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General Findings
After completing CVP analysis, breaking down the variable and fixed cost structure, and understanding the special order, I believe that going to a fixed cost structure would be in the best interest of the company. Outlined are the risk associated with this change, the probability of reaching the projected net income, and the results of the special order.
Comparison of Cost Structure
As suggested, Wall Street Burger Shoppe used the fixed cost structure in the months June to October. I found that while using the fixed cost structure proves to be the more risker option, it’s still be a viable option for the shop to implement. For starters, as sales increase the fixed cost structure allows for higher profitability since fixed …show more content…
Special Order Results
I think taking the special order, if we have excess capacity to do so, would be a positive choice. It would add a $13.25 per burger addition to our operating income if we went with the variable cost structure and a $30.03 increase per burger using the fixed cost structure8. I think that if this was a recurring order, I strongly suggest using the fixed cost structure since the fixed cost are taken care of already regardless of the special order and will only rise if it is out of the relevant production range. This can be seen by the higher contribution margin using the fixed cost structure. I would suggest avoiding the special order under most circumstances if there is no excess capacity because the company would lose $40.59 per burger using the variable structure or $45 if they used the fixed cost structure9.Under a recurring special order, it would make more sense to take the order without excess capacity since it is a guaranteed revenue stream which would lessen outside risks. When considering the special order, I think it’s important to consider that the burger would be marketed to people who are at the event, so it can cause word-of-mouth
General Findings
After completing CVP analysis, breaking down the variable and fixed cost structure, and understanding the special order, I believe that going to a fixed cost structure would be in the best interest of the company. Outlined are the risk associated with this change, the probability of reaching the projected net income, and the results of the special order.
Comparison of Cost Structure
As suggested, Wall Street Burger Shoppe used the fixed cost structure in the months June to October. I found that while using the fixed cost structure proves to be the more risker option, it’s still be a viable option for the shop to implement. For starters, as sales increase the fixed cost structure allows for higher profitability since fixed …show more content…
Special Order Results
I think taking the special order, if we have excess capacity to do so, would be a positive choice. It would add a $13.25 per burger addition to our operating income if we went with the variable cost structure and a $30.03 increase per burger using the fixed cost structure8. I think that if this was a recurring order, I strongly suggest using the fixed cost structure since the fixed cost are taken care of already regardless of the special order and will only rise if it is out of the relevant production range. This can be seen by the higher contribution margin using the fixed cost structure. I would suggest avoiding the special order under most circumstances if there is no excess capacity because the company would lose $40.59 per burger using the variable structure or $45 if they used the fixed cost structure9.Under a recurring special order, it would make more sense to take the order without excess capacity since it is a guaranteed revenue stream which would lessen outside risks. When considering the special order, I think it’s important to consider that the burger would be marketed to people who are at the event, so it can cause word-of-mouth