Walden WMBA6681 Week 4 Assignment

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Walden WMBA6681 Week 4 Assignment

WEEK 4 ASSIGNMENT

Assignment: Making Decisions With a Linear Profit Model

How much is the business paying out versus how much it is
taking in? When approaching decisions from a linear profit model, the total
costs of your expenses versus the profit you bring in helps decision makers
determine the viability of potential options. Think about your personal budget:
If you make x amount of money from your job (your “take in”) and you want to
add a new or different expense into your finances (what you “pay out”), a
linear profit model can help calculate the feasibility of this option.

To prepare for this Assignment, consider how calculations
are an essential asset to decision making, especially when using a linear
profit model. Think about how a difference in calculation can impact a
short-term decision or major change in a business.

Using the Week 4 Assignment template, examine cost behaviors
and decision-making scenarios using the linear profit model. You then write 1–2
pages on each, looking at the presented finances and providing recommendations
on potential improvements.

Part 1

Baker Consolidated

Baker Consolidated operates a cafeteria for its employees.
The operation of the cafeteria requires fixed costs of $4,700 per month and
variable costs of 40% of sales. Cafeteria sales are currently averaging $12,000
per month.

Baker has an opportunity to replace the cafeteria with
vending machines. Gross customer spending at the vending machines is estimated
to be 40% greater than current sales, because the machines are available at all
hours. By replacing the cafeteria with vending machines, Baker would receive
16% of gross customer spending and avoid all cafeteria costs. In a poll,
employees did not express a preference for one option over the other.

In a 1- to 2-page document, explain the impact of this
decision. Be sure to address the following:

How much does monthly operating income change if Baker
Consolidated replaces the cafeteria with vending machines? Explain using linear
profit modeling calculations.

What recommendation would you make for Baker Consolidated’s
managers considering this decision? Justify your response.

In your recommendation, be sure to calculate how the monthly
operating income changes if the company replaces the cafeteria with vending
machines.

Note: In preparing your final submission, be sure to include
your Week 4 Assignment template with your 1- to 2-page document submission.

Part 2

Barnwell Brothers Company

Data for the Barnwell Brothers Company are as follows:

Sales
(100,000 units)
$500,000
Costs Fixed Variable
Raw
material
$
0
$150,000
Direct
labor
$0 $100,000
Factory
costs
$50,000 $75,000
Selling
and administrative costs
$55,000 $25,000
Total
costs
$105,000 $350,000 $455,000
Operating
income
$45,000

In a 1- to 2-page document, address the following based on the
provided company cost data:

What is the break-even sales in units?

If Barnwell Brothers is subject to an effective income tax
rate of 40%, how many units would Barnwell Brothers have to sell to earn an
after-tax profit of $90,000?

If fixed costs increase $31,500 with no other cost or
revenue factors changing, what is the break-even sales in units?

How would these calculations affect decision making for
managers at Barnwell Brothers? Why?

What recommendation(s) would you suggest for reducing costs
at Barnwell Brothers? Justify your recommendations using linear profit
modeling.

Part 3

Vino Bella Cellars

Vino Bella Cellars manufactures a 1,000-bottle wine storage
system that maintains optimum temperature (55–57 °F) and humidity (50–80%) for
aging wines. The following table depicts how average cost varies with the
number of units manufactured and sold (per month):

Quantity Average
Cost
1 $
6,000
2 $
5,000
3 $
4,300
4 $
3,850
5 $
3,550
6 $
3,550
7 $
3,657
8 $
3,925
9 $
4,300
10 $
4,800

In a 1- to 2-page document, address the following:

What is the defined difference between average cost and
marginal cost?

Vino Bella Cellars sells the units for $4,500 each. This
price does not vary with the number of units sold. How many units should Vino
Bella Cellars manufacture and sell each month?

Should Vino Bella Cellars charge more for different
quantities of units? Why or why not?

What recommendation would you make to the owners to increase
their profits on this product? Explain the role of linear profit modeling

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