New Look Jacket Inc
12 February 2014
1. Analysis a Business Issue.
New Look Jacket Inc. (NLJ) specializes in the production of Nylon Jackets and Leather Jackets. The company delivers successful financial records at the end of the 2012 fiscal year with the net income of $ 417,100, which ...view middle of the document...
Despite the favorable sale variance that the company records, it is only the Leather Jacket that records favorable variance because the budgeted sale volume is 5,000 units and the actual sale volume is 16,500 units making the company to record a favorable variance of 11,500 in the sale volume. However, the variance for the sales of Nylon jacket is unfavorable with the budget of 95,000 units for the sale volume and the actual budget recorded are 93,500 units making the company to record the unfavorable variance of 1,700 units in sales.
Thus, the sales mix variance is favorable for the Leather jackets, however, unfavorable for the Nylon jacket. The company recorded unexpectedly high in the market of Leather Jacket in 2012 generating favorable mix market for the company.
The direct material price is not favorable for the New Look Leather jackets showing that the company spends more in purchasing of direct materials than the price actually budgeted for Leather jackets. The major reason is that the company did not have enough material in stock to produce the quantity of leather jacket demanded. Due to the abnormal increase in demand for the Leather jacket, the company had to make a rush order for the Leather jacket material which consequently led to the increase in the price of direct materials.
2. Budget projections for Sales, Direct material, Direct labor, Variable costs and Fixed Cost.
The paper prepares a new budget for the New Look Jacket based on the on the company past financial performances and the economic outlook for the 2012 fiscal year. The results of the variance analysis between the 2012 budget and the actual budget at the end 2012 fiscal year is also used to prepare the new budget.
The paper prepares the new budget based on the following assumptions:
The increase in inflation will not be more than 5% and increase in inflation is assumed to affect the projected fixed costs of operations. The sale volume of Leather jacket is assumed to reach 30,000 units. Essentially, the company did not prepare for the increase in the demand for the Leather jacket in the preceding year, and it is assumed a new trend in fashion will affect the demand for the Leather jackets, which will lead to an increase in the demand for the Leather jackets. The other assumption is that the US economy will not experience a recession that may affect the total demand. Moreover, the income tax will remain the same because the increase in income tax is likely to decline the total demand.
The data in the new budget reveals that the company will realize the total sales volume of 123,500 units in both the Nylon Jacket and Leather jacket. However, it is projected that the demand for the Leather jacket will reach 30,000 units making the company to record the revenue of $4.5 Million in the Leather jacket. The increase in the demand for the Leather jacket will make the company to realize the revenue of more than $7.77 Million....