(A)Basedonthisinformationisplanningdropclientsand.Predictthenewlevelofoperatingp
ID: 2484259 • Letter: #
Question
(A)Basedonthisinformationisplanningdropclientsand.Predictthenewlevelofoperatingprofitifthecompanydropsclientsand? (2 pts)
(B)Which clients would you recommend that the company drop, if any? Provide a numerical financial analysis to explain your answer, and if you disagree with the company’s own proposal explain why. (1 pt)
(C)SpecialistmuchoftheworkforClient,andwillleaveCompanytoworkprivatelyforClientifthe CompanydropsClient
C. This in turn means that Marches Company will be unable to perform similar specialist engineering work for Client A, and will lose $25,000 in fees from client A. Jean Pierre’s monthly salary of $8,000 is classified as a Client C specific fixed cost. Advise Marches on whether the company should keep or drop Client C, and provide your supporting financial analysis. (2 pts)
Explanation / Answer
Marches Group LLP Details Current A Current B Current C Current Status Total Status after Dropping A & C Revenue 92,000 106,000 47,000 245,000 106,000 Variable costs 75,100 63,000 37,600 175,700 63,000 Contribution Margin 16,900 43,000 9,400 69,300 43,000 Client Specific Fixed cost 15,909 26,428 12,363 54,700 26,428 Client Segment Margin 991 16,572 (2,963) 14,600 16,572 Share In common fixed cost 8,091 12,672 5,137 25,900 25,900 Opearting Profit /(Loss) (7,100) 3,900 (8,100) (11,300) (9,328) A The new Opearting loss after dropping A & C =-$9,328 B It would be better if Client C is dropped alone as it has negative segment margin and dropping C will imrove the net operating loss condition C Question C is not legible and cannot be answered
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