Breeden Security (B) Essay

1216 words - 5 pages

Breeden Security, Inc.

RECOMMENDATIONS

Reduce Order Driven Costs & Improve Customer Profitability - Immediate

• Standardize RC2 packaging to reduce costs

• Incent customers to place larger orders less frequently by instituting minimum order limits

• Impose a premium fee for rush orders

• Coordinate with customers to improve forecasting and further integrate supply chains for more accurate and timely ordering

Update Product Marketing Concept & Refine Corporate Strategy - Long Term

• Perform a market/competitive analysis of the US market to inform future decisions

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The foundation of these calculations is based on an Activity-Based Costing method. JKS consulting analyzed these reports and identified marketing and operational recommendations to increase both product and customer profitability in 2009, and to support the future growth of The Company.

REVIEW OF FINANCIAL RESULTS – 2008

Breeden Security USA realized a significant increase in sales volume for the RC2 product in fiscal year 2008. The Company exceeded projected sales by 20,000 units due, in part, to the addition of five new mail-order customers. As Controller Baer, and The Company’s president Herman Klein have already acknowledged, this achievement was offset by a failure to meet the anticipated sales volume of 120,000 units projected for the RC1 product. During the year The Company recognized additional challenges in expediting the unbudgeted order volume of the Rc2 product, which resulted in unexpected expenses totaling $70,000.

As a consequence of this forecasting error, The Company’s application of Activity-Based Costing illustrated a significantly higher per-unit product cost for the RC2 unit than originally budgeted. Highlighted in the chart below, the per unit product costs of $2.00 for the RC2 was the main driver behind the $1.53 per unit loss on this product. Overall profitability reached $125,240; shy of the budgeted $239,880 despite higher than expected unit sales.

[pic]

ORDER DRIVEN COSTS

JKS Consulting commends Breeden Security for the initiation of an Activity-Based Costing system to refine the method by which The Company allocates overhead expenses to manufacturing processes, in order to calculate accurate product costs and improve profitability. By employing this methodology The Company identified the following costs per product associated with each of the three distinct steps in the manufacturing process:

This chart highlights a significant outlier, which uncovers a major issue for The Company in the packing and shipping activities for the RC2 product; a trend that Controller Baer also recognized.

• Breeden Security produces twice as many units of RC1 as it does of RC2, however, unlike fabrication and assembly, the packing & shipping cost is five times the amount for RC2 as compared to RC1.

• An in-efficiency exists in the packaging & shipping of The Company’s RC2 product and this challenge must be addressed in order to improve the profitability of the RC2 product.

First and foremost, JKS Consulting proposes immediate action by The Company to standardize packaging across customers, to drive down the overall cost of order fulfillment for the RC2 line.

CUSTOMER PROFITABILITY

The breakout of order-driven cost calculations performed by Controller Baer provided JKS Consulting tremendous context with which to support the hypothesis that fulfilling orders was a significant cost. The following chart offers...

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