000 12, 000 135, 000 (91, 500, 000) (35, 900, 000) 7, 600, 000 6, 080, 000 112, 500, 000 (76, 250, 000) (35, 900, 000) 350, 000 280, 000
Expected Profitability – Jackson Engineering (US$) Sales (14, 600*$11, 250) (US$) 164, 250, 000 Variable Costs: Production ($7, 000 p/u) 102, 200, 000 Selling ($625 p/u) 9, 125, 000 (111, 325, 000) Fixed Costs: Production 25, 800, 000 Selling 3, 000 Administration 7, 100, 000 Profit (35, 900, 000) 17, 025, 000
Comparison Boucher Forklifts Jackson Engineering 14, 211, 429 13, 620, 000 18, 000 22, 085, 714 23, 480, 000 16, 028, 571 17, 680, 000 14, 000 9, 971, 428 11, 880, 000 12, 000 3, 914, 285 6, 080, 000 10, 000 (2, 142, 857) 280, 000 Expected Profit (€) Units Range of Profit:
Comments on Profitability Boucher: More profitable; but risk of loss at 10, 000 units (only 5% chance) 35% chance of selling 18, 000 units 80% chance of selling between 14, 000 & 18, 000 units- € 9. 97 million to € 22. 09 million sales Bigger sales range at the 80% probability level Jackson: Less profitable; but no risk of loss 5% chance of selling 18, 000 units 80% chance of selling between 14, 000 & 16, 000 units- € 11. 88 million to € 17. 68 million sales
Return on Investment
Payback Period
Breakeven Sales Volume
Breakeven Sales Value
Evaluation Jackson Boucher Acquisition Cost (€) 64 million 100 million Technological Investment (€) 20 million 14. 3 million 16. 21% 12. 44% 6 years, 61 days 8 years, 15 days 9904/€ 89. 1 million 10708/€ 107 million Wakulla Carleton Secured Orders Uncertain ROI Payback Breakeven Volume/Value Product Future Prospects Compatibility of management Seek potential merger opportunities in Eastern Europe.
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